IP Group – executive interview (20 December 2024)

Good to see you Dan, thanks for having us on again. Yeah, when we met last time I said there were sort of a few signs of green shoots, and fortunately a few of those have, you know, sort of gone from green shoots to a tree, if that's not extending the analogy too far. So we were really pleased to announce towards the back end of the first half of the year that we sold one of our top 10 businesses, great business Garrison Ultra Secure, cyber security for network so customers in the Department of Defense and the UK MOD, and we sold that business to private equity in the US. Good multiple, decent multiple, and it was about the level that we had it in the books at, so about NAV, and that returned about 30 million of cash. And then in September, just after we announced our half year results, we had what was actually our record cash exit. We sold a business called Feature Space, one of our top couple of holdings, amazing business. Really, this is what IP Group is all about. We were the first investor in Feature Space back in 2012. John Edington, one of our partners, was on the board, and we supported that business through seven funding rounds and invested a total of around 24 million. When we sold the business, we were the largest shareholder and we made a return of about six times our money, about 30% IRR, so brilliant financial return. And still subject to completion, so there are a few regulatory things that need to go through, but that will put us in a strong financial position. But I think definitely worth reflecting on what it is that Feature Space does and why these sorts of things are so important. So Feature Space applies machine learning and AI to preventing and detecting fraud in the payments market. And we discussed last time the terrible things that cash which is taken out of the system for terrorist financing and trafficking, you know, so really big significant problems. Something like 40% of all the crime in the UK is connected to fraud. It's a really big problem. And what Feature Space does is it reduces down the incidences of fraud and it removes the false positives. So if you're a NatWest customer, for example, your chances of detecting fraud by NatWest are increased by more than 100%. There are billions of transactions that are protected each year by Feature Space technology. So to create something which is really impactful but also delivers a great financial return for our shareholders is exactly what we're all about. So we're very pleased with those outcomes.

So the common thing about our portfolio is we are backing businesses that have a very strong USP which is built around IP, patents or trade secrets, but something which gives them a competitive moat. And as you know, we do that across three sectors: clean tech, deep tech, and life sciences. And actually, because we've been successful with our exits, the deep tech portfolio, the focus on that now is more to help those companies that are a little bit further back in the journey to go from maybe a few million revenue to scaling. And so there are a number of great businesses in there. We've got some applied AI, we've got some novel chip technology, some novel memory technology companies. So the job there is to do the scale and get some of those companies to the same scale as Feature Space and Garrison were. But the reason we operate across three sectors is because at any point in the cycle, some of them are going to be in the sort of investment phase, some are going to be in the scale phase, and some in the exit phase. And so in the life sciences portfolio, we have about 14 companies that are in clinical trial stage, so they are testing various stages of development for new drugs. And that portfolio, we're not doing new investments into new drugs at the moment. What we are doing is providing capital to get those companies through to their milestones. And it was really good, we had just a couple of weeks ago an exit was announced, Kinos Therapeutics, which we invested in a couple of years ago, and we exited that position to a specialty pharma company in Germany, made about two and a half times on money, so really good IRR. And just some good validation as these companies come through their clinical trials, we're able to monetize those. So there are different stages of maturity, but that's the reason we sort of operate across a few different sectoral areas.