Hello. Today I'm joined by Greg Smith, chief executive officer of IP Group. IP Group is one of the UK's leading investors in science and innovation companies, with a real focus on building businesses who create a better future for us all. Greg, many thanks for joining me today. Last time we met, you talked about the fact that you had some interesting catalysts, some interesting exits running up. We've now seen a stabilization in the NAV and some interesting valuation events. Can you talk through the progress of the last six months or so?
Good to see you, Dan. Thanks for having us on again. When we met last time, I said there were a few signs of green shoots. Fortunately, a few of those have 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, a great business, Garrison, an ultra-secure cyber security company for networks, with customers in the Department of Defense and the UK MoD. 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 in cash. 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 Featurespace, one of our top couple of holdings. Amazing business. Really, this is what IP Group is all about. We were the first investor in Featurespace 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 about 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 a 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 it's definitely worth reflecting on what it is that Featurespace does, and why these sorts of things are so important. Featurespace applies machine learning and AI to preventing and detecting fraud in the payments market. And we discussed last time, you know, the terrible things that cash, which is taken out of the system for terrorist financing and trafficking, and you know, sort of 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 Featurespace does is it reduces 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 Featurespace 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.
Yeah, no, impressive exits. How does this leave the shape of the portfolio now? You've had exits from your top 10, and what does the portfolio look like in terms of maturity, sector split, and so on?
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. So there's a number of great businesses in there. We've got some applied AI, we've got some novel chip technology, some novel memory tech companies. So the job there is to do the scaling and get some of those companies to the same scale as Featurespace 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 of them going to be in the scale phase, and some of them in the exit phase. And so in the life sciences portfolio, we have about 14 companies that are in clinical trial stage. So they're testing various stages of development for new drugs. And in 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, Kynos Therapeutics, which we invested in a couple of years ago. We exited that position to a specialty pharma company in Germany. Made about two and a half times our money. So a really good IRR, and just some good validation that as these companies come through their clinical trials, we're able to monetize those. So there's different stages of maturity, but it's, you know, that's the reason we sort of operate across a few different sectoral areas.
So in terms of, I guess, the near-term catalyst, more life sciences weighted than tech?
Yeah, there's some. I mean, as always, there's all fascinating stuff in the IP Group portfolio which is addressing very big problems in the world with novel technology. The company which probably offers the nearest-term milestone is a business called Istesso. We own more than half of that economically, and this is a company which has got a drug in trials, in Phase 2b trials, for rheumatoid arthritis. Huge market for drugs that are in immunotherapy, tens of billions a year. But if the data that come through from that trial support some of the things we saw in the early trials, which was actually sort of removing and reversing the painful effects of rheumatoid arthritis, and indeed reversing the course of the disease rather than just treating the symptoms, we could have something really special there. So that's definitely interesting. And then something we haven't spoken about for ages. There was a rumor about one of our companies in the press potentially gearing up for an IPO. So perhaps another sign that markets are moving in the right direction.
