A new US fund is about to start investing in Israel, using a unique formula. The fund started by Stephen I. Willis and David A. Kennedy of the US, specialists in evaluating intellectual property, will invest in start-ups according to a new model: a loan in exchange for intellectual property. The fund, named alseT IP, has raised $300 million to date, and is expected to raise a total of $1 billion. The company has declared its intention of investing a significant share of this sum in Israel, specifically in the life sciences industry.
The fund’s business model has already existed in the US for 5-10 years. Under this model, the fund grants a loan to a new company, and become the owner of its intellectual property. When it begins to have sales, the company pays royalties to the fund, usually until the loan is repaid, with interest. Willis stresses, however, that the agreements are flexible. Agreements are also possible that make it possible to repay the loan in other ways, and royalties may also be paid after the loan is repaid.
”This method makes us friends of the existing venture capital funds, since we bring additional capital to a company, without diluting their holdings,” Willis says. He adds that the fund’s senior executives are already in touch with many Israeli venture capital funds dealing in the life sciences, including Pontifax, Vitalife Life Sciences Ventures, and Yozma Venture Capital.
Do other funds around the world use this method?
Willis: ”Most of the companies operating according to this method deal exclusively with the pharmaceutical market. Royalty Pharma and Paul Capital are examples. We’re far less focused. We’ll invest 40% of the fund in the life sciences (although this figure is definitely subject to change, depending on the deals that come to us). We’ll invest the rest in other fields where intellectual property is likely to be strong. Even in the life sciences, we won’t focus merely on pharma; we’ll also invest in medical equipment and biotechnology.
”As far as we know, none of the funds of this type has invested in Israel. We hear from various sources that they’re concerned about the security and political situation in Israel. This doesn’t interest us, because we only invest in companies that have registered their patents in the US, and which plan to operate there.” Willis, who is Jewish, has had contacts with Israeli companies for many years. “This country produces vast amounts of valuable intellectual property,” he says in order to explain the fund’s focus on Israel.
Who are the investors in the fund?
”Mostly US institutions: mutual funds, hedge funds, and a few private investors.”
Who will actually manage the fund?
”I’m chairman of the fund, and David Kennedy, who used to work at the Intellectual Property Asset Corporation (IPAC), will be vice-chairman. We both have a lot of experience in evaluating the strength of patents and financial rewards that they are likely to generate for the companies that hold them. As a director in intellectual property consultant company LECG, I testified in many cases of intellectual property claims. I was also a patent evaluator in due diligence for companies being acquired. This due diligence is frequently more thorough than the examinations conducted by venture capital funds.”
What kinds of companies are you looking for?
”Our first requirement is that the intellectual property be valuable, and properly protected. Our aim is to reach these companies at a stage in which it is possible to estimate the cash flow that their activity is likely to generate. The funds that operate on our model usually invest in companies that have already reached Phase III clinical trials. We’re a little more flexible, but it’s not worthwhile at all to come to us with a single patent. We’ll look for companies in which conventional venture capital funds have already made a reasonable investment.”
As a mark of its commitment to Israel, alseT IP has recruited a large number of leading figures from the Israeli life sciences industry to its advisory board, including Nobel Prize winner in chemistry Prof. Aaron Ciechanover; Weizmann Institute President Prof. Ilan Chet; Yozma group founder, chair, and managing partner Yigal Erlich; BIRD-F executive director Dov Hershberg; and Vitalife founder and managing partner Dr. Abraham Ludomirski.
How much will you invest in each company?
”We’ll allocate $5-20 million, according to the requirements of the project. In addition, we’ll also allow companies to benefit from our connections, know-how, and experience.”
Dr. Ilan Cohn, a managing partner in patent consultant firm Reinhold Cohn Partners and co-founder, director, and former CEO of CanFite BioPharma, will advise alse TIP on its activity in Israel, and be responsible for handling its Israeli investments.
Published by Globes [online] - www.globes.co.il - on September 29, 2005