Investment firm Allied Minds said this month that it has invested an undisclosed amount in Illumasonix, a start-up company based on a non-invasive technology for quantifying blood flow developed by researchers at the University of Colorado.
The deal is the latest in a string of similar investments by two-year-old Allied Minds as the firm begins to cement itself as an option for universities to bridge the so-called “funding gap” for start-up companies based on nascent technologies.
Allied Minds, based in Quincy, Mass., invested in Illumasonix to help it commercialize a blood-flow measurement technique that combines attributes of ultrasound and magnetic resonance imaging to help diagnose and treat cardiovascular disease.
Specifically, the technology uses ultrasound and contrast-providing microbubbles that have been approved by the US Food and Drug Administration. Robin Shandas, a professor of mechanical engineering at the UC-Boulder, and of pediatrics at UC-Denver and Health Sciences Center, is developing a system based on the technique that can be used to provide real-time assessment of blood flow and detect blockages.
The underlying technology showed promise in the laboratory but, like many university technologies, was too early-stage to attract a potential buyer such as a biotechnology company. Enter Allied Minds, which provided the cash to bring the technology to market.
“We provide the capital for the company,” Chris Silva, Allied Minds’ CEO, told BTW. “Typically the capital is used to mature the technology or to make commercial prototypes; or, in some cases, to do the testing on the product. It really depends on how mature the technology is.”
In the case of Shandas’ technology, Silva said, Allied Minds is sponsoring research to further develop the technology so it can be tested in animals and, eventually, humans. “Once that’s done, we can enter the market.”
The size of Allied Minds’ investment varies depending on the situation, Silva said, but typically it is worth around $1 million. Then, assuming the technology is developed to the point where it gains regulatory approval, Allied Minds will likely be ready to make another investment, Silva said. “This round is interesting, but what really matters is when we’re done with the trial and what it’s going to take to get to the marketplace.”
In exchange for its early-stage investment, an Allied Minds executive – in this case, Silva – will take an undisclosed equity stake in the company along with the inventor and the university.
“It’s early-stage gap or seed funding,” Tom Smerdon, director of new business development at the CU technology transfer office, told BTW last week. Traditionally such funding can only be found in the form of angel investors or friends and family. However, a number of new companies such as Allied Minds, as well as private and university-supplied seed funds are forming with an eye toward providing the needed cash in an attempt to reap big rewards later on.
“We really aren’t currently working with any other group that is comparable to Allied Minds, not that we wouldn’t be receptive to that,” Smerdon said. “There just aren’t that many out there that I’m aware of.
Smerdon said Allied Minds’ model is “a slightly different approach and structure” than what is typically seen when a start-up is founded by a faculty inventor. Usually, he said, an outside business-development expert gets involved with the company, and then looks for funding from various sources.
“It can be a long process,” Smerdon said. “Here, Allied Minds comes in with funding at the outset to support sponsored research to further develop the technology. From that standpoint, it’s not the usual paradigm, but it’s not one that is that uncommon than a situation where you might have private investors that are involved with the founding of the company.”
Allied Minds’ investment in Illumasonix is the latest in at least seven similar seed funds it has given to university start-ups.
“As we started increasing the number of our university partners, we realized that it was the stage of investment more than it was the geographic location. There were very few gap-funding VCs out there.”
Interestingly, with offices in the Cambridge, Mass., area, London, and Colorado, Allied Minds has invested mostly in university spin-outs located outside the venture capital-rich areas of the US, and not necessarily even located near Allied Minds’ offices.
For instance, Allied Minds has funded start-ups from the University of Michigan, Washington University, the University of New Mexico, Wayne State University, the University of Missouri-Columbia, the University of Nebraska, and the Weill Medical College of Cornell University.
“The idea is that we’d like to have the benefits of the development derived at the university be realized in the university’s area – in Illumasonix’s case, specific to Colorado,” Silva said. “So we like to start the company locally and to have the founders as equity shareholders so they also benefit.”
However, as Allied Minds’ reputation has been growing, even this has been changing, as universities in traditionally resource-rich areas of the country have come knocking.
“Our initial assumption was that the middle of the country traditionally did not have access to VC activity, and we were specifically targeting that area,” Silva said. “As we started increasing the number of our university partners, we realized that it was the stage of investment more than it was the geographic location. There were very few gap-funding VCs out there.”
Therefore, Allied Minds has made an effort to target early-stage investment opportunities, right after the termination of federal research grants when the basic science has been developed.
“As we started to roll out our university-partner network, local universities contacted us to join us,” Silva said. “I think that’s how we’re developing a broader network, and we think we will have a national network very soon, which will also include national laboratories.”
Allied Minds has mostly funded companies in the biotechnology sector, especially in the area of medical devices, diagnostic testing, disease screening, and some drug development. This has been mostly coincidence, Silva said, and has a lot to do with the fact that universities are turning out biotechnologies faster than most other technologies. Silva said that Allied Minds intends to branch out of the life sciences arena and will be announcing a deal with a university-spawned IT startup in the next month.
For Illumasonix, the next step is to develop prototypes of the blood-flow imaging devices so it can bring the devices into clinical trials, Silva said. If the device works the way Allied Minds, Shandas, and CU expect that it will, Silva added, it is possible it will be on the market next year.