7.12 When the JV is formed, the private sector participant will typically commit to provide funding in return for an interest in the JV. Funding commitments may be in the form of partly paid shares, or commitment to subscribe for further shares or partnership equity, or a commitment to provide shareholder or partnership loans. It is important to ensure that this funding commitment is sufficient for the JV's initial needs, that the private sector participant is credit worthy and that funding is assured; a guarantee or other collateral (such as a bank letter of credit) for committed but unpaid funding should be sought.
Example 8 : MRC JV dilution of shareholding RiboTargets Ltd was established in July 1997 as a spin-out company from the Medical Research Council's (MRC) Laboratory of Molecular Biology (LMB) in Cambridge. The company raised £7m from four investors (Apax Partners, Advent International, 3i, and Kargoe). In return for the MRC's Intellectual Property, know-how and limited use of specified facilities at LMB, the MRC took a 10% shareholding in RiboTargets and a seat on the Board of Directors. In a subsequent round of financing some 36 months later, £6m was raised from the same set of investors plus Rendex, NIB, and Quester. The MRC, who because of their charter were unable to invest at subsequent rounds, were consequently diluted by approximately 50%. After this second financing and as a result of the MRC's continued support for the company and input at the Board level, the MRC director was asked if he would wish to continue on the board, which he did for a further 6 months. In 2001 the company raised a third round of finance to underpin a significant expansion in its development plans and research programmes. The MRC's shareholding was further diluted; however the net worth of these shares continues to increase as the company's market capital and share price continues to climb. This long-term strategy has served MRC well. Another example is the MRC's holding in Cambridge Antibody Technology (CAT). In the early 1990s MRC held founding equity in CAT in return for defined IP. In subsequent funding rounds the MRC holding was diluted; however MRC later invested additional technology in CAT in return for further shares. Since the flotation of the company, MRC has sold parts of its shareholding at different times to raise around £10m. In this example the public sector body was able to invest further technology at a later stage in the company's development and benefit by reducing the dilution effect on its shareholding. Source: Partnerships UK, Medical Research Council, RiboTargets Ltd |