Allied Minds PLC: A Venture-Capital Junk Drawer For 3x NAV – KerrisdaleVW Staff
Allied Minds is a London-listed, US-based firm that operates like a specialized venture capitalist, investing in early-stage technologies created by academic researchers and attempting to bring them to market. Trading at 7x book value and 3x net asset value – using the company’s own valuations of its subsidiaries, which we believe are baselessly optimistic – Allied Minds enjoys tremendous benefit of the doubt on the part of investors, who evidently believe that its magic touch has turned ~$340mm of cash raised into $1.8 billion of present value, embedded in a portfolio whose largest positions include such duds as an unprofitable vendor of specialty pasteurization equipment for nuts and prunes and the maker of expensive machines that enable slightly different methods of extracting small bits of frozen blood and feces from larger samples.
But Allied Minds has done nothing to deserve the market’s faith. In a world where most VC funds have failed to generate meaningful alpha and trade in the secondary market at significant discounts to stated NAV, it’s absurd for an investment vehicle with no objective evidence of commercial success to fetch a $1.2-billion premium. Since its inception almost ten years ago, Allied Minds has not sold any of its portfolio companies, has not taken a single one public, has not generated any material licensing revenues from its intellectual property, and has produced negligible revenue even from its “mature” subsidiaries. Indeed, of the five companies Allied Minds formed in 2006, four failed completely and were dissolved, while the fifth, Cephalogics, remains stuck in R&D mode, has at best a modest advantage over similar companies and research groups, and is still many years away from generating real revenue. Key Allied Minds personnel, including the company’s founder and the CEOs of its two purportedly most valuable subsidiaries, have checkered track records presiding over small-scale technology firms that went on to fail or go bankrupt. Simply put, there is no good reason to believe, as the company’s valuation implies, that this is among the best VC funds of all time.
For all of Allied Minds’ talk of “disruption” and “innovation,” its subsidiaries are developing products that are at best minor variations on existing alternatives, often in the face of significant competition and without plausible business models. Even supporters are hard-pressed to justify the current price: one sell-side firm has maintained its “buy” rating even though its own target price (already ridiculously rich at 2x “fair” value) suggests that the stock is overvalued by 61%. Allied Minds is a true triumph of mind over matter, style over substance – a dressed-up collection of high-risk, low-reward gambles that we believe has at least 70% downside.
I. Investment Highlights
The pieces are just not here on this Optio Labs. I’m literally not seeing anything unique, proprietary, or exemplary. … I looked at that whole set of companies, and the whole thing together is barely worth $33 million. Allied Minds itself is worth $33 million, in my opinion, at best, and that’s giving them a lot of credit!
– business-development expert in web and mobile security
$250 million?! Uh. [Long pause.] Well. Uh. Just my gut feel on this…but – that seems kind of lofty. That seems kind of high.
– leader at innovative computer-memory firm when presented with Allied Minds’ implied valuation of its largest portfolio company, Spin Transfer Technologies
I would not invest in this business if I was interested in that market. … I don’t think there’s any bones to it. … I just don’t see them exploding. I see them imploding.
– food-safety vendor regarding Allied Minds’ third largest portfolio company, RF Biocidics
I’m just one guy who’s had a lot of experience and met a lot of customers in this field with one opinion, but I’ll tell you, with all my heart, this is not the next iPhone. If you’re interested in – maybe they’re looking for a venture-capital infusion or something of this nature? You could probably do better. … Who’s going to buy it?…It’s like a car that gets five-miles-per-gallon better gas mileage. Well, so what, if I have to spend $10,000 more to get that car and I won’t see a return on my investment for 15 years? That doesn’t make sense! And that’s what this is. This is – yeah, it would be cool to have, but I’m not going to pay for it.
– former laboratory-equipment sales executive with more than 25 years of experience offering his assessment of CryoXtract, one of Allied Minds’ only “commercial stage” portfolio companies
Took a look and listen at SoundCure this morning. I am not that overly impressed at all. Certainly not worth the money in my book. Didn’t seem to be any better than my phone playing sound files or white noise.
I paid $2,400 out-of-pocket for this piece of ‘S’#$%. I used it as prescribed for four months, and never experienced one iota of benefit. In fact, I believe it worsened my condition…
Yeah, It was a dud as far as I’m concerned. It seemed to make my noise worse. I returned mine after about 2 months…
I’ve been trying Soundcure Serenade for almost 4 months now, and it has been a colossal disappointment. At best I got minimal & erratic relief which never lasted. More often than not it aggravated the tinnitus instead!
Give up on it and don’t waste your time and money. I used this system as the first person in Las Vegas in 2012 and it made the Tinnitus worse and bothered me greatly…i discontinued its use.
– representative comments from the TinnitusTalk Support Forum regarding the flagship product sold by SoundCure, another one of Allied Minds’ “commercial stage” portfolio companies
Early-stage investing – including, in particular, investing in academic research – has an overwhelmingly poor track record. Seduced by the eye-popping successes of venture capitalists like Paul Graham and Peter Thiel, some public-market investors seem to believe that investing in a portfolio of high-tech start-ups through an entity like Allied Minds is a reliable path to high returns. The data, however, tell a different story. Systematic studies of VC returns, like the Kauffman Foundation’s influential paper from 2012, demonstrate that the vast majority of VC funds perform little better than small-cap equity indices, with an average internal rate of return scarcely greater than zero over the past decade’s cohort of fund vintages. Only a tiny handful of investors have proven to be consistently capable of creating value through early-stage investing; the odds are not in Allied Minds’ favor.
While Allied Minds tries to distinguish itself by focusing on commercializing intellectual property from universities and, to a lesser extent, government-sponsored research groups, this concept is far from novel. Publicly traded venture investors specializing in these areas date back to more than 30 years ago, when University Patents, Inc., acted as patent and technology licensor for eight universities, including NYU, Princeton, the University of Chicago, and the University of Pennsylvania. But over time University Patents was unable to extract enough value from its IP to sustain new R&D, and the company’s equity has lost almost 100% of its value since 1983.
This outcome was by no means an outlier: other publicly traded technology-commercialization companies, including Interregnum, UTEK Corp., MMI Group, The Generics Group, Flintstone Technologies, XL TechGroup, and Ipso Ventures, have lost almost all of their value and in some cases were delisted (see table headed “Publicly Traded Technology-Commercialization Firms,” p. 17). Even including successes like IP Group, we estimate that the average IRR since inception of all firms in this category (excluding Allied Minds) has been -13% per year. All of them invested in exciting-sounding technology with some plausible basis in real science, yet barely any of them managed to overcome the immense difficulties of guiding a disparate collection of longshots to commercial viability. Instead, they relentlessly destroyed shareholder wealth – a fate we view as Allied Minds’ likely future.
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