New $42-million agricultural biotechnology fund seeks out bench level technologies

The Royal Bank of Canada's goal of creating a seed investment fund for agricultural technologies has finally been realized with the announcement of $42 million in financing for Foragen Technology Management Inc. The early-stage investment vehicle, headed up by Dr Murray McLaughlin, has secured commitments from two partners to begin exploiting bench-level opportunities in agbiotech, agrifood, neutraceuticals, functional foods, genomics and global positioning technologies as they apply to the agricultural sector.

Royal Bank subsidiary Royal Bank Ventures Inc (RBVI) has joined forces with two government financing agencies from Quebec and Saskatchewan, and Foragen will maintain offices in those provinces as well its headquarters in Guelph ON. SGF Soquia Inc is a subsidiary of Société générale de financement du Québec, a provincial economic development agency which has generated more than $2 billion in investments. SGF Soquia will contribute $14 million to the joint venture; an amount matched by the combined forces of the Saskatchewan Opportunities Corp (SOCO) ($5 million) and Saskatchewan's Crown Investments Corp (CIC) ($9 million). As the agency that manages all of Saskatchewan's crown investments, the CIC was brought in to supplement the contribution of SOCO, which is not permitted to invest more than $5 million in any single venture.

The financing of Foragen comes more than three years after the Royal Bank Growth Corp (now Royal Bank Ventures Inc) announced its intention to launch four seed funds in various technology areas, and more than 19 months after McLaughlin left Ontario Agri-Food Technologies to lead the formation of Foragen (R$, March 10/99). McLaughlin spent several months in discussions with various potential investment partners before sealing the deal with SGF Soquia and SOCO/CIC.

"We talked to a lot of potential investors in the past year or so and agriculture is not on the radar screen for investment in this country. We hope attitudes will change once we get a few projects going. With agriculture, people tend to think inside the farm gate, but a lot of opportunities lie outside in the areas of value-added and processing." says Mclaughlin. "SGF Soquia and SOCO both have good people in-house and can provide good advice. They saw the opportunities of looking for technologies at the early seed stage."

As part of their agreement with RBVI, SGF Soquia and SOCO/CIC will each receive two positions on the Foragen board of directors.

While seeking potential partners, Foragen decided to go ahead and simultaneously search for investment opportunities using funds already committed by RBVI. To date, several have been identified, but only one has been announced with deals pending at the Univ of Guelph, Atlantic Canada, Quebec and Western Canada.

FIRST DEAL WITH NRC

Earlier this year, Foragen struck a licensing deal with the National Research Council's Institute for Biological Sciences (IBS), providing money to further develop an ecoli vaccine for cattle. The vaccine is being developed by IBS's immunochemistry program and Foragen's seed financing will help pay for the testing of the vaccine on cattle. The testing will be conducted at the Veterinary Infectious Disease Organization in Saskatoon and should be complete this month. If successful, Foragen will then have the option to license the technology, although it will likely be bundled with other technologies to form the basis of a new company. McLaughlin says the IBS and other organizations are working on technologies which may be appropriate.

"Foragen is very unique. I don't know of any other fund in North America with our focus. We're truly creating Canadian companies based on working with the research community," he says.

In addition to seed capital, Foragen also provides business and technology management expertise and networking opportunities for scientists or research organizations seeking commercialization of their intellectual property. Foragen's will invest a maximum of $1.5 million in each deal which is intended to carry the science 18 months downstream until follow-on financing kicks in, although it intends to stay engaged with each investment for even longer to assist in developing management capability. All three Foragen backers have the capability to provide follow-on financing.

"We may hold investments for up to eight years. We're truly working at the bench level, bringing science people into play and forming a company," says McLaughlin. "We will finance and manage projects for the first 18 months and then bring in management to carry on."

Of the four seed investment vehicles under the RBVI banner, Foragen is one of two that does not have an investment partner that can contribute technological expertise. McLaughlin says those services will be contracted on a project-by-project basis, although the Foragen team possess strong science and MBA capabilities allowing preliminary diligence to be conducted in-house.

The other RBVI seed capital funds are: Milestone Medica Corp (biomedical); e Lab Technology Ventures Inc (e-commerce); and, Primaxis Technology Ventures Inc (advanced manufacturing and materials technologies).

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