Military Venture Capital Fund

SCIENCE & INNOVATION FUND / MILITARY VENTURE CAPITAL 

Porton Capital Technology has two investment products that feature the commercialisation of military technology developed in partnership with the UK Ministry of Defence.

• Science & Innovation Fund (SIF) which invests up to 25% into military commercialisation projects with the remainder of the funds available for investment being invested in to a fund of funds structure in the technology sector, providing the investment product with liquidity. This is an open-ended fund.

• Military Venture Capital (MVC), which invests 100% into military commercialisation projects. This fund is closed end with a 7-year lock up

MILITARY VENTURE CAPITAL 

MVC is denominated in Pounds Sterling and will have a fixed term of 7 years from April 2004 with the investment objective being 100% military commercialisation. However, as investments are realised in the fund, gains would be immediately distributed to investors, creating the possibility of having investment payback much sooner than the end of the fixed term. Upon the expiry of 7 years, the Fund will be wound up and any remaining assets will be distributed. Distributions will normally be paid in cash.

More details on the funds investment objectives are set out below:

MILITARY COMPONENT OF THE INVESTMENT OBJECTIVE 

Porton Capital has numerous contacts in the aerospace and defence sector and believes that it is capable of introducing military research and development opportunities for commercialisation. Such opportunities are most likely to be exploited jointly with UK Government research and development laboratories.

Defence laboratories, whether Government or corporate, spend billions of dollars on defence research. Traditionally the military has some of the most advanced technology available, often many years ahead of that found in the civilian sector. Such research organisations thus have the potential to offer partnership opportunities for Circus Capital to exploit their technology outside of their core defence markets.

Military commercialisation investment opportunities are significantly different from traditional venture capital and will often exhibit the following characteristics:

Access to world-class scientists - The technology has often been developed within Government defence laboratories. These laboratories typically attract and employ some of the best scientists in the world.

The Market for the technology may exist - Threats that might be faced on the battlefield can often be found in a much-diluted civilian form in every day life. For example technologies used on the battlefield to detect deadly bacteria can also be adapted to detect less lethal bacteria found in civilian life such as listeria or salmonella in food and beverages (see detail on Alaska Food Diagnostics Plc (Alaska), the first military joint venture of Porton Capital Technology below). As such the civilian market for these technologies often already exists - which is very different from much of the technology commercialisation that has taken place in the information technology sectors over recent years.

Development previously funded - This technology has usually been developed in response to a specific military requirement, which has already been funded.

The technology works - This technology may often be proven in the military environment for which it was intended and as such will often need to be of very high specification and durability - failure is not an option on the battlefield.

Patent protection - Finally this technology will often have some patent protection over the intellectual property created for the specific military application. These would typically be held by the UK Secretary of State.

Most of, but not all opportunities sourced by the Porton Capital for the Fund will exhibit all of these characteristics. The Manager believes that such characteristics significantly reduce the risk of this type of venture capital investment.

Porton Capital seeks to partner these military commercialisation opportunities in 50/50 joint ventures. The Manager will introduce suitable management to assist in the running of these ventures and control of these ventures rests with this management. This management team, in conjunction with capital investment to commercialise a particular technology, become an integrated part of the offer to the research laboratory.

Realisation of Investments

In order to achieve the investment objective, the Fund intends to realise investments primarily in the form of capital gains.

The investments of the Fund will be realised periodically at the discretion of the Manager, according to market conditions and the individual features of the investments. Although there are a variety of methods by which the investments may be realised, it is envisaged that the main realisation strategies will be by means of sales to third party institutional, corporate or individual investors of the Fund's beneficial interest in its investments and by public offerings of its investments through listing the shares of such companies on recognised stock exchanges most likely in Europe or North America. In addition, realisation of investments may be made through the sale of the Fund's investment to multinational or other joint venture partners or to co-investors of a particular investment.

Overview of Alaska Food Diagnostics plc
(one of the first military joint ventures) 

Alaska Food Diagnostics plc was the first military joint venture for Porton Capital Technology. The company is a 50/50 joint venture with DSTL Porton Down (the Defence Science and Technology Laboratories which is a wholly owned agency within the UK Ministry of Defence). DSTL is one of Europe's premier scientific institutions. It is charged by the Ministry of Defence to lead research into key defence areas including electronics and chemical biological defence.

For many years DSTL has been developing methods to rapidly detect germ warfare agents on the battlefield in order to provide UK armed forces with time-critical notice of attack. In order to do this it is necessary to detect generic bacteria extremely rapidly.

For years the civilian sector has had a similar problem - the need to detect in food and beverages the presence of bacteria such as listeria, e-coli and salmonella. This problem is real and these bacteria have caused a number of deaths over recent years. Until now civilian detection of bacteria has taken several days to a week, with samples being plated, the culture then being grown prior to examination under a microscope. Furthermore this would all happen off-site in a specialist laboratory.

DSTL solved the problem on the battlefield with the development of AK Phage technology, which can detect such bacteria extremely rapidly. This technology has been exclusively licensed to Alaska, worldwide and royalty free to use in the detection of bacteria in the food chain. AK Phage should reduce detection time down to a matter of hours allowing manufacturers and retailers to sell food and beverages confident that they are safe from bacteria (as opposed to making sales whilst awaiting the test results).

The Alaska deal exhibits most of the key characteristics of military venture capital, being in partnership with DSTL Porton Down (one of the leading chemical biological defence centres in the world), the technology being proven on the battlefield in its military form, having significant patent protection and potentially revolutionising a market that already exists (i.e. manufacturers and retailers currently all test for bacteria using the old methodologies).

Alaska is one technology only - the Manager has identified many technologies with the key characteristics described above. More information is contained in the SIF performance updates.

Sterling denominated - Minimum investment £50,000/$100,000

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