AIM is littered with companies that have tried and failed to turn a promising doctoral thesis into a commercial, ground-breaking product.
More often than not university spin-outs make the leap too early. Their timelines are often far too optimistic, and the initial funding they receive insufficient to see them across the finish line to cash generation and profitability.
Learning the lessons of their forerunners, many companies are delaying their push to public markets, seeking private money from high net worth backers and venture capitalists instead.
Others opt to go down the incubator route, where a stock market-quoted investment company such as IP Group or Imperial Innovations, ploughs cash into hand-picked innovators.
Sometimes, however, fledgling businesses, particularly those run by academics, need a little more than just cash.
Academics are rarely also trained accountants used to modelling cash burn; very few have the boardroom experience or the training to negotiate a commercial partnership.
And it is doubtful any university researcher has the contact book to bring in sufficient funding at just the time it is needed.
Yet these ‘intangibles’ are often the difference success and failure.
And this is what Frontier IP (LON:FIPP) brings to the table.
Its team, led by chief executive Neil Crabb, has a broad base of expertise from the practical – accountancy, capital markets and operations – to the knowledge and experience that comes with having helped found and run a major PLC.
Very simply, Frontier can act as the commercial cocoon around the intellectual property being spun out of universities and their inventors. In all its portfolio includes spinouts from six of our seats of higher learning including Cambridge, Plymouth and Dundee.
It trades its expertise for stakes in the university spin outs. At last count there were 17 companies in its portfolio; however, it recently narrowed down its focus to a core portfolio of six where the average stake size is 29%.
They include PulsiV Solar, out of Plymouth University, which has come up with a technology that improves the energy generation of photovoltaic panels, and there’s Nandi Proteins, which could revolutionise food production with ingredients developed at Heriot Watt.
In the traditional model, the intellectual property company would make a direct financial investment that gives a fairly accurate valuation of its stake in the business.
Frontier is a little different. Because it has bartered its own services for a share of the company it is included on the balance sheet at a nominal value - sometimes just tens of thousands of pounds.
The uplift comes when the investee company receives funding, which precipitates a revaluation.
There are two things to note here. The first is the portfolio is potentially worth many times the carrying value on the balance sheet.
It also means that periodically there is an uplift in value that then feeds through to allow Frontier to book a profit on its investment.
The costs of running the team mean Frontier burns through £900,000 to £1mln a year.
And it is no secret that, on occasion, it will come to the market to replenish its coffers.
The real catalyst for value will come in the next 12 to 18 months when one of its investee companies either lists or is subject to a trade sale.
Third party validation of the model comes from a small cohort of professional investors with stakes in Frontier - firms such as Old Mutual, Framlington and Walker Crips.
Each of the aforementioned has also ploughed cash directly into Frontier portfolio firms.
The difficulty in all of this is: how does one value Frontier? It is a fairly easy model to understand when explained.
However, it is difficult to benchmark the individual investments. PulsiV and Nandi for instance plug into multi-billion pound industries.
But currently neither has really yet to fully commercialise their inventions. They may even stumble at the final hurdle.
The broker Cantor Fitzgerald has attempted to put a price tag on the portfolio.
It looked at a sample group of competitors, including IP Group and Imperial Innovations, and found they traded at a weighted price to book value of 1.6 times.
Frontier currently trades at 1.1 times. To achieve a sector rating the stock would have to rise around 62% to 34p a share, Cantor analyst Blaine Tatum has calculated.
He reckons there will be a “significant potential valuation uplift” in the near to medium-term from a portfolio companies such as Cambridge Sensors and materials firm Alusid.
“A number of Frontier’s portfolio companies are valued with only a modest valuation on the underlying IP [intellectual property], or the valuation of their last financing…We therefore continue to believe that the published NAV [net asset value] underestimates the underlying value of the portfolio,” the Cantor analyst concluded.