Watchdog finds 'significant shortcomings' with government handling of biotech VC fund

A watchdog has torn apart the Welsh government's handling of the £100 million ($140 million) life science VC fund it set up with Sir Chris Evans' Arthurian Life Sciences. The Wales Audit Office (WAO) found "significant shortcomings" with the process through which Evans' Arthurian was picked to run the fund and listed faults with multiple other aspects of the operation.

Sir Chris Evans

In a report that opposition politicians called "pretty damning" and evidence that the fund had been "handled poorly," according to BBC News, WAO reserved its strongest criticisms for the process used to pick Arthurian as the fund manager. WAO found no evidence the fund manager "is acting in any way improperly or incorrectly."

Officials began looking for VCs to run the fund by posting adverts and taking the idea directly to 16 potential candidates. This led to four expressions of interest, from which two firm tenders emerged. Finance Wales, an investment arm of the government, then set up a panel to evaluate the two tenders.

This is when, in WAO's version of events, the "significant shortcomings" emerge.

The invitation to tender (ITT) said applicants must submit three years of audited accounts and demonstrate they had £10 million or more under management over that period, terms that Arthurian, as a newly created VC shop, was unable to meet. The second, unidentified firm met both criteria. Given that Finance Wales created the ITT in "good time," had input from the government and performed internal due diligence checks, WAO was "surprised that these defects existed in the final [version]."

Other issues raised by WAO include the failure of the panel to adjust the financial assumptions made by Arthurian, which based its proposal on a £50 million fund despite the ITT stating £25 million, to allow a like-for-like comparison between the two tenders.

Finance Wales and the government have argued that the scoring system used to choose the fund manager means the lack of a like-for-like comparison was immaterial, a view WAO thinks is only valid because of the relatively low weighting the panel gave to costs in their considerations. The panel's rating of the cost structure of the funds accounted for 13% of the total assessment score.

To make up the rest of the score, the panel looked at factors including the track records of the candidates, a key consideration about which members held "widely differing views," according to WAO. The tallies from the panel included "markedly different individual scores" for the candidates' respective track records. Yet, despite these clear disagreements about who was best equipped to run the fund, the panel kept no paperwork to show that it had challenged and debated the contradictory views. 

While the "poor and incomplete documentation" identified by auditors may be indicative of nothing more than sloppy record keeping, the genesis of the project means it is facing particular scrutiny.

The fund was first proposed by a government-run panel chaired by Evans. Two months after officials submitted the proposal, Evans told the government of his interest in running the fund. Evans stayed on as chair of the panel until after Arthurian had been awarded the contract, resigning 10 days before the terms were finalized. WAO views Evans' declarations as "appropriate" but thinks the government should have done more to eliminate perceived conflicts of interest, for example by asking him to step down as chair of the panel temporarily. 

WAO first began digging into these matters after a member of the public flagged up concerns about the fund's investment in ReNeuron (LON:RENE), a stem cell specialist. The watchdog concluded that one aspect of the investment failed to comply with the terms of the fund management contracts, an issue it attributed to the "insufficiently robust" oversight arrangements put in by Finance Wales.

- read the report (PDF)
- and the BBC's take

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