Fans of intellectual property incubators IP Group (IPO) and Fusion IP will be interested to hear of a US rival heading to the London stockmarket. Allied Minds plans to float on the main market in June and raise $140 million, bringing a portfolio of 18 early-stage businesses in the life and physical science sectors. While UK investors should be very familiar with the concept of incubators that help commercialise ideas, we note that Allied Minds has no track record in selling or floating any of its investments.

Incubators, which also include Angle (AGL:AIM) and Amphion Innovations (AMP:AIM) on the UK market, tend to work with universities to turn an idea into a business proposition. They help raise finance and often advise on the path to commercialisation. The real kicker to their share price will be trade sale or floating one or more of the invested businesses.

Allied Minds has yet to exit any of its investments and there's no indication that any of its portfolio is ripe for a near-term transaction. That means anyone putting money into the stock will need faith in the company's ability to pull off a trade sale or float. This may sound easy, particularly if the invested business has a compelling proposition. Yet there's still a big risk it will have to seek expensive third party help to ensure it can get the best possible valuation for its invested interests.

Investors will essentially have to be very patient with Allied Minds. IP Group's share price has only recently come alive after a string of investment exits. Fusion IP's share price was fairly mute until it received a takeover bid from IP Group. Angle's share price was in steady decline between 2005 and 2009 as investors were disappointed with the group taking shares instead of cash for one exit and then a slow pace of exits on other entities.

Allied Minds is marketing itself to potential investors on the basis of having exposure to rich levels of research and development spend in the US. It says the US federal government is expected to fund $123 billion of R&D activity in 2014 with $37 billion of this figure going towards a $63 billion aggregate on US academic research. Allied Minds has relationships with 33 US universities and 26 federal government laboratories.

Among its portfolio is Spin Transfer Technology, a memory chip company spun-off from New York University. This may not be ready for a trade sale or float for another two years, however. More immediate prospects include RF Biocidics, which makes equipment that helps food become safe from insects and pathogens via a non-chemical process.

A spokesperson for Allied Minds says it can take up to 10 years for the business to crystallise any value from its investments. The company was set up in 2006.

You'll note from the intention to float announcement that there's a small amount of revenue generation over the past few years. That's come from some of its invested companies getting paid for beta tests.

There's certainly lots of potential in Allied Minds' portfolio, and the US R&D spend trend is very attractive, yet we'd approach this IPO (initial public offering) with caution given the lack of any near-term exits. Investors with an appetite for blue sky opportunities will no doubt clamber all over the float. It is expected to be valued at $600 million.

Issue Date: 21 May 2014