University Fund Announcements – What Do They Mean?

American Research and Development Corporation Annual Report, 1952/1954. Historic Corporate Reports Collection. Baker Library, Harvard Business School.

American Research and Development Corporation Annual Report, 1952/1954. Historic Corporate Reports Collection. Baker Library, Harvard Business School.

Universities from very different regions of the country are announcing Venture Capital funds of many types.  Some connected to faculty, some to students, some to alumni. What does this mean? The VC industry is still relatively young. Before the formation of the American Research and Development Corporation by Georges Doriot in 1946, private equity as an investment vehicle was the domain of large, wealthy families. Sometimes called the “(Grand)Father of Venture Capital”, the Harvard Business School professor partnered with a former MIT president, HBS Dean, and a few other business leaders to raise $3.5 million from nine institutional investors, including MIT, Penn, and the Rice Institute — representing the first time that a venture capital firm raised capital from sources other than wealthy families. [1] The next generation of VC firms led to the venerable Flagship Ventures and Greylock Partners, and eventually the landscape as we know it. With its roots in East Coast academia, maybe it should come as no surprise that universities are returning as centers of capital. Universities hold a critical mass of smart people are who are on the cutting edge of research and application of thought, many of which are transforming that research into viable and innovative businesses. The University of Michigan recently announced that they have invested $6.9 million of a $25 million fund managed by the school’s endowment across 11 university-based startup companies. Alumni at Dartmouth College took yet Penn State took a similar approach with their announcement of a $30 million investment in “economic development and student career success” that will be used to support entrepreneurial initiatives like hiring Entrepreneurs-In-Residence, hiring new faculty, and creating startup friendly spaces around campus. While there is no explicit mention of a venture fund, they will create “an online branded platform” to enable alumni to support new companies. Alumni are eager to support new companies affiliated with their universities as well. At Launch Angels, we are working with a group of alumni from Dartmouth on a micro venture fund of about $1MM. The Fund, which is expected to begin investing in the spring, was created with capital from Dartmouth alumni eager to fund early stage companies with Dartmouth-affiliated management teams. I am excited by the potential these funds provide young companies in non-traditional geographic regions. With the university at the center of these funds, more companies will have access to capital without having to travel to traditional hubs like Boston or San Francisco for early rounds. And with some funds already preparing to help with follow-on rounds, and the involvement of experienced VC/PE investors in the management of these funds. It may be possible, one day, for some companies to bypass the roadshow altogether. On a personal note, I am particularly excited about the potential Boston-based universities bring to the table. Due in part to my own loyalties as an alum of multiple Boston-area schools and desire to see Bostonians leaning into our roots in the formation of the modern venture capital industry. What do you think about universities offering funds? Let us know your thoughts in the Comments section below.

Shereen Shermak, CEO

[1] Scott Kirsner. “Venture Capital’s GrandfatherThe Boston Globe. April 8, 2008.

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