University Funds - A Thirty Year Tradition

White boardIn our last blog post we touched upon a few recent announcements for university-affiliated venture capital funds. These funds join a growing group of university VC funds that also includes University of California’s $250 million fund (announced in Sept ‘14), Cornell’s BR Venture Fund (est. 2001), Wolverine Venture Fund (est. 1997), among others. A few outliers aside, the press surrounding these funds makes it seem like this is a recent phenomena when in reality university funds enjoy a rich tradition going back at least thirty years. In our research into the university fund space, we found a terrific article in The Journal of Technology Transfer [1]. The article explores the role university funds play in helping educational institutions fulfill their “third mission” of transferring knowledge to industry and society. The article examines university funds (UF) and traces their history from 1973 to 2010 by analyzing fund performance as it relates to the universities involved, targeted industries & investment stages, and the types of co-investors. In case you don’t have time to read it yourself, here are some key ideas from the article:
  • UFs serve as a Technology Transfer Mechanism (TTM) — UFs are one of several technology transfer mechanisms used by universities to pro-actively encourage the commercialization of academic research. Other include: science parks, incubators, university-industry joint projects, and technology licensing.
  • UFs do more than support early stage companies — Universities with UFs create them with the goals of (i) investing in promising companies whose technologies are often related to the fields in which the faculty specializes in, thereby creating a positive feedback loop of reputation and innovation; and (ii) using the additional funding and revenues generated as a result of the UFs to speed-up the commercialization process of technologies using more conventional TTMs.
  • UFs usually evolved from Technology Transfer Offices (TTO) to more professional structures — Young UFs often focus on facilitating the creation of university spin-outs via internal financing of business projects and technologies. Overtime funds begin to resemble VC companies from their organization as limited partnerships to being managed by executive teams of professionals with experience in the VC and private sectors.
It is interesting to note that the 26 UF analyzed were limited to funds directly affiliated with the parent university, which could include universities with a single fund or financial vehicles that invest through more than one fund. None of the funds examined, however, were representative of the recent trend of UFs to be created with capital from sources other than endowments or other direct from university capital sources. Given the diversity of recently announced UFs across investment criteria, decisioning body and process, size, and closeness of the relationship between the fund and school, it will be interesting to watch the evolution of these funds and how they support the entrepreneurial ecosystem around each school. What are your thoughts on the future of university funds? Let us know in the Comments section below. [1] Croce, A., Grilli, L., & Murtuni, S. (2014). Venture capital enters academia: an analysis of university-managed funds. The Journal of Technology Transfer, 39.5, 688-715.