Want to start a university venture fund? Here are some options
From partnering with other universities to working with an existing external VC fund, here are models for universities to consider.
Team up with other universities
Partnering with other universities is an efficient way to start a fund. Smaller universities that would find it hard to launch a fund because of lack of resources or deal flow can benefit from joining forces with other academic institutions.
It is most common to do this at the state level in the US. The US state of Maryland launched the Maryland Momentum Fund in 2016 with a $10m commitment from the University System of Maryland, its sole limited partner. The system consists of 12 public higher education institutions and three higher education centres. It covers a diverse range of institutions, including large research universities, and urban and rural colleges that cater to 130,000 undergraduates and 37,000 graduate students.
University venture funds that serve multiple academic institutions in a single state like Maryland are viewed as important economic drivers, creating jobs, developing workforce skills and attracting and retaining entrepreneurial faculty. The emphasis should not be on creating a fund whose only purpose is to making money, says Mike Ravenscroft, managing director of the Maryland Momentum Fund.
“One of things that can go very poorly if you are trying to start a university venture fund is assuming that its sole job is to make money,” says Ravenscroft, adding that university funds will often not have the kind of scale that VC funds have to make money from exits. “You need to understand what value you are trying to create and building a structure that enables that.”
The Maryland Momentum Fund invests in a diverse range of companies that must be affiliated with the University of Maryland system. It has 29 active companies in its portfolio that cover range of sectors, reflecting the diversity of subject matter of its academic institutions. Portfolio companies are in technologies such as cyber security, life sciences, retail and hardware.
The fund benefits the university system’s several technology transfer offices that take equity and royalties in the companies it invests in. It is also part of a broader push to encourage faculty interested in starting businesses to join and stay in the system. It recently started placing students in internships with its portfolio companies that are based in Maryland as a way to encourage workforce development.
“We have structured things such that we’re not looking at this as a single mechanism for creating value. This is an opportunity to do something much more holistic for the University System of Maryland,” says Ravenscroft.
This view filters down to its approach to taking investments. Because it invests small cheque sizes of between $150,000 and $350,000, it is not in a position to lead financing rounds. Instead, it prefers to be part of a larger syndicated round, requiring founders to secure funding from outside investors that match or exceed its own investment.
“We work with entrepreneurs early on to help them develop sort of a roadmap for venture capital raising, helping them to connect with other investors, helping them understand how the VC system works,” says Ravenscroft.
Read the full story from Global University Venturing.