The University of Minnesota plans to launch two venture capital funds next year, one of which will invest in startup companies that license university technology.
The fund backing university startups will total $20 million in size and will make seed-stage investments over a 10-year period. A separate $50 million fund will invest in startups nationwide.
The university’s office for technology commercialization (OTC) has been looking at creating a venture capital fund for about two years, OTC Executive Director Jay Schrankler said in an interview. The school is modeling its effort after the University of Illinois’ venture capital fund, Illinois Ventures, which has invested in more than 40 companies. It took a while for the effort to get off the ground partly because of the recession, Shrankler said.
OTC expects capital for the $20-million fund to come from university coffers. OTC will likely get the fund up and running with royalties earned from licensing of university inventions. That way, the school can begin making investments before the full $20 million is raised, Shrankler said.
The university plans to make seed investments of between $100,000 and $250,000 in university startups. The school will focus on investments in industries such as IT, clean-tech, green chemistry and food.
U of M will consider investments in medical devices that go through the Food and Drug Administration’s 510(k) clearance process, but will likely avoid products that must navigate the agency’s more complex pre-market approval (PMA) program. Shrankler said it’s difficult for seed funds to generate returns on PMA investments, and there are other sources of capital available to firms developing those devices.
The school plans to hire a managing partner to lead the effort from inside the university. The partner will then become an independent contractor and begin raising money for the $50-million fund, which will seek capital from institutional investors.
A university board of regents committee will review plans to launch the funds later this month, Shrankler said. The full board will likely have to approve the plans before the program can get up and running.
Kaler told the online news site that he expects the investment will pay off for the university and demonstrate the school’s commitment to entrepreneurs.
“I think the board will see that it is a prudent investment from a financial sense and also sends a strong institutional message about the importance of entrepreneurship.”
Several schools nationwide have started venture funds in recent years to provide capital to startups commercializing university inventions. Colorado State University created a $3-million venture capital fund in 2010 to support university-born startups.
In Minnesota, University of St. Thomas’ William C. Norris Institute makes seed investmentsin early-stage companies.
Source: MSP Business Journal: http://www.bizjournals.com/twincities/blog/banking/2012/12/university-of-minnesota-to-create-pair.html?page=all