With the tendency of endowment investment committees being notoriously risk-averse, and a slew of potential conflicts of interests facing them (favoritism accusations, anyone?), it is understandable that procuring direct investments in university start-ups is an uphill battle. But the good news is that it is possible and well worth the effort. University endowments are currently poised to become a critical source of start-up funding moving forward.
One way that this can happen is what we call a “venture search fund” model. This model outlines a strategy of first seeking out experienced entrepreneurs, then using university endowments to invest in independent venture funds that back a diverse portfolio of those founders and their companies.
So how does this work?. The endowment would invest in a proven early stage venture fund, which backs experienced entrepreneurs to explore business concepts through technology licensed from universities. However, the entrepreneur would not, and should not, be limited to sourcing research generated by any one university.
The Risk Factor
The venture search model proves far less risky than direct investment, as university endowments have access to high-growth commercialization opportunities. This makes the risk in early-stage investments decrease due to a shared partnership with experienced venture capital firms. This safer approach quells the concerns of the afore-mentioned risk-averse university endowments.
Recruiting Your MVP
The first stage is the search for the experienced, strong entrepreneur, and the second stage is funding the company (putting the initial seed capital in).
From that point on, the capital formation can follow, based on the credibility of the entrepreneur and the search fund. But here is where it is critical to find the right entrepreneur for a promising IP. All too often, I see universities have the right conditions for success (the incubators, the accelerators, the seed funds), but they don’t have their MVP. They are lacking their Lebron James, and you win championships with Lebron James. So you have to ask yourself: What are we doing to recruit that vital MVP?
Meet The People
I cannot emphasize the value of networking enough. Even without using a venture search fund, tech transfer often depends on connections with alumni and local business leaders to lead investors and entrepreneurs to research opportunities. A venture search fund would foster that kind of referral system.
The bottom line is this: Everyone likes to talk about how impressive their alumni base is, but those same graduates are in Silicon Valley and New York, just jonesing to start their next company. You want to bring them back to your community? Fund them! But they’re going to go where the money is, and that’s a venture search fund like this.
The intentional recruitment of entrepreneurs, those with hypergrowth experience, is the benchmark here. The repeat founder profile is actually a red herring. It’s the former VP of Product that often becomes the next founder. However, this is a level of expertise not always readily available within the bubble of the university ecosystem. A venture search fund would help universities that typically are not the first resource that comes to mind when entrepreneurs are looking for research to commercialize. Joining with a network of 25 regionally focused universities, for example, would create an entity that is harder to overlook and which has a depth of resources that will draw the attention of entrepreneurs.
This aligns with the growing trend we see in Midwestern universities looking to adopt new and innovative ways to attract talent away from the coasts to hopeful (and literal) greener pastures.