Universities are home to innovation and new technologies, but some of the big ideas coming out of school labs may never become a reality. Turning them into viable businesses requires money, patience, and investor appetite.
But thanks to dozens of university venture capital funds that have cropped up in the United States in recent years, smart ideas can now easily get off the ground. The Engine, a venture fund established by Massachusetts Institute of Technology (MIT), is one of them.
“Universities are trying to understand how they can better support the companies that are coming out of their labs. And that is becoming a trend,” said Katie Rae, president, CEO, and managing partner of The Engine.
Founded in October last year, The Engine will help MIT students and faculty turn their smart ideas into viable businesses. The fund has raised over $150 million from investors, including $25 million from MIT as a limited partner. In 2016, MIT was ranked as the second-most innovative university in the world, based on academic papers and patent filings, according to Reuters.
The fund will invest in startups that develop so-called “tough” technologies—breakthrough ideas that require time and patient capital—in the sectors of robotics, manufacturing, medical devices, biotechnology, and energy.
The Engine operates as a typical venture capital fund, with one exception: It is a public benefit corporation, which means it has a double bottom line.
“We care both about financial returns as well as impact,” said Rae.
The fund has both the risk appetite and the patience to invest in long-term projects. “This isn’t a typical venture capital fund. We have a focus on tough tech. We think that’s where the resources are limited. But the opportunities can have a lot of impact,” Rae said.
In biotech, for example, a concept could take years to blossom into commercial products.
“It is not like writing a mobile application, selling to the market, and getting feedback right away. That is not how it works for drugs or medical or diagnostic devices,” said Samuel Sia, professor of biomedical engineering at Columbia University.
Investors, in turn, need to recognize this, he said.
Investing in Ecosystem
Nearly 60 percent of The Engine fund will be invested in MIT community startups, with the rest in companies that arise from the labs of other universities in the area, like Harvard and Northeastern. That’s what differentiates The Engine from other college venture funds, said Rae. The fund focuses on helping Boston’s innovation ecosystem.
The Engine and MIT will also host a 12-month accelerator program for nearly 60 startups. The program will provide provide access to lab space, equipment, counseling, and other resources at MIT.
The Engine is not the largest college fund in the United States. The University of California launched its $250 million venture fund in 2015, to invest in innovation from the UC ecosystem, including students, faculty, staff, and millions of living alumni, spread across UC’s 10 campuses, five medical centers, three laboratories, and more.
It is the first fund managed by the university, and the money comes from $90 billion that it holds in its pension fund, endowment, and other assets.
The university produces five inventions a day on average, and over 800 startup companies have come out of it since 1980, said the UC Office of the President, in a news release.
Smaller Funds
Many of the university venture funds that have popped up in recent years are smaller in nature than the funds established by MIT and UC. They focus just on the entrepreneurs coming out of their universities.
The University of North Carolina–Chapel Hill, for example, established Carolina Research Venture Fund last year to invest up to $10 million in startups founded by UNC-Chapel Hill faculty and staff.
So far, the fund has invested in four startups, including G1 Therapeutics, a clinical-stage company that develops cancer therapies. The startup recently went public, reaching a market valuation of $480 million.
The fund’s objective is to unlock the potential of the school’s innovation and to create more companies like G1 Therapeutics by providing early-stage capital and industry expertise.
“Institutional investors in the United States have moved away from funding the early-stage or discovery-stage venture-backed startups, due to lack of risk tolerance,” said Sallie Shuping-Russell, chairperson of Carolina Research Venture Fund.
However, investment in this space was very common in the 1980s and 1990s, she said. Shuping-Russell managed Duke University’s private investments during those years; she is currently a senior adviser in BlackRock Private Equity Partners and was formerly a member of the university’s board of trustees.
To avoid conflicts of interest in investment decisions, the school has appointed Hatteras Venture Partners to oversee the fund’s operations and investment portfolio.
The investment team has looked at hundreds of deals across the university so far and aims to invest in three or four startups each year.
“I’m proud of Carolina for doing this and really happy to be part of it. I think it’s great that other universities are doing it too, because ultimately it’s a matter of creating communities of capital,” said Shuping-Russell.
