Stanford University’s new Stanford-StartX fund, an uncapped investment vehicle for the institution’s startups passing through its incubator StartX, began to roll out this week as it made one of its first investments in Stanford startup Kidaptive.
The $10.1m series B round, which was led by venture firm Formation 8, was also joined by animation studio Prana Studios, a firm that synergises with the work performed by Kidaptive. All three were also joined by venture firms NewSchools Venture Fund and Menlo Ventures.
While Kidaptive’s educational iPad ‘appisodes’ are a story in themselves, the real interest here is Stanford finally flexing its muscles in backing its startups. Indisputably, Stanford is the lynch pin around which Silicon Valley (SV) has grown. Much as with other successful tech clusters around the globe, the focal point is always an institution with the gravitas, the brain power, and the entrepreneurial spirit to create a critical mass which pulls all the elements together.
Stanford has always been unabashedly nonchalant when it comes to supporting the firms it does so well at generating. When it comes to actual spin-outs, Stanford still takes a sizeable amount in annually from technologies it has licensed out through its Office of Technology Licensing (OTL) and also sees income through equity stakes taken in its spin-outs. The University also maintains strong links with SV’s thriving venture community which go back as far as 1991 when Stanford committed around 3.75% of its $17bn endowment to VC funds in the area.
However, this fund is more about Stanford getting in on its ever growing startup community (ie. Firms that don’t pass through the OTL – generally more student-led projects) while using its top incubator as a sounding board. It is a smart move, as though Stanford students are undoubtedly of a high calibre and come with entrepreneurial spirit as an integral part of their toolkit, it doesn’t necessarily mean every idea they have can be taken to the bank. An example of this would be Cambridge’s most recognisable comedy troupe Monty Python. For all the acclaim the Pythons have received, a cursory look at their back catalogue of sketches would undeniably show even they were prone to flops.
Through StartX, Stanford acquires an incredibly valuable testing ground upon which the university can make clever investments into its startup community which have a proven track record for success. Since becoming separate from the Stanford student body in 2009, StartX companies have attracted nearly $200m in external investment with ten firms in its graduating firms already exited raising around $130m to $150m a go.
In return, StartX receives a valuable investment partner which has the best interests in the longevity of the company at heart. To see further success pass through StartX, Stanford has also provided a further $3.6m in grants to the incubator, which up until now has been the receipting of grants from foundations such as the Kauffman Foundation or partnerships with corporations (Microsoft and AOL as an example) and venture firms.
It’s still early days for the StartX fund, but given Stanford’s track record, it would not be a massive surprise to find the fund on the investor’s page of the next Google. As for Kidaptive, its focus on pre-schoolers is likely to handicap any aspirations to rival the search engine, but the StartX Fund is undoubtedly a notice to rivals that the company is one to watch in the edutech sector.
