Only a third of US research universities have a venture fund

Most research-intensive universities in the US — including globally renowned institutions such as Stanford, Cornell and Yale — do not have their own venture fund to back spinouts.

Just 50 out of the 146 universities that are at the top rank of the Carnegie classification — a scale that measures the amount of doctoral research they produce — have an investment vehicle.

These universities, by and large, produce the most spinouts and typically have infrastructure, like incubators or maker labs, in place to support fledgling startups. Many of the tech transfer offices run entrepreneurs-in-residence programmes to bring in the right expertise to run spinouts.

Venture funds would be a natural addition to this offering so it is surprising that it remains the exception rather than the rule. University venture funds aren’t a new concept: New York University’s NYU Innovation Venture Fund has been around since 2010, the University of Texas’ UT Horizon Fund was created in 2011, Duke University’s Duke Capital Partners was launched in 2015, while MIT’s Engine Ventures was established in 2016. But the practice of setting up a fund has not spread to academic institutions despite these examples.

Geography and easy access to investors isn’t necessarily a reason why a university doesn’t have a fund. Some institutions in well-established ecosystems — such as the Massachusetts Institute of Technology —  have more than one fund, while others in regions less populated by investors — such as the University of Tennessee — have none.

In fact, it is often the universities in regions that have a heavy concentration of investors that have multiple funds. The University of California, Berkeley, the University of Chicago and New York University all have multiple funds.

More funds on the way?

There are some signs that more universities are rolling out funds. In January this year the University of Michigan (UMich), for example, launched the pre-seed Michigan University Innovation Capital Fund (MUICF), with state support. The fund also covers Wayne State University and Michigan State University, as well as other institutions (often making it their first fund, while UMich itself already had others).

Other examples of recently launched funds include Dickson & Main Fund I (University of Arkansas) and Tulane Ventures (a fund specifically aimed at women entrepreneurs at Tulane University).

The University of California, San Diego took the unusual step in June 2023 to directly invest $250,000 in one of its companies, prostheses developer LIMBER Prosthetics and Orthotics. It was the first time any University of California campus had done this and it remains a rarity to see any institution invest off their balance sheet.

Getting the timing right

For some universities, the timing for setting up a fund has not been right for setting up a fund until recently.

Bryn Rees, associate vice chancellor for research and innovation at the University of Colorado Boulder (CU Boulder), previously told Global University Venturing that the institution had first considered raising a fund some 15 years ago. But, said Rees, “really the limiting thing was deal flow”. It’s a different story today: the university has increased its pipeline (it is now one of the top five US universities for spinouts, having nearly doubled its annual output from 13 new startups in 2019 to 25 in 2021) and in January 2022 raised an initial $22m towards a $40m target for the Buff Venture Fund.

Rees said that raising the fund later than some of its peers had advantages: “We were able to look at over a dozen types of university-affiliated or university-run venture capital funds, all the different ways that they’re set up, all the different ways that they function. That was a great exercise because there are a lot of ways to do this. And we wanted to make sure we had something that was a fit for us.”

The university landed on a fund managed externally by a specially created VC firm, Buff Gold Ventures.

Columbia may follow UC Berkeley’s model

Harvard University and Columbia University are right at the top end of the 2023 ranking from tech transfer trade association AUTM, each having spun out 27 companies last year (only the University of California has more with 80). But neither, surprisingly, has its own fund. Harvard backed Engine Ventures as part of the $230m Fund II in 2020, preferring to tap into an existing vehicle rather than setting up its own investment vehicle — this made sense as Engine Ventures had already invested in multiple Harvard spinouts by that point.

Columbia University, however, doesn’t have a fund at all. Orin Herskowitz, the university’s senior vice-president of applied innovation and industry partnerships, and executive director of tech transfer office Columbia Technology Ventures says being located in New York City gives founders “fairly robust opportunities to raise money from the private sector, and hence raising our own fund hasn’t been a top priority in terms of providing funding to startups”.

However, he adds, “there are many other reasons that might be relevant for Columbia, so this is still a live discussion” and if it did pursue its own fund, Columbia would be “quite interested in potentially building on models developed by UC Berkeley to do so”. Berkeley uses a unique model of funds that donate a portion of the carry to the university.

Herskowitz notes that while there is no one-size-fits-all solution, possible benefits of any given model include the financial implications of generating a return for the university, marketing the university’s commitment to entrepreneurship and innovation, and attracting and retaining entrepreneurial researchers. He also points out that a fund could play into the university’s social justice mission through “funding for women, underrepresented minorities, entrepreneurs with disabilities” and through a “focus on socially beneficial startups” or “focus on climate”.

For Penn, it’s all a step too far

For some universities, however, the concept of becoming a for-profit business is the problem.

The University of Pennsylvania (Penn), for example, has spun out over 100 startups in the past five years (17 in 2023), and its portfolio of startups raised more than $1.2bn in funding in 2023. Penn is also the number one institution in the US for licensing income (AUTM’s 2023 report puts the figure at $1.3bn in fiscal year 2022, largely thanks to the mRNA vaccine technology licensed to Moderna).

If Penn wanted to, it could use a tiny fraction of this mRNA licensing income to set up a fund using what is essentially free money for the university.  But Michael Poisel, executive director of the university’s spinout unit PCI Ventures, says Penn does not want to be in the for-profit business.

Setting up a fund with an external partner isn’t on the cards, because “in Philadelphia there basically are no venture funds”, Poisel says. Herskowitz notes that this is precisely where a university-run venture fund could be helpful, saying it can overcome the “lack of local expertise in startup creation and commercialisation by adding mentorship, coaching, interim CEO skills for emerging startups”. Bringing in that outside expertise was one of the reasons why the University of Notre Dame established the 1842 Fund with a venture studio attached to it late last year.

Yet Penn is resistant even to a non-profit approach, like a philanthropic fund that you might find in places like Indiana University with its IU Philanthropic Venture Fund. Poisel says although the university has recently been more open about him interacting with alumni, “the attitude at Penn has always been that if we do that we’re taking donations from somewhere else, that it’s a zero-sum game, that if we put money into a fund structure, we’re taking it away from the scholarship fund and so on.”

He adds: “I completely disagree with that opinion. I think anytime you can engage the alumni in the university, it’s a good thing. It gets them more enthusiastic about everything going on at the university and probably increases the amount of money they give. But I’m a minority in that opinion. I don’t think I’m alone, but I’m definitely a minority, and so it hasn’t happened.”

Columbia’s Herskowitz echoes this point, noting that a fund can encourage “donations from current alumni startup founders, when their startups are successful, based on perceived university support” and it can create “tighter bonds with (and enhanced donations from) alumni interested in innovation and entrepreneurship who might find this topic appealing, ideally without cannibalising their existing or planned donations”.

Frustratingly, Penn’s aversion to for-profit enterprises has even stopped alumni setting up a fund themselves. Poisel says that a group of former students had hoped to create a $10m fund specifically for the engineering school, but the school said this did not align with its mission.

Having a fund, Poisel argues, would have a “multiplication effect”: investing a low six-figure sum in an early-stage business could allow that company to build a prototype or undertake preclinical development, and derisking the startup would make it more attractive to external backers.

Poisel fears that Penn may remain stuck in its risk aversion. There was a moment of hope when PCI Ventures was set to receive $10m thanks to its equity stake in Ghost Robotics, a Penn spinout that manufactures four-legged robots for use in uneven terrain, that was acquired for $400m by aerospace and defence company LIG Nex1 in December 2023. Ultimately, the university decided to sweep it up into the bigger books alongside the licensing income from the mRNA vaccine. 

“That $10m could have changed people’s lives,” Poisel laments. “It was such an incredible missed opportunity.”

It leaves Penn as one of the two-thirds of the country’s most research-intensive universities without a fund.