Creating a University Based Venture Fund

Brian Cummings

Technology Commercialization Office

University of Utah

The Opportunity• US research Universities are an economic engine

• conduct >2/3 of all basic research• are primary source of technology• produce >400 start-ups per yr

• Universities vary dramatically in their ability to convert research into results.

• Majority of Tech Offices can’t hit break even

• Pressure is mounting to produce results from Feds to State sponsored economic development

• Companies and VC’s still find it difficult to engage Universities in innovation development

Research Initiatives: Nationwide 2000-2005

$32.5 billionBuildings, university research, high-tech economic development

32 states are currently investing in university research for economic development (Now 41)

State Support of Economic Development

The Numbers – an Uphill Challenge• $32.5 Billion bent on building technology

ecosystems from US Universities with broken infrastructure

• $116 million in annual patent costs

• 70% of patents will go unlicensed

• 60% of TTO’s aren’t even at breakeven

• Ave revenue of ~$460,000 per office

• Ave of 2.8 start-ups per year

• 80% of venture funding targeted to 12 metro areas

Source: University Inc. 2006

Strategies for secondary cities:

• Strengthen Clusters and Networks – Use local groups and virtual organizations to bring together investors, entrepreneurs, researchers and other parties to establish formal and informal relationships.

• Encourage a Continuum of Capital – Support local angel capital investors who can nurture early-stage companies Increasing

• Investment Creativity – Seek out alternative models of investment

• Enhance Accessibility – Create policies and programs to support entrepreneurship

Source: www.icic.org - 2007Source: www.icic.org - 2007

The 10 highest-performing secondary cities in the U.S. (ranked by number of private equity deals per city) The 10 highest-performing secondary cities in the U.S. (ranked by number of private equity deals per city) are (1) Boulder, Colo., (2) Salt Lake City, (3) Westborough, Mass., (4) Ann Arbor, Mich., (5) Norwalk, Conn., are (1) Boulder, Colo., (2) Salt Lake City, (3) Westborough, Mass., (4) Ann Arbor, Mich., (5) Norwalk, Conn., (6) Providence, R.I., (7) Southborough, Mass., (8) Stamford, Conn., (9) Melbourne, Fla., and (10) New Haven, (6) Providence, R.I., (7) Southborough, Mass., (8) Stamford, Conn., (9) Melbourne, Fla., and (10) New Haven, Conn.Conn.

The Shift

• Can Universities drive economic development?

• Can they effectively serve their communities?

• Can you build a model that can be replicated?

• Can you stimulate continued innovation?

• Can you build business in the confines of a non-profit?

• Can you generate a long term equity structure?

• Access to CEOs/executive management talent

• Access to seed or venture funding

• Access to entrepreneurs.

• Access to start-up resources

• Ability to create university start-ups – in their environment

Most Challenging aspects for TCO’s

Creating an Ecosystem

Where do we Start?• Involve Everyone

• Restructure Organization

• Shift Toward Customer Service Business

• Add Value in Every Transaction

• Support all Phases of Start-Up Development

• Streamline Processes

• Identify High Value Collaborative Research

Supporting Early Stage TechnologyDriving Innovation

+Venture Bench

+Entrep.in Res

The Best of Angel – Venture - Ecosystem

The University of Utah Issue

Challenges

Start-up Activity

0

5

10

15

20

25

Num

ber

04 05 06 07 08 09

Year

Number Start-ups: US Universities - 2007

Source: AUTM 2007

Start-up Activity (by industry sector)

Start-up Activity FY ’06-’08 (Funding Status)

Strong need for a new model

Stage Pre-Seed Seed/Start-Up

  

Funding Gap between $100,000 and

$2,000,000

Early Later

Source Founders, Friends

and Family

 Individual

Angels 

 Venture Funds

Investment  

$25,000 to $100,000

$50,000 to $150,000

$2,000,000/$5,000,000 and up

OpportunityFor

Alignment

Decreasing CapitalStartup/Seed % of Overall VC Money

16.7%

13.5%

9.0% 8.4%

6.1%

3.0%1.8% 1.3% 1.8% 1.9%

3.4%

0%2%4%6%8%10%12%14%16%18%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Venture Source, NASVF

Reasons For An Angel Organization

• Quality deal flow• Greater investment clout from combined

dollars• Collective due diligence• Education: formal and informal• Group social benefits

Angel Organization - Decision MatrixMember-Managed

Vs.Manager-Managed

Legal Structure

InvestmentProcess

MembershipFinancialResources

Angel Organizations:

Investment Statistics: 70% of angel groups leave investment decisions up to the

individual members 23% of the angel groups invest by majority group decision

Of those that invest by majority decision, 90% are structured as LLCs, supporting previous discussions that the LLC legal structure appears to be the preferred group investment vehicle

 7% of angel groups invest through investment committee decision No responding angel group required unanimous decision for

investment

Source: Center for Venture Research, University of New Hampshire 2005 Angel Organization Survey

995 Early Stage

Equity Capital Markets Large, Complementary

2007 Angel Investmentsource: UNH CVR

Ea

rly

Sta

ge

La

te

$26.0B57,000 deals

Mostly early stage

2007 VC Investment

source: NVCA/PWC/VE

Mostly later stage 3,813 deals

$29.4B

415 Seed

New Company Formation

Source of Equity Funds – Typical Year

0 100,000 200,000 300,000 400,000 500,000

500 Classic VCs

1000-2000 Seed Funds

>50,000 Angels

>200,000 Friends & Family

500,000 Startup Companies

MONTANA

WYOMING

IDAHO

WASHINGTON

OREGON

NEVADA

UTAH

CALIFORNIA

ARIZONA

NORTH DAKOTA

SOUTH DAKOTA

NEBRASKA

COLORADO

NEW MEXICO

TEXAS

OKLAHOMA

KANSAS

ARKANSAS

LOUISIANA

MISSOURI

IOWA

MINNESOTA

WISCONSIN

ILLINOISINDIANA

KENTUCKY

TENNESSEE

MISSALABAMA

GEORGIA

FLORIDA

SOUTHCAROLINA

NORTH CAROLINA

VIRGINIAWV

OHIO

MICHIGAN NEW YORK

PENN

MARYLAND

DELAWARE

NEWJERSEY

CONNRI

MASS

MAINE

VT

NH

ALASKA

HAWAII

>100 deals

25-100 deals

< 25 deals

< 10 deals

VC Deals by State – The added Value

2006

Why a Venture - Seed model is criticalA great investment committee can:

1. See around the corner

2. Has the follow-on funding available

3. Works full time – fund manager

4. Help sober up an entrepreneur – art to saying “no”

5. Provide necessary Board and mentor roles

6. Provide some unrestricted capital

7. Encourage entrepreneurship

* Training at BYU, UU, USU

The Initial Wants

• Build a community based fund• Engage the local VC’s• Venture vs Angel• Have the follow-in funders at the table• Clog the pipeline• Closed vs Open•

Lessons Learned

• Can’t please everyone • No good deed goes left unpunished

• Pick a lead• Keep it open – the market knows• Don’t focus on the Univ. needs• Full time commitment• Consider the economics

Next Steps

Commercializing Interventional Medical Technologies

An Entirely New Strategy

Investor Presentation

Accelerating Energy Innovation with Early Stage Capital & Commercialization

Expertise

The Technology Commercialization Service

Alignment

Talent

Automation

Creating a University Based Venture Fund

Brian Cummings

Technology Commercialization Office

University of Utah

bcummings@tco.utah.edu

801-581-7792