UM to spin a VC fund from our endowment fund

Submitted by iawolve on January 5th, 2012 at 9:50 AM
Not the size I would have liked to see, but a good start to help develop new companies with seed funding.

 

University of Michigan Board of Regents approved the creation of an internally managed venture capital fund — Michigan Investment in New Technology Startups — within the $7.8 billion long-term endowment fund.

The new fund will invest an estimated $25 million over 10 years in new companies utilizing intellectual property licensed through the Ann Arbor-based University of Michigan's Office of Technology Transfer, according to meeting materials for the regents' Dec. 15 meeting. The MINTS fund will be managed jointly by university's investment office, which also manages the endowment, and the Office of Technology Transfer.

 

http://www.pionline.com/article/20111229/REG/111229904/university-of-michigan-to-start-venture-capital-fund

Comments

The Denarding

January 5th, 2012 at 10:01 AM ^

I think the idea is good but the investment team is sub optimal.  Traditionaly endowment managers aren't good investment managers specifically for  early stage.  I also concur that dollar size is too small but that maybe why the endowment is running it.  Management fees on 25 million are 500 grand and you can't hire a top flight venture team on that amount of capital.

I applaud the university for making strides in trying to find homes for IP that the university generates.  This is always the toughest part of tech transfer is working with strategics and venture firms to convert ideas to products and even some of the best (MIT for example) could do even better.  Vertically integrating this process is the best hope of getting products out I suspect.

Having said that these things usually fail due to lack of focus and management issues.  At the end of the day you don't have professional VC's running this fund, you don't have enough raw management skill in the area to scale, and unless they partner with Arborvest they won't have enough powder to actually maintain enough ownership in the winners to scale.

 

CRex

January 5th, 2012 at 10:02 AM ^

Ah the Michigan Office of Technology Transfer.  For when you want to spend the rest of your natural life dealing with lawyers...

Actually I'm not a huge fan of this.  For every JStor we spin off, it seems like we spin off four or five companies that just take business from the University.  Some prof will get a start up going and then a year or so later all the companies that were contracting University services take their business to the startup.  Thus killing a bunch of nice in-house research jobs for grad students.  

mtzlblk

January 5th, 2012 at 12:42 PM ^

in what world do you think you get to avoid that?

I am G.M. of a start-up here in San Francisco and over the last three years have been embroiled in separate negotatitions with attorneys from HP/Palm, Verizon and AT&T over licensing our technology. After the first 5 months or so, I dumped our counsel and started managing it myself (and I am not a lawyer), because we were dropping huge amounts of $$ on people whose main job seemed to be obfuscating things in order to extend the process so they could increase their billable hours.

Same thing for the attorneys on the other side of the table, each one coming in with a such draconian set of expected rights in their boilerplate contracts that I had no choice but to refuse to sign any of them. Signing one of them would essentially preclude me from working with anyone else within the U.S., because what they are demanding is essentially exclusivity on the technology without paying for it. This has only gotten worse as we expand internationally and deal with companies like Vodafone who start out asking for the same thing, only on a global basis (or anywhwere they have a presence, which is more or less the same thing). To a company, their involvement amounted to summarily refsuing to even look at our contract and sending me their standard issue MSA for me to red line, then refusing anything but the most meaningless of edits and for any material changes I made, re-writing them to say the exact same thing in a slightly different way and sending it back to me like I am supposed to be okay with it and scheduling a meeting for 2 weeks later in order to again discuss the same points. 

Funny thing is, I have worked with the marketing people at all of the companies to essentially be able to circumvent the requirement  for a contract and to be able to sell them our solution and invoice them without having one. So far so good. 

We got super lucky in that we have been profitable from day one and delightfully were able to cease the negotiations with V.C.s and their lawyers. I have worked at 8 different start-ups and I know that those were all headed in the same direction, that being a prison-style assault on the equity and ownership rights. Had we needed the money, we would be i a very different place right now with our exit strategy being controlled by them and the board members they would have required us to take on.

Sorry, ranting a bit, but the legal system, with regard to business, to me has become nothing but a hindrance and a process to be avoided at all costs and I guess the Technology Transfer Office at UM is no different. I see the value in definining things to avoid problems later and would certainly prefer to be working under contract (negotiations are ongoing), but to me it seems like the whole system is geared toward supporting a huge amount of $$ and overhead in the industry. 

Stepping down from soap-box now. 

The Denarding

January 5th, 2012 at 1:07 PM ^

I totally agree - I founded a start up in Boston in Healthcare IT this year and one of the venture firms in the deal was Google Ventures.  It took four weeks just to get them to sign closing documents and there were so many pointless permutations - the issue was at the end of the day that the Google Venture lawyers just really disliked our corporate lawyers.  We couldn't close our pilots until the financing closed and here we are dealing with these idiotic contests of superiority.

All's well that ends well I guess but not a very positive view of the venture legal experience...

Mr. Rager

January 5th, 2012 at 10:15 AM ^

$25M is rather small - would have preferred $100M in the least - if it's a 10 year investment horizon.  $25M would be fine for a 5 year, probably.

Also, since I am "new" and cannot create threads, I would like to add that Lloyd Brady was all over the Sugar Bowl.  Saw him on Bourbon St. NYE, on local TV down there at a pep rally, and then one more time at the actual game.  Even got a photo with him and my crew.  The guy is more famous than half of our football team.

Blue-Chip

January 5th, 2012 at 10:25 AM ^

No matter your feeling on the University being the one to do it, the fact is the State of Michigan is sorely lacking in VC/Angel financing options. There are some good groups out there, but I'm happy to see the pool of potential VC expanding here.

ypsituckyboy

January 5th, 2012 at 10:56 AM ^

It seems to me that the biggest problem with these smaller, local VC's is that any time the U produces a winner, larger VC's come in and drown the tiny funds out during the later financing rounds. Small funds like this just don't have enough dry powder to compete with the big dogs.

BlueCE

January 5th, 2012 at 11:42 AM ^

I think this is good for the state, UM needs to lead the revival of new industries in the state which is sorely needed.  However, I agree that the amount is very small and the investment committee is probably not the one I would choose to lead this.  A complete different investment philosophy to invest in a startup vs. other asset classes.

 

The fact that large VCs come in will always happen, even in SV where angels get crowded out by later Series of financing.  And that is fine, either local VCs compete or they make it their niche to get in early and get a discount on the next round valuation.  It would be great for Michigan startups/economy if large VCs funds start funding more early stage companies there.  


We had started this MGoBusiness linked in group for MGoMembers interested in the startup/VC space: http://www.linkedin.com/groups?gid=3183194&mostPopular=&trk=tyah

The Denarding

January 5th, 2012 at 12:51 PM ^

I think philoshophically this is not a bad idea from the standpoint that IRR or even return on invested capital doesn't seem to be the driver.   It appears that they want to provide the OTL a method of getting companies out that are too early to strategically exit.  Dilution appears not to be relevant. 

The biggest problem regional venture firms have is managers - people who can help a company to scale.  A great team with a good idea has a much better chance of success than a great idea with a mediocre team.  This is why managers are the key to making a venture center.