New U.S. universities V.C. fund a model for New Zealand?

By Peter Kerr 14/03/2011

The roles and abilities of universities to create and maintain start-ups is a challenge all over the world.

New Zealand’s no different, and Victoria University’s Viclink looks like it is going to get a make over, with its back office infrastructure brought back into the main university (see sticK story here).

One main problem is that our universities don’t have too much spare cash floating around to invest in new ideas.

One challenge for universities is that while they may be good at inventing technologies, they aren’t necessarily that good at extracting the full measure of profit from those innovations. That start-up investment is usually meant to come from venture capitalists – usually with the university diluting its stake in the new business as they decline to participate in the later financing rounds.

A report out of the New York Times briefly outlines a new V.C. fund, Osage University Partners fund, put together by Marc Singer, Louis Bernmeman and Robert Adelson with $100 million in it. (Check the original article here)

Research universities like Penn, the California Institute of Technology, Duke, the University of California, Berkeley and Columbia assign their investment rights to it, and hold sizeable ownership stakes in the fund.

Singer and his partners are entirely motivated by profit they say, rather than altruism, and the fund will avoid consumer internet plays, if only because these are rarely what the universities produce. Instead they will invest in areas like material science, battery technology, therapeutics and energy.

Some of their projects may also require significant amounts of labour (again unlike internet plays), because their projects generally lead to manufacturing.

Based on a profit motive, Singer says “one of the questions we had to ask ourselves is whether this is the area we’d want to invest in,” he says. “What would be the returns?”

They built up an index of start-ups from 50 top-flight universities that had licensed their technology to those start-ups but not invested in them.

There was a very respectable 33% rate of return, with few strike outs. In fact, about 40% of the investments had a positive return.

Singer says, as a result, if universities have a bigger stake in companies, they will make more money and can finance other start-ups. And many can fulfill a mandate to create local jobs.

“The tech transfer community has become increasingly oriented toward job creation,” Louis Berneman says. “In a lot of ways, we are part of a larger puzzle that universities are trying to solve.”

It is a conundrum that NZ Inc is also trying to solve.

The availability of a wider fund, in which universities are members and participants, and which allows outside capital to be invested in commercialising their ideas, seems at first blush a good idea.

It will be interesting to see whether a fund of this type could be considered a goer in New Zealand.

Is there the appetite?

Would the venture capitalists find enough deal flow?