U of M to invest in startup firms that use its research
The University of Minnesota plans to invest hundreds of thousands of dollars in startup companies to capitalize on its own research. Its newly established Discovery Capital Investment Program will distribute up to $700,000 in each of the next two...
The University of Minnesota plans to invest hundreds of thousands of dollars in startup companies to capitalize on its own research.
Its newly established Discovery Capital Investment Program will distribute up to $700,000 in each of the next two years.
University leaders say the program marks the first time the university is funding its own companies, and comes at a time when outside investment in them hasn't recovered from the economic downturn.
"What we really want to do is speed those companies to market, to get those products -- many of which are lifesaving -- to market quicker," said Jay Schrankler, executive director of the university's Office of Technology Commercialization.
The startups generally will consist of university researchers supported by outside management, Schrankler said.
To receive funding, they need a sound business plan and management, and must secure matching funds from an outside investor. The research itself must have been funded by the government, he said, as opposed to private investors or companies.
Schrankler expects to receive seven to 10 applications for the program each year.
The university will select companies based partly on the potential return on investment. Decisions on which startups to fund won't be based just on the judgment of university personnel, but on that of executives from the various sectors involved in the program. Among those sectors are medical devices, engineering and agriculture.
U of M will fund one or two startups a year, on average, for the next couple of years, Schrankler said. Investments will range from $50,000 to $350,000 per project, so it could invest as much as $700,000 a year.
After two years, Schrankler said, the university will assess the success of the program and decide whether to continue it.
Last year the university generated a record15 startups, but it generally hasn't invested in the companies themselves.
Meanwhile, outside seed capital has "diminished dramatically" over the last five to 10 years, Schrankler said.
In 2008, nine percent of all venture capital funds were dedicated to seed funding, he said. By 2013, that had dropped to three percent.
That's why this new funding is "absolutely critical," said Chris Cramer, associate dean for academic affairs at the university's College of Science and Engineering. The lack of startup funding “has caused many [potential] companies to just fizzle.”
U of M spokeswoman Andrea Wuebker said the program grew out of plans to form a $20 million seed fund for startups as well as a $50 million venture-capital fund for investment in later stages.
The university ended up scrapping those plans in the face of the downturn, and says the new funding method will be cheaper to manage because it will require fewer personnel.
The new investments come at a time when U of M is trying to increase the commercialization of its research. It has considered how to replace funding lost after the 2013 expiration of the patent from its blockbuster HIV drug Ziagen.
In late 2011, for example, it changed policy to make it easier for businesses to use the intellectual property that springs from research they fund at the university.
Schrankler said the plan for more startups "is like taking shots on goal. The more shots that you get on goal -- that are better, higher-quality shots -- the more chance you have of getting the next big one."