U Of M Drops Venture Capital Fund Plans, Debuts Seed-Funding Program

Shelving previous plans for two venture capital funds worth $70 million, the university announced a new seed-investment program to help fund startups.

In a pivot away from plans for venture capital funds worth $70 million, the University of Minnesota instead announced this week a seed-investment program that will provide early stage funding to select startup companies.
 
The U’s office for technology commercialization’s new Discovery Capital Investment Program will invest up to $350,000 per startup in equity financing in new startups that are based on university-discovered technology.
 
The program grew out of initial plans to form a university-focused venture capital fund. A spokeswoman for the U’s office of the vice president for research said a $50 million fund was intended for venture capital around the country and a $20 million fund would have been for seed funding for school-based startups. The U did not disclose whether any funding had already been raised for either of those funds.
 
In a news release, U officials cited recent economic downturns and sizable costs associated with managing a venture capital fund at the university as reasons behind the decision. The U expects to now better raise matching equity from outside sources while reducing administrative and management expenses.
 
Six sectors are expected to apply for funding from the new program: medical devices; pharmaceuticals; software; energy and the environment; and food and agriculture. To be eligible, the startup must produce a viable business plan and demonstrate management capable of overseeing operations. The startup must also have secured an equal or greater matching investment from an outside investor and have no other equity capital from other investors before being approved by the U’s discovery capital board of advisors.
 
Companies will be selected based on the U’s potential return on investment, its interest in commercializing technology developed through federally funded research and its desire to facilitate faculty’s involvement with early-stage companies. The new program will be funded by royalty fees the university has amassed from past technologies and products at the office for technology commercialization. The U did not disclose how much funding is available in the new program.
 
Last week, the university announced the launch of a record 15 startup companies in its latest fiscal year, topping the 14 launched in fiscal 2013 and the 12 launched during fiscal 2012.
 
Andrea Wuebker, a spokeswoman for the U’s office of the vice president for research, said the U expects to fund two or three opportunities per year and that U officials will reassess the program’s investments in the future to determine its success.