The University of North Carolina recently announced the creation of the Carolina Research Venture Fund, a $5 million pool marked for investment in early-stage startups utilizing university intellectual property. According to university officials, this fund will fill a funding gap that has made it difficult for fledgling startups to commercialize their intellectual property.
April 14, 2015
$5M Up For Grabs With UNC’s New Venture Fund
Here's why the Carolina Research Venture Fund is a big deal for the capital-strapped Triangle region.
UNC’s fund is part of a growing national trend of universities creating funds to finance startups. UC-Berkeley, Virginia Tech and the University of Chicago have similar initiatives and Duke just announced the Duke Angel Network and Duke Innovation Fund to support its entrepreneurs.
UNC is a top 10 research university, but there is a disconnect between the federal research dollars flowing into Carolina and the commercial success that research produces. University officials say that this fund will help bridge that divide and maximize impact on the state and national economy.
Over the last two years, around half of the startups coming out of UNC were assisted by the university’s Office of Technology Development and utilized intellectual property of faculty and students. But there was no way for the university to also help fund the companies, and share in their financial success as they grow. And throughout the Triangle, entrepreneurs cite a shortage of capital as a key barrier to accelerating their companies.
It’s the reason accelerators like Launch Chapel Hill, Groundwork Labs, the Citrix Sharefile Accelerator and The Startup Factory exist, why venture capitalist Steve Case will visit the Triangle in May to invest $100,000 in a promising company, and why Google for Entrepreneurs is actively promoting hubs outside Silicon Valley with its Google Demo Day and other programs.
Dr. Gregory Lewis is a professor in the Department of Psychiatry and one of the researchers who developed a technology called PhysioCam, a physiological sensor that allows doctors to measure vital signs through a video camera without any physical contact with a patient. UNC and the University of Illinois at Chicago where Lewis received his Ph.D. jointly own the intellectual property behind PhysioCam. He recently joined the faculty at UNC and is hopeful that the venture fund could help his team take the next step.
Funding could help Lewis and his team determine which of several different potential commercial applications for PhysioCam, including fitness monitoring, mental health intervention, security checkpoint assessment, early identification of infection and remote monitoring of patient health.
The road to the Carolina Research Venture Fund began in 2009 when UNC conducted a survey of its innovation ecosystem under then Chancellor Holden Thorp. After a thorough study, Thorp, Cone and others set out to maximize Carolina’s potential as an innovation hub.
Since then, the university has invested in innovation spaces like Launch Chapel Hill, 1789 Venture Lab and a new Makerspace with 3D printers and scanners, among other tools. It has also devoted more resources to the Carolina Challenge and other opportunities for students.
“I think the university is looking at a comprehensive ecosystem to support innovation and entrepreneurship. Funding is one strand in that ecosystem,” Cone says.
Carolina is not the only university in the state looking to connect its entrepreneurs with much-needed capital. Duke recently launched the Duke Innovation Fund with a $2 million commitment from the university and is actively seeking more donors to expand. The Fund will invest in cooperation with the Duke Angel Network, an initiative to connect alumni investors with current student-entrepreneurs.
But not everyone is convinced that universities should be in the venture capital industry. Dileep Rao, a professor of entrepreneurship at Florida International University, is critical of university attempts to fund early-stage startups. He cites the relatively low success rates of venture capital firms as reasons universities should stay away from funding startups.
“Basically, I see it as the triumph of hope over reality,” Rao told the Washington Post in February. “When you look at the real numbers, I think it paints a vastly different picture.”
Cone says the university plans to mitigate much of the risk by hiring an experienced manager with a proven track record of success and by consulting with national venture capitalists for feedback. The Board of Trustees is currently in the process of selecting a manager.
“I think one of the things that is an important ingredient is having a really seasoned manager,” Cone says. “Any fund that is set up by a university needs to have a seasoned manager if they’re really looking for a return on investment.”
It is also worth noting that no public funds or tuition dollars will go into the Carolina Research Venture Fund. Funding comes from other investment earnings and any returns will be reinvested in the fund.
For a university with a nearly $2.7 billion endowment, $5 million is not a large fund. The hope however is that the pool will grow, and any amount can make a difference for early-stage companies with university-owned intellectual property. As director for UNC’s Center for Entrepreneurial Studies Ted Zoller told the Daily Tar Heel, “I think it jump-starts us and takes us to the next level. It allows us to attract a wider set of investors in university projects.”
John Mellnik is the CTO of Path BioAnalytics, a UNC spinout that creates safer and more effective medications. Mellnik believes one of the biggest advantages of a program like the Carolina Research Venture Fund is added efficiency.
“The process of raising funds always takes longer than you hoped and that time and effort could have been spent interacting with potential customers and refining your service,” says Mellnik.
Mellnik, a PhD in Bioinformatics and Computational Biology, hopes that by integrating itself into UNC’s startup community and developing long-term relationships with entrepreneurs before they need their first financing, the venture fund will be able to streamline the funding process much in the same way the Office of Technology Development has streamlined the licensing of university intellectual property.