iOver the summer, the University of California (UC) System, with President Janet Napolitano at the helm, shifted a fundamental policy common with many university systems. She rescinded the “Guidelines on University-Industry Relations Policy,” in place since 1989, which prohibited the university from investing directly in companies emerging from UC research. Shortly thereafter, during the week of Sept. 15, 2014, the UC Office of the president proposed, and the UC Board of Regents approved, to create a $250 million venture capital fund, which will be funded by both the UC Pension fund and general endowment fund (not state funds or tuition). While certainly positioned to operate as a traditional fund developed to benefit from its investments, UC Ventures is also dedicated to capturing “the economic value the University of California is creating through its pioneering research. ….” 
UC Ventures will be able to invest directly in UC-based startups, and is positioned to take advantage of a huge research enterprise, which boasts income last year of over $100 million from royalty and license activities[1]. Further, there are significant players – venture groups, incubators, and industry presence – already at the table to further enhance the necessary infrastructure around the various UC campuses.
Many examples exist of universities supporting their innovation, and even investing in it. The NYU Innovation Venture Fund was created in 2010 as an evergreen fund with $2 million initially to focus on NYU startups. In 2011, the University of Texas System’s Horizon Fund was formed with an initial $10 million infusion with the intent of growing to over $20 million. But the recently announced UC System fund, at $250 million, should look (and act) more like a traditional VC fund, sending a message to all institutions, even public ones – the trend of bringing together universities and commercialization is continuing, and the levels of involvement of universities is growing more sophisticated and integrated.
Technology commercialization out of universities is nothing new, but there is often an argument surrounding the level of involvement universities should have. Issues include the nature of faculty member ownership or control of the intellectual property (IP) rights they develop, or whether having a stake in the commercial interest of a technology affects research integrity. Universities approach these issues differently. Some are conservative, while others are pressing forward with new models for others to emulate. As systems consider investment scenarios such as UC Ventures, additional risks emerge, including whether a university system can both support its mission of furthering its research efforts and still maintain a sound investment strategy.
Endowments related to universities are not totally risk-averse. In its 2013 study of endowments, the National Association of College and University Business Officers Commonfund Institute shows that, for endowments over $1 billion, asset allocations for “alternative strategies” averaged over 50 percent. Overall endowment performance in such alternative strategies returned 8.3 percent on average, net of fees. Alternative strategies were defined to include private equity, marketable alternative strategies (such as hedge funds, absolute return, market neutral, long/short, 130/30, event driven and derivatives), venture capital, non-campus private equity real estate, energy and natural resources, commodities and managed futures and distressed debt. While other allocation classes may carry greater risk profiles, the participation in venture capital investments do occur and with some regularity.
It then might suggest that if these endowments have embraced these investment strategies, they could somehow find a way to support their research enterprise by directing investments into a vehicle like a venture fund. The UC System may very well be successful at this, but it may not serve as a good example for others. It has a critical mass of research funding and startup activity, as well as a very dense and accessible stable of entrepreneurs, industry contacts, private venture funds, angels, and incubator models to work with. Before university systems consider to what extent they might direct investments into such areas, they should think carefully to what extent its commitments can be supported by such infrastructure. UC Ventures is an exciting development, and the UC leadership should be applauded for its commitment to furthering its research and innovation. But the allure of going venturing, especially in a community accustomed to benchmarking from their fellow institutions, may outpace the structural wherewithal to succeed.
[1] See Association of University Technology Managers (AUTM) Annual Survey.
