University foundations could fund startups

The news report that the University of Wisconsin Foundation jumped 21% in value in 2011 to $1.9 billion triggers the thought that universities are missing a good bet.

You know the adage: a strength can be a weakness? Well, the reverse is also true in some circumstances. A great weakness at many great universities, like the University of Wisconsin – Madison, is that it has a poor track record of turning its intellectual property into successful companies. Most big R&D universities do a pretty good job with patents and licenses—Madison does a great job through its technology transfer arm, the Wisconsin Alumni Research Foundation.

But their track records dim when measured by the number of startup companies. Yet, that’s where the citizens and taxpayers get the biggest returns on the taxes they pump into the campuses.

Entrepreneurs create wealth when they commercialize a piece of intellectual property; they are the only real job creators in the country; and they invariably become the biggest philanthropists for their alma maters.

Further, what good is IP if it is not taken to an application in the marketplace? That’s what entrepreneurs do.

So, what’s holding back the entrepreneurs? Invariably, it is the paucity of early stage investments.

The blame lays partly at the feet the venture capital industry, whose overall track record — Facebook and Google aside — is not very good.

But the track record of angel investors is much better, because battle-scarred angels bring savvy and expertise to their startup investments. They are hands on. They’ve made the mistakes in their careers and can help the entrepreneur teams avoid similar mistakes.

Universities have a good feel for their own IP, and they have their foundations, a source of capital. And they have potential mentors for young companies in their alumni base.

Why would they not take a small slice of their huge portfolios and invest it into startups on their campuses? Their fund mangers will take risks on hedge funds and emerging markets. Why not local deals as an alternative investment?

One-tenth of one per cent of the UW Foundation would create a fund of $19 million, enough to launch more than 20 companies.

The same case can be made at Marquette with $401 million and the Medical College of Wisconsin at $488 million.

Universities are at the center of the Innovation Economy. They turn out the graduates who are the talent for the new economy, and they generate IP. That, for them, is their supply side role.

But they also have a role on the demand side, in building the economy and the job base. Early stage investing would become them.

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  • Jhildebrandt

    How better to encourage and embrace “The Wisconsin Idea”?

  • Ajdines

    Well said! This is an idea that deserves action. The Midwest is a modern day colonial economy.  For the most part Midwest foundations ship our money to the coastal VCs and we buy back the products produced by the companies they start.  (a Brookings study found that nearly 40% of LP investments in VCs came from the Midwest – in contrast, about 13% of VC investment takes place in the Midwest).  There was a time when Cleveland was about as bad as Wisconsin in VC investments made into their community.  Local foundations joined together, pooled some of their funds allocated to alternative investments, and created entities like BioEnterprise and Jumpstart that are now enabling local entrepreneurs to put their innovations to work.  Early stage investment in the Cleveland area jumped from tens of millions per year to many hundreds of millions per year.  The solution for Wisconsin is obvious – we need to start investing in ourselves.

    • Lorrie H.

      Fully agree with Allen and Joe – two great leaders who invest their time, talent and money in start ups.