Finding ways to fund university technologies and start-ups is one of a TTO’s biggest challenges that increasingly requires creative solutions. Here’s one from the University of California, Los Angeles (UCLA), which is using a novel concept in funding that creates a sort of circular giving.
The UCLA Venture Capital Fund invests in university start-ups and provides mentoring, and the start-ups that participate must donate stock in the companies back to the university. This approach is different from the more common practice of universities simply taking equity in a start-up, explains Michael Silton, executive director of the fund and the developer of this strategy he calls “cashless giving.”
“This model is an interesting way to fund a capital fund and also create a virtuous cycle of giving back to the next generation,” he says. “Unlike traditional venture capital funds that are started by someone giving you millions of dollars of cash that you go out and invest for a return, we have said that we want to catch people as they are starting companies and have them donate part of that company back to the university at a time when it is still just the promise of something more.”
A key aspect of the strategy is that the start-up actually is only pledging the company shares of common or preferred stock and promising to make the actual transfer when shares are distributed at a later date — for example, when the company has a merger or IPO. Looking forward to that date, the UCLA community is motivated to help the start-up and turn that donation into liquidity, Silton says. The company shares are pledged while they have a lower valuation, and then UCLA benefits from the appreciation of the shares. The liquidity is then used to help the next generation of start-ups. A detailed article on the “cashless giving” model appears in the February issue of Technology Transfer Tactics. To subscribe and access the full article, as well as our subscriber-only library filled with hundreds of case studies and TTO success strategies, CLICK HERE.