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Venture search funds floated as way to tap endowments, attract start-up talent


By Jesse Schwartz
Published: May 30th, 2018

Tech transfer leaders know the frustration of having valuable, innovative research that could be translated into a potentially valuable start-up if only the right entrepreneur expressed interest and could secure necessary funding. Even more frustrating is knowing that most schools have tens of millions in their endowments invested in companies and financial instruments that don’t have any impact on helping their own start-ups get off the ground and create potentially high rates of return.

Of course, endowment investment committees are understandably risk-averse, and the potential for conflicts of interest and favoritism also serve as barriers for direct investments in university start-ups. But those barriers could be overcome — and university endowments could become a critical source of startup funding — using a “venture search fund” model proposed by a Cincinnati-based venture capitalist. It involves searching for experienced entrepreneurs and using university endowments to invest in independent venture funds that back a diverse portfolio of those founders and their companies.

The venture search fund concept addresses some of the most common commercialization challenges universities face, says Tim Schigel, partner with Refinery Ventures in Cincinnati, OH. Schigel endorses a venture search model in which the university works with a VC firm to fund promising entrepreneurs — entrepreneurs you hope will commercialize your own IP.

The idea is based on the search fund model developed in the 1980s for acquiring and managing mature businesses, Schigel notes. In this model, there is a “jockey,” a “trainer,” and a “horse,” he explains. The jockey is the one who searches for existing businesses that are good targets for acquisition, and the jockey manages the business once it is acquired. The trainer is the investor who provides capital and mentors the jockey, and the horse is the company acquired by the search fund.

To apply the model to university tech transfer, the endowment would invest in a venture search fund, which supplies experienced entrepreneurs who act as jockeys to explore business concepts through technology licensed from universities. However, the jockey would not be limited to research generated by any one university.

In fact, Schigel is readying just such a fund for a launch sometime next year, called Founders in Residence (FIRE), which has an advisory board with university representation. He has released few other details beyond the general construct of a venture search model he envisions, which would operate as part of Refinery.

 “We are still in the planning stages,” he says. “I’m encouraging universities to be involved regardless of whether the endowment participates. However, Refinery’s ultimate capacity will be increased with investment from endowments.”

In the venture search model, university endowments would have access to high-growth commercialization opportunities, and the risk inherent in early-stage investments would be mitigated by partnering with experienced venture capital firms, Schigel asserts.

Typically risk-averse university endowments can utilize the venture search fund as a safer approach to supporting campus commercialization efforts, he adds.

A detailed article on the venture search fund model appears in the May issue of Technology Transfer Tactics. To subscribe and access the full article, along 11 years of archives filled with best practices and detailed success strategies for TTOs, CLICK HERE.

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