University startup investments to bring returns

By Rachel Premack, Daily Staff Reporter
Published July 17, 2013

Innovative faculty are not the only ones who stand to benefit from Michigan Investment in New Technology Startups, a University program which invests in faculty startups. By investing in these companies, MINTs could bolster the University’s endowment.

Seven faculty startups that have met the requirements already received funds, of up to $500,000, from the< a href=http://www.michigandaily.com/article/university-invests-first-start>18-m... MINTS program. Five of these are in the healthcare sector and the others are related to development in the field of physical sciences.

The University will also invest $1 million of endowment funds in an individual startup over a 10-year span.

University President Mary Sue Coleman, when announcing the program nearly two years ago, said past faculty startups have returned impressive profits. The Michigan Daily previously reported that if the University invested funds in future startups, it could strengthen University coffers as well as the state’s economy.

Rafael Castilla, the University’s investment risk management director, said one startup could be sold within the next two years, but it’s more likely that the University will have to hold on to the investments for a decade or more.

“We have generally a very long-term horizon,” he said. “We hope there’s going to be a return, but we’re in no rush to sell as soon as possible.”

Associate Engineering Prof. Wei Lu, co-founder of the computer hardware startup Crossbar Inc., said hardware industry generally had returns in the long term. Crossbar’s products, which consist of new architecture for computer memory, will not reach the market for years and the profit margin for these types of products are typically slimmer than software and social media startups. Funding such startups prove more difficult.

Though risky, Lu said hardware innovation revolutionizes computer technology, and Crossbar’s breed of memristor chips could do just that.

“It can be potentially very important and change the semiconductor landscape, but it has not been fully proven yet,” Lu said.

While faculty startup investment programs are uncommon, they are gaining interest. Investments Manager Felicia David-Visser said she’s fielded questions from other colleges for information on how MINTS works.

“There are numerous other institutions that are looking at it or considering it or going to watch it and see how it works out for us,” Castilla said.

Castilla added that implementing an investment program assumes a university is producing significant amounts of research that may be patented and commercialized. In the case of MINTS, all funded startups must be based in technology patented through the University, a Board of Regents document stated.

Ann Arbor-based biotechnology firm Atterocor has close ties with the University beyond its MINTS funding, Atterocor President and CEO Julia Owens said. Its clinical trials for adrenal cancer treatment will take place at the University’s center for the rare but aggressive disease, Owens said.

“We felt we had a compelling story pursuing a rare cancer for which there are very limited treatment options,” Owens said.

She said venture capital firms typically profit from biotech startups like Atterocor when they’re acquired by large pharmaceutical companies, though Atterocor’s drug may not reach the market until 2023.

Castilla said University investment in its faculty’s startups is not new. But prior to MINTS, the University provided venture capitalists with money and those venture capital firms would invest the funds as they wished.

That said, current investment through MINTS is still linked with venture capital firms. Castilla said when startups seek funding from multiple investors at once, a firm leads the round, deciding how much each investor will fund the startup.

But MINTS allows the University to choose which startups to invest in.

“We are able to learn about at least certain innovations at the University in greater depth and detail than we would without MINTS,” Castilla said. “Of course, the University is large and even what we learn represents only a small fraction of the research and innovation happening.”