UM System to invest $5 million in university-affiliated entrepreneurs

Wednesday, October 13, 2010 | 5:53 p.m. CDT; updated 7:48 p.m. CDT, Wednesday, October 13, 2010

COLUMBIA — The University of Missouri System Enterprise Investment program, which opened for applications this month, will invest up to $5 million in university-affiliated start-ups.

Chosen entrepreneurs will receive up to a $500,000 seed to help cultivate their new businesses.

The UM System will draw from its portfolio of investments, worth $2.4 billion as of fiscal year 2009, to fund the program. The purpose is to promote the growth of university-based intellectual property, said Mike Nichols, vice president for research and economic development.

“We thought, why not create our own and invest in the things that come back to the university?” Nichols said. “We’re looking at it in terms of job growth and places for our students to work. This is providing places for our graduates to be employed in Missouri.”

Nichols said that Missouri entrepreneurs have historically faced more investment hurdles than their counterparts in surrounding states and that Missouri’s technology commercialization and innovation output suffers.

Applicants to the enterprise program will find the process similar to that of other seed investment firms. The mandatory university connection buys them a lighter burden of return expectations — many firms ask for a 20 to 30 percent return, while the goal of the UM program is to recoup its investment.

“The most important thing here is return of the investment itself,” Nichols said. “Then it’s perpetual. We can turn that investment around and give it to somebody else.”

No submissions have been received yet.  Nichols said the application process could take several weeks. However, the program has generated interest among local UM-founded businesses hoping to catch a break in a difficult economic landscape.

Rebecca Rone is chief scientific officer of Dermele, a medical device start-up invented during the 2008-2009 MU Biodesign and Innovation program. She said current economic conditions have made it more difficult to raise capital for a high-tech venture start-up. She said the Enterprise Investment program is "a great opportunity to help in getting the innovation to the market."

"This initiative to increase the success of early stage companies through financial support will not only enhance the development of the technology but also benefit the University of Missouri and the community," Rone said in an e-mail.

Other U.S. universities have similar ideas and are investing in programs that support campus-affiliated technology start-ups. For instance, the University of Washington has recently contacted the UM System to learn more about the business model of the program, and Colorado State University has already enjoyed the success of its own private equity investment fund.

CSU Fund 1 focuses on Colorado State University-connected technologies. The company made its first investment with Prieto Battery Inc., created by CSU chemistry professor Amy Prieto.

"Because the fund was committed to supporting CSU ideas, they were able to commit earlier and faster," Prieto said. "I got the definite sense that I would get the support and resources that I would need."

Two successful clean-energy start-ups got off the ground in the past 12 months. Prieto CEO Tim Reeser said neither would have done so without the support from Fund 1.

"Most universities in the country did not have a single clean-energy start-up last year," Reeser said. "(This was) due in large part to the constrained seed capital markets."

UM System schools now have an opportunity to emulate the success of CSU. Nichols said he hopes that investing in the development of MU-linked organizations will act as a gateway to larger investments for the companies and help foster a new breeding ground for technology.

“It is remarkable how technology-based businesses can grow a whole culture of innovation,” Nichols said.

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