UC Investments: Not Just Another Fund

The University of California announced recently that Vivek Ranadivé would lead its new $250M UC Investments fund. From the announcement:

“This venture will support the research and entrepreneurship of UC faculty and student researchers whose discoveries can benefit people throughout California, the nation and the world,” UC President Janet Napolitano said. “Vivek is a leader who can make that happen. His involvement will enable us to achieve our objective of capitalizing on UC innovation.”

Universities have for years been limited partners in venture funds, and in some ways this is no different. But it is also a sign of significant underlying changes that have been underway for years, most dramatically at the flagship campus, UC Berkeley.

A Spotlight on University-Enabled Entrepreneurship

Starting a fund shows that UC is finally taking entrepreneurship seriously. Research labs at UC have long provided technology and talent to startups. Each year nearly a thousand computer science graduates from UC Berkeley find jobs at nearby companies in San Francisco and Silicon Valley. At the same time, the University endowment and pension fund places capital with venture funds that invest in many of the same companies. With talent, technology, and capital all available in the same place, the University is becoming an ideal environment to start a company.

My experience shows how the university can provide a safe harbor in the fragile early stages, which gives founders the space to learn and build without short-term pressure from investors.

After graduating from Berkeley in 1999, I moved across the Bay to Stanford to work on a PhD in computer science. I joined a research team led by a young professor fresh from MIT. The dot-com bubble popped the following year, but we were sheltered from it and spent our time building research prototypes and publishing papers. Our research was supported by DARPA, the same government agency that originally funded the research that became the internet.

Eventually, we decided to take the leap to start a company. We struck a deal with Stanford’s Office of Technology Licensing (OTL) to exclusively license our technology. This was necessary because Stanford owned the intellectual property, as it was developed using Stanford resources and relied on government funding granted to a Stanford research team.

It turned out to be a good deal. In exchange for less equity than what YC typically takes, we were able to spend four years and millions of dollars building prototypes for a highly complex product. It was as if DARPA led our Series A on unimaginably good terms.

Instead of optimizing our pitch for a flashy demo day filled with prospective investors, we optimized our product for converting prospective customers. We had an early product built during our research years, so we started to sell immediately. This meant we had revenue — and with revenue we could bootstrap. Over four years, we reached 90 employees without any external funding while achieving high growth. When we finally did raise venture capital, we did so on good terms (it is easy to raise money when you don’t really need it). In short, being a university startup gave us a healthy start, which allowed us to retain focus on our customers, our product, and our business.

Coverity grew to 300 employees by the time it was successfully acquired in 2014. Stanford’s equity stake returned well over $5M.

When I reconnected with Berkeley after Coverity was acquired, I wondered, “why not here?” Berkeley has world class research and abundant talent. Capital has been less attentive to Berkeley but that’s changing. Venture capital firms have set up meetups, contests, and even entire funds dedicated to startups with Berkeley ties long before the announcement of UC Investments.

I think the missing ingredient has been culture. Stanford has long cultivated entrepreneurship among its students and faculty, whereas Berkeley has been inattentive and, at times, ambivalent. But that is changing. The startup world’s center of gravity has shifted from Silicon Valley to San Francisco, which is physically and culturally much closer to Berkeley. Interest in entrepreneurship has skyrocketed on campus in the past couple years. I’ve met with many students and professors taking real risks with their careers to create new companies. Students have formed groups such as Free Ventures to encourage fellow students to explore entrepreneurship. From the top down, the University started the SkyDeck accelerator, Founder’s Pledge, Signatures Innovation Fellows, and many others.

The formation of UC Investments takes this to another level. First, the financial commitment of $250M is substantial, rivaling some medium size venture capital funds. Moreover, the formation of UC Investments signals to the entire UC faculty and student community that entrepreneurship is supported, encouraged, and vital to the mission of the university to “benefit people throughout California, the nation and the world.”

In future blogs I plan on addressing some of the unique opportunities and challenges of university startups. Have feedback, questions, topics you’d like to see addressed? Contact me on Twitter @_achou.

Many thanks to Jeremy Fiance, James Cham, Junfeng Yang, Kurt Keutzer, and Pieter Abbeel for feedback on drafts of this article. The opinions reflected here are mine, not necessarily theirs.