20 Aug Introducing the IU Philanthropic Venture Fund: The Cutting Edge of Innovation
There is a concept in ecology called the “edge effect,” an idea which describes how there is greater diversity of life where two ecosystems interact. Between the land and the water, or where forest becomes grassland, new species that might not find success in either environment can find a home. This same concept informed the ideation and creation of the IU Philanthropic Venture Fund (IUPhV). Companies that exist in the edge environment between IU and its global network of supporters have greater opportunity to thrive in unique ways. IU Ventures’ mission includes not only supporting and raising up these exciting startups, but also using that work to create an evergreen fund for future investment.
IU Philanthropic Venture Fund History and Development
The idea for the IU Philanthropic Venture Fund emerged when IU Ventures was still known as the IURTC. Alumni of IU wanted to donate to an IU spin-out, but some expressed the desire to designate the equity to the University, rather than take the return themselves. So, why not raise a donated pool of capital that could become evergreen as the startups it invests in make successful exits?
“This idea was really the work of IU friends, family, donors, alumni, and supporters who are passionate and always looking for new ways to support the University,” said Teri F. Willey, Executive Director of IU Ventures and the Fund Manager for IUPhV. Willey was encouraged to consider joining IU in this effort by retired venture capitalist and passionate IU alumna Jane Martin. Martin thought Willey was essential due to Willey’s experience helping other universities devise and launch unique ways to support new university-related ventures.
“People know economic development is important, so I think this is a great way to create jobs, to develop an evergreen fund that perpetuates itself, and continues to give back,” said Martin. “I’m excited to see IU become one of the few institutions that has the whole package together, from pre-seed to mentoring all the way to eventual exit.”
To launch the fund, Indiana University made a commitment of $15 million. “This commitment from IU makes our project more tangible,” Willey explained. “It gives us a chance to carry out the mission of the fund and demonstrate what it can do, so we have relevant examples of impact to share with potential donors.”
How Does the IU Philanthropic Venture Fund Work?
Rather than contributing directly to a startup or business as an investment, donors to the Philanthropic Venture Fund contribute to the fund. The fund then invests in spin-outs and when the companies make exits, the equity from the investment returns to the fund and can be used to support more businesses. “We want to continue to create ways in which alums and friends of the university can support IU in ways that are interesting to them, and that they’re excited to tell others about,” said Tony Armstrong, President and CEO of IU Ventures. “Programs like these provide that opportunity for the new generation of donors.”
Indiana University already has stakes in many businesses that have been created using the University’s intellectual property over the decades. In the last ten or so years, Willey shares that there have been over a dozen such companies that made successful exits from the startup stage that led to equity returns for the University. “Through those efforts to commercialize new ventures, Indiana University has made money to reinvest in programs, and the other equity holders did well too,” she explained. “So, this is a chance to take something that is already working and capture more of the resource to support initiatives at IU.”
Examples of IU Philanthropic Venture Fund Success
The IU Philanthropic Venture Fund was launched in March 2018, and since launch the fund has invested in 12 startups. One example Willey shared is a medical research initiative focused on treatment for metabolic disorders. Not only is this project rooted in IU’s intellectual property, it is being led by a successful serial entrepreneur who has recently exited two other businesses. “It’s small but has raised $2.3 million that will fund the study of these therapies and tech right away,” Willey explained. “Once this proof of principle is established, the company will raise additional funds and evolve to look more like a traditional company.”
A second spin-out that caught IUPhV’s attention and support is a Software as a Service (SaaS) startup founded by a mainstay of the Bloomington business community with IU alumni co-founders in data science and business. They developed a product that helps utility providers keep track of where their utility infrastructure is located. “The founders went out to ask their target market about the idea and test the concept, and they came back with sales,” Willey said. “We helped the founders through a seed funding round and now they are on their way to being a well-regarded new company.”
Willey says that aside from the necessity of a strong IU connection at the spin-out, IUPhV operates a lot like a traditional venture fund. “We are focused on businesses formed to commercialize the innovation of the university or founded by alumni, but other than that our decision to invest is based primarily on standard venture investment case criteria.”
The Future of the Philanthropic Venture Fund
With promising successes already in the IUPhV’s portfolio, Willey says that the next year is all about proving the principle of the IU Philanthropic Venture Fund. “We have just started fundraising with potential donors to make the most of the promise and the proof,” she says. The biggest change on the horizon is growing and managing the fund’s portfolio. “We’re tracking equity assets, adding management tools, staying in touch with the businesses, and doing what we can as equity holders to keep each company tipped in a positive direction.”
This level of engagement is one of the places Willey and her colleagues are excited to call on the IU alumni network for mentoring and networking support. “Who is best-suited to serve in the advisory role or on the board, and how can they bring value to the company? It’s wonderful when we can connect the right person and engage them, let them learn more. A domino effect like that is very positive for us.”
IU Ventures CEO and President Tony Armstrong agrees. “I think our alums become our ambassadors in some places, so ideas happening here can get plugged in around the world and vice-versa. We’re building from a place of strength and it’s only going to illuminate what we’ve done in the past and accelerate what’s already happening.” Indeed, the IU community reaches far and wide, and IU Ventures is excited by the prospect of connecting hubs of IU alums and supporters in cities throughout the United States in order to create new opportunities for students, alumni, faculty, donors, investors, and friends of Indiana University alike.
Other tangible steps for the growth of the IU Philanthropic Venture Fund include the launch of a student internship program and a focus on relationships with co-investors. “If we are first money in, it’s about finding others to follow us, or vice versa. If something comes up in another portfolio with an IU connection, we have a chance to work with the other fund, to share risk and workload,” Willey described. “Dealing with co-investors across the globe will build a greater and greater respect of what we’re doing here in Indiana, at IU.”