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January 10, 2017

University Funds Affiliated Start-Ups

Early last month, the University of Chicago announced a new initiative which aims to bolster campus entrepreneurship by funding university-affiliated startups.  

The initiative, called the UChicago Startup Investment Program, will invest $25 million from the University’s endowment over the next decade in businesses that are based on University of Chicago intellectual property or are led by students, faculty, or alumni.  

“The UChicago Startup Investment Program is the next step in the University of Chicago’s commitment to entrepreneurship and innovation,” said University Spokesperson Marielle Sainvilus. “The program will encourage more students and faculty to start companies and it will enable them close their rounds more quickly—bringing more attention and capital to startups going through programs at the Polsky Center.” 

The University plans to give out funds to three or four new companies each year during the start-ups’ Series A rounds, which are first major round of fundraising. No one company will receive more than $500,000 from the Startup Investment Program, and the University will not contribute more than 20 percent of the total amount of money raised by the company during this round. 

The latter requirement is designed to ensure that the program attracts outside investors to University of Chicago-affiliated startups. If a company has one investor, it can often attract others more easily. And by only giving money to companies which can convince other investors that they are viable, the university will limit its financial risk. 

The new program has led to excitement among the University’s student entrepreneurship groups.  

“I think this is a great thing that UChicago is doing which really has the potential to help students get their businesses off the ground,” said Ryan McDonnell, a co-chair of the Booth School of Business’ Entrepreneurship and Venture Capital group (EVC). “Startups are just inherently risky in terms of how much capital they need, and this will help.” 

McDonnell said that although he knows some programs which receive funding won’t involve current students, he feels confident that some student startups will make the cut. 

 “We have some great new programs coming out of the Booth school and EVC,” McDonnell said. “I think people should keep an eye on them—I think they’re going to have a lot of success in the next few years.” 

This program marks the University’s first direct investment in startups. Startups can be a risky investment, since they are new businesses with no established track record.  

Over the past fiscal year, the University’s endowment dropped in value by almost 2 percent, partially due to the underperformance of certain investments. However, Sainvilus said that the Office of Investments is optimistic about the Startup Investment Program’s returns, given its past experience investing in venture partnerships, or groups that invest in startups.  

“Private equity has one of the highest nominal expected rates of return of any of the endowment’s asset classes,” Sainvilus said. “The University has been an investor in venture partnerships since 1978 […] historically, the asset class has earned an [internal rate of return] in the low 20 percentiles.” 

The Startup Investment Program will be overseen by the Office of Investments, which manages the University’s 7.1-billion-dollar endowment. However, preliminary vetting will be run by the Polsky Center for Entrepreneurship and Innovation.

Interested individuals can learn more and apply through the program’s website.

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