State university system plans to create $25 million investment fund for start-ups

The University System of Maryland plans to start a $25 million investment fund for start-ups.

The University System of Maryland plans to establish a $25 million fund to invest in startup companies created by students, faculty and recent graduates.

The system, which includes 12 of the state's public institutions, would invest $10 million in the Early Stage Investment Fund over four years. Another $15 million would come from the state, the system's foundation and other sources.

A Board of Regents committee approved the fund on Thursday. The full Board of Regents is expected to approve it on Friday.

The Maryland system is one of the nation's biggest spenders on research but lags behind other state university systems in spinning off companies. Officials are pushing to change that, in hopes of strengthening the state economy, keeping recent college graduates in the state and attracting top students and faculty.

The state has been investing for years in university-affiliated startups through programs such as the Maryland Industrial Partnerships. But the university system has not had a venture fund like the one officials are considering now.

Regent Gary Attman chairs a board committee that focuses on economic development.

"There's one glaring shortfall that this addresses, which is access to capital," he said. "A number of us felt it's time for us to put our money where our mouth is."

Another regent, Robert L. Pevenstein, hopes the new fund will accelerate the push to spin off more companies.

"Having an investment fund managed by a professional has been shown in other instances around the country to really move this commercialization along," he said.

Tom Sadowski, who started in the new role of vice chancellor for economic development at the university system this year, updated the regents Thursday on those commercialization efforts, including hundreds of university-affiliated companies created in the past few years.

"We've really started to turn the ship around," he said.

More universities have been launching investment funds in recent years. The University of California system put $250 million into a fund in 2014 to invest in companies affiliated with its universities and hospitals. The University of North Carolina started a $10 million fund and Virginia Tech joined with two partners to create a $15 million fund.

"There's lots of schools that have them," said Karyl Leggio, a finance professor at Loyola University Maryland. "If you're going to teach students entrepreneurship, the best way to learn is to do it."

Since investing in early-stage companies is risky, Leggio said, the system should keep its investments small and numerous.

"When you're looking at investing in early-stage companies, you make a lot of small bets, and most of them will fail," she said. "But all it takes is for a handful of them to become successful and your returns will be wildly successful."

The Maryland fund would be open to companies located in university research parks, university incubators or RISE Zones, which are areas around "anchor" institutions with financial incentives for economic development and neighborhood revitalization.

The system established a small fund that invested $400,000 in five startups in the 2015 fiscal year, but it was limited to companies that licensed intellectual property from the system. That excluded many promising companies that didn't license intellectual property, officials said.

Investments in the new fund could start later this year.

The University of Maryland, Baltimore and the University of Maryland Baltimore County have identified startups in biotech, medical devices, cybersecurity, environmental sciences and energy that officials would like to invest in.

Any returns from the investments would be reinvested into the university system, Attman said.

The system would hire an investment manager and establish a board to vet potential investments. It typically would invest $50,000 to $500,000, with larger investments requiring at least an equal match by outside investors.

Chancellor Robert L. Caret said the University System of Maryland Foundation also is examining a proposal to create seed funds to invest in university-affiliated startups, creating another avenue for the growing companies to access investment.

cwells@baltsun.com

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