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Universities and Angel Groups Explore Working Together to Further Entrepreneurship

Source: Angel Capital Education Foundation Newsletter

In March, representatives from angel groups and private and public universities from across the US participated in a mini-conference organized and hosted by the Office of Technology Transfer and the McGuire Entrepreneurship Program of the University of Arizona. The goal of the forum was to review best practices and explore models for interactions between universities and organized angel groups.

“If you are an angel and you think about Google, Genentech, or Amgen, you think, boy, I ought to be at a university watching what is going on,” says conference attendee Bob Okabe, angel investor and managing director of RPX Group in Chicago. “But when you get in there, you find that there can be a wide variance between your goals as an investor and the objectives that the university might have.” RPX Group works with universities, research labs, and corporations to create startup companies from their innovative technologies.

The Arizona mini-conference came about as an outgrowth of a grant that the University received from the Ewing Marion Kauffman Foundation to study and experiment with a model for structured, reproducible interaction between universities and angel investors.

“The University of Arizona and Desert Angels of Tucson have been in a partnership since 2007 to increase the flow of lower-risk startups from university research and development into commercialization,” says Patrick Jones, director of the Technology Transfer Office at the University of Arizona in Tucson and mini-conference host.

“Part of our approach was to make it a learning exercise and then to share our learning with other universities and angel groups. We were amazed at the number of different patterns of engagement represented, from formal to informal,” Jones says.

Angels and universities share some goals but priorities and focus differ

“What came out of the meeting is that there is no one right way to interface as an angel with a university or as a university to interface with angels,” says Okabe. “While angel investors have three relatively consistent objectives—to make money, participate as mentors and board members in the startups they fund, and foster development of new businesses and jobs in their communities—universities can have multiple and diverse goals.”

Conference participants identified numerous university goals, including the support of basic research, faculty recognition, and satisfaction with the support and progress of faculty discoveries and inventions. There is the educational aspect of getting students involved, giving them a real-life entrepreneurial experience. Economic development may also be a goal, especially for state-run universities. Universities typically also seek a financial return from licensing the intellectual property, just as angels do by participating in equity.

“This broad range of benefits and goals can create challenges for angels,” Okabe says. “While angels might vary on the level of participation and desire for community gain, their primary objective is to make a certain return on their investments. For many universities, providing a neat learning experience, supporting faculty members, and raising the quality of the students and school can matter as much as creating a financial return. This can make it difficult to pin down a universal strategy.”

At the conference, Okabe reported on a recent RPX Group study of thirty universities. The range of investment in research that generated a startup at the respondents ranged from $30 million to $300 million. The study found that while most respondents had programs that included an office of technology transfer, a business incubator, a technology park, networking events, and business plan competitions, there was no correlation between the number of programs a university had and the rate of startup formation or success.

“Everyone is following a kind of play book,” Okabe says, “but the results vary widely.” He likens it to following the instructions on a cake mix box.

“Everyone who follows the instructions will get a cake, but each cake will be different. Some will be delicious and others not so tasty,” he says. “Environments are different; things don’t always go swimmingly,” he says. “We can’t be so proud that we baked a cake that we don’t care about how it tastes. One of the benefits of this mini-conference was to hear about different ways to adjust the recipe. As angels, we have to understand that every university is different. There is no single answer. We have to try and figure out an approach that works and then take the initiative.”

Desert Angels and University of Arizona create a model to commercialize lower risk deals

The University of Arizona and the Desert Angels have formed a partnership that Jones says looks like an options fund to the angels and a research contract to the University. Called the Arizona Enterprise Program, the arrangement structures angel involvement in University projects; provides an agreement and terms that fit the business models of both parties, and attempts to match business and technical risks before a company based on University technology is formed.

A key element of the partnership is the Desert Tech Fund. The fund invests the money to build proof-of-concept, proof-of-application, or prototypes with intellectual property coming out of the University. The fund then has the option to create a company based on licensing technologies that prove successful and scalable. Desert Angels manages the fund. Participation is voluntary at a target of $25,000 per unit.

Jones says it is too early to evaluate results. “We have learned that there cannot be too much educating on both sides,” he says. “Project selection is key, and determining the scope, size, and right level of due diligence is tough. It’s been a very good interaction so far, and we have learned a lot. We have to get a few more technologies further down in the pipeline to see how this will come out.”

IrishAngels and University of Notre Dame share commitment to education and Notre Dame DNA

“IrishAngels is connected to the University of Notre Dame, with elements of separation as appropriate,” says Theresa Sedlack, director of Private Sector Engagement at the Innovation Park at Notre Dame.

All IrishAngels are accredited investors, but investing is an optional aspect of membership. The primary mission of the network, which was formed in 2000 and has grown from fifty to 265 members across thirty-five states, is education and mentoring. About 70 percent of IrishAngels members participate in educational activities; about 35 percent are investors.

“There is no hard and fast time requirement, but more a willingness to give back in terms of providing the kind of mentoring and participation that can make or break a process,” Sedlack says. “Our members serve as adjunct professors and guest lecturers through the University’s Gigot Center for Entrepreneurial Studies. They greatly enhance the student’s entrepreneurial education by judging business plan competitions, creating and provide internship opportunities and providing career advice for Notre Dame students.”

A variety of University entities have current or expected future involvement with IrishAngels including a business plan competition and an annual fall investment forum, now in its sixth year. “The forums have grown incrementally in quality, number of attendees, ventures, and the funding that those ventures have received,” Sedlack says.

A defining characteristic of potential deals continues to be an affiliation with Notre Dame, described as the presence of Notre Dame DNA, versus the geography or industry filters that are seen with most angel groups.

In addition to funding executed through the IrishAngels network, investment has come from seed funds and Fish Taco Ventures (FTV), an entity wholly independent of the University yet aligned in mission, which manages funds comprised primarily of investors who are IrishAngels network members. FTV manages an early stage fund and a more advanced angel fund.

“Significant process improvements have been made in the past two years to put some distance between the educational and funding processes,” Sedlack says. “This separation allows time for both the entrepreneurs and prospective investors to consider their interests and be disciplined in their evaluation of opportunities going forward.”

IrishAngels network members are expected to play a significant role in the newly created Innovation Park at Notre Dame, a commercial accelerator under construction just south of Notre Dame’s campus. Members of the group will provide valuable market expertise for ventures located in the Park, and the Park will present the network’s investment forums.

Angels and universities see potential in the entrepreneurial ecosystem

“What I see is that both groups of people—angels and universities—believe in their communities and want to see them succeed,” Jones says. “These activities aren’t the responsibility of any one group. All these things involve people and building a network and bridges to give each side a new appreciation for the other.”

Continuous interaction builds working knowledge between all sides of both groups and contributes to success. “The main requirement seemed to be a framework where real people have real things to do together. That is not a surprising return in certain ways. It’s like any business, the more you interact, the better you will understand your business partner,” says Jones.

“The right match,” says Okabe, “may be where the angel group understands that the university doesn’t necessarily speak with one voice and may have multiple goals—sometimes set by the chancellor, the technology transfer office, or individual faculty members—and the university understands and is respectful of angel group’s primary goal of return on investment.”

Material presented the mini-conference are available at http://ott.web.arizona.edu/UniversityAngel.php.