This is very interesting but also potentially problematic. It’s interesting and positive because the funding that allows ideas to be spun out of research labs at universities is in perilously short supply. The absence of seed stage capital is holding back a lot of great ideas. The potential problems are in how the university manages this $250 million fund. The article says the fund will be managed by an independent team of experienced investors. That formula sounds right. But the temptation for the university to influence the management team to support certain professors will be great. Can the university keep its hands off? If the university does get involved, the fund is likely to make the wrong sorts of decisions and will therefore lose money. Another danger is that the university will press the management team to make too much money too quickly, which would skew its decision-making away from the long-term gentle nurturing that often is required for a start-up to make it. The devil will be in the details, as always:

University of California Plans Venture-Capital Fund for Campus Startups

Investment Pool, at $250 Million, Would Be Among Biggest Targeted for Student, Faculty Research

The University of California is planning a $250 million venture-capital fund to finance startup companies stemming from research conducted by its faculty and students.

The fund, seeded with money from the UC endowment, would be one of the largest of its kind, targeting work done at the university’s 10 campuses, five medical centers and three national laboratories. A proposal to establish the fund is set to be presented to the governing UC Board of Regents on Wednesday. The plan was posted online Monday.

Academic research is becoming increasingly entrepreneurial. The number of
university-launched startup companies topped 800 nationally in 2013, up from just under 600 in 2008, according to a survey by the Association of University Technology Managers, a group that tracks the licensing of research discoveries and innovations.

Most major research universities, including Stanford University, New York University and the University of Texas, have created incubators and accelerators to explore commercial uses of research conducted on campus. Several institutions have launched independent funds to invest in their innovations developed on their campuses—though most are smaller than the pool proposed by UC.

“If they aren’t doing it, they should be thinking about doing it,” says Jagdeep Singh Bachher, the University of California’s chief investment officer. “There is a great opportunity for everyone not only to foster research, but to find ideas to make commercially successful.”

The shift to a more entrepreneurial approach hasn’t enjoyed unanimous support—particularly when assistance comes directly from the university. Some faculty members have expressed concern that such investment activity favors certain departments over others and fosters a competitive, market-driven atmosphere that isn’t conducive to pure academic research.

Organizations across the UC system criticized policy changes announced earlier this year that permitted the university “to make direct financial investments” in startups launched by its researchers.

Joe Kiskis, a physics professor at UC Davis and a member of the Council of
UC Faculty Associations, said: there are “fairness issues” because such
investments tend to reward the type of research that could become
commercially successful. “Judgments about faculty support…are supposed
to be made on the basis of the quality of scholarly work or research,
not the basis of whether or not this is something that could make
money.”

Aimée Dorr, the UC system’s provost and vice president of academic affairs, said she understands that faculty members “want structures and support that help each of them
to engage in work they really want to engage in.”

It is a perennial concern that different fields of research go in and out of vogue, and whether they’re commercially viable or not changes over time—and that affects research funding from all sources, she noted. New policy guidelines are in development, and faculty will be involved in reviewing them, she added.

During the past 30 years, the University of California has invested $2 billion in
venture-capital funds, some of which have put money into its own
startups. Rather than go through the extra step, the planned new funding
entity, UC Ventures, would focus specificallyon opportunities “arising
from or associated with the UC ecosystem,” according to a copy of the
proposal reviewed by The Wall Street Journal.

The fund would be managed on the university’s behalf by an independent
team of experienced investors. The university would advise the UC Ventures team on applicable conflict-of-interest and conflict-of-commitment policies, the proposal states.

Of the university’s $9 billion endowment, $250 million would be a “tiny sliver,” Mr. Bachher said. “If we can take…that capital and invest it in a disciplined manner in partnership with the community we have here, and if the lion’s share of those profits could come back into the university and our endowment, what better way to fuel the innovation environment?”

University officials say the fund would take a “long-term” investment role in startups, so
researchers won’t have to focus on fundraising as their work moves forward.

To date, more than 700 startups have formed to commercialize the school’s research. Since 2005, such startups have generated $5 billion in venture capital, according to the
university.

Ekso Bionics, founded by Berkeley researcher Homayoon Kazerooni, developed a groundbreaking robot exoskeleton for use in rehabilitation programs for patients with
paralysis from stroke, spinal-cord injury and other neurological conditions. Transphorm, founded by UC Santa Barbara professor Umesh Mishra, has developed electricity-saving technology that can be used, for example, to get rid of rectangular adapters on power cords.