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U. of C. Investing $25M From Endowment Into Its Own Startup Companies

By Sam Cholke | December 3, 2016 2:04pm | Updated on December 5, 2016 8:26am
 The University of Chicago is devoting $25 million of its endowment to supporting startup companies from faculty, students and alumni.
The University of Chicago is devoting $25 million of its endowment to supporting startup companies from faculty, students and alumni.
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HYDE PARK — The University of Chicago is pulling $25 million from its endowment to back business ideas from faculty, students and alumni.

The university on Friday announced it will tap into its $7.1 billion endowment to provide funding for startup companies founded or that include people from the university or ideas developed on the Hyde Park campus.

“The university is continuing to expand its commitment to support our students and faculty across the institution who are engaged in entrepreneurship,” university President Robert  Zimmer said in the Friday announcement.

“By co-investing in new companies that have independent investments by established firms, we will enhance university-wide support for startups while encouraging venture partners to explore investment opportunities coming out of the university.”

The funding will start with a $500,000 infusion of cash or 20 percent of the investment round, and only after a major venture capital partner is already on board and the startup has been through several rounds of fundraising already.

The university has been putting more resources in recent years toward making the ideas generated on campus pay off in the marketplace. But Friday’s announcement puts more of the university’s own money on the line.

The university’s $20 Innovation Fund takes greater risks on funding fledgling startups in their first steps toward viability, but the money is all donated by alumni and any profits go back into the fund.

The new line of funding allows the university to stay in the game longer for a possibly greater stake in the outcome, a bet that could pay off considering some of the recent companies to have come out of the university.

In 2013, Braintree, a payment processing company founded by Booth School alums, was sold to eBay for $800 million. GrubHub, which was also started by a Booth alum, was valued at $2.7 billion when it went public in 2014.

The university has set up new mechanisms in recent years to make sure these sorts of successes are more likely to be repeated.

The Polsky Center vets the earliest ideas and pairs fledgling entrepreneurs with people established in the industry they’re trying to break into. The Chicago Innovation Exchange is a hub for startups going through their first rounds of fundraising.

The new initiative keeps the university involved as a startup really gets established through the Series A round of fundraising and beyond.

“Capital is a key resource required for scaling ventures once they have advanced to this pivotal stage,” said John Flavin, associate vice president of entrepreneurship and innovation, who leads the Polsky Center.

“The goal of the UChicago Startup Investment Program is to attract more venture partners to Chicago and infuse more needed capital into successful startups, leading to a greater number of them emerging from the university.”

The funding commitment from the endowment is expected to last 10 years.

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