$20 Million W Fund, Focusing on Research Spinouts, Open for Business

6/20/12Follow @curtwoodward

We’ve been hearing about a new investment fund for university spinouts in Washington state for close to two years. Starting today, the W Fund is officially ready to start cutting checks—and it’s already started investigating promising research projects from colleges and government R&D labs around the state.

Officials say the $20 million W Fund is expected to invest in 20 or more startups by 2016. And if it’s successful, the W Fund could become a national example for states looking to boost R&D spinouts, says Linden Rhoads, the UW vice provost who is serving as the fund’s general manager.

Schools like the University of Michigan have pledged part of their endowments to support commercialization efforts, and others have small funds that business students oversee, Rhoads says. But the W Fund will be run much more like a professional investment vehicle.

Rhoads

“The university is really proud that the community has done this, because there has been very little success with universities being able to rally their ecosystems to help increase the number of spinouts,” Rhoads says.

The money comes from an interesting mix of sources, but it looks like the fund is mostly made up of private capital. In its announcement today, the W Fund says it is being bankrolled by venture capitalists, law firms, and entrepreneurs, along with the Washington Research Foundation.

The W Fund adds that the University of Washington is investing “private, donated money,” while the state government is directing federal stimulus cash to the effort—a $5 million grant we reported on late last year.

The push for a new early stage fund dedicated to R&D spinouts fits squarely into repeated messages from state leaders and the UW that increasing R&D spinouts are a priority.

Gov. Chris Gregoire kicked off a Life Sciences Discovery Fund with money from the national tobacco settlement several years back, and new UW president Michael Young brings a track record of boosting research commercialization while at Utah. Earlier this year, the UW opened a new incubator space intended to give homegrown startups a chance to grow.

Investments from the W Fund will be controlled by a 20-member investment committee, split into two sections: Ten luminaries from the field of life sciences, and 10 more focused on the broader technology sector. Like a traditional venture fund, the new W Fund expects to be making new investments for four or five years, with capital reserved for possible follow-on funding.

The W Fund’s notable names give a good glimpse into who has poured money into the effort. Rhoads says that all of the members of the investment committee and nearly all of the fund’s managing directors are either personal investors or represent a larger investor (the exception is managing director John Gardner of the Bainbridge Graduate Institute).

Madrona Venture Group, which just raised a $300 million fifth fund, is prominently represented. Tom Alberg and Greg Gottesman, both managing directors at the VC firm, are on the tech investment committee, and Madrona administrative partner Troy Cichos is a W Fund managing director.

WRF Capital and OVP have two representatives each on the investment committee: WRF’s Ron Howell and Luciana Simoncini, and OVP’s Lucinda Stewart and Chad Waite. Other notable names include Concur CEO Steve Singh, former Gilead vice president Bruce Montgomery, and Arch Venture Partners’ Steve Gillis. Rhoads also is on the investment committee and serves as a managing director.

Despite those heavy ties to the UW, and origins with the school’s efforts to ramp up research commercialization, Rhoads says it’s important to note that the W Fund isn’t simply directed at the state’s largest university. The investment committee, she says, already has seen formal presentations from the Washington State University technology transfer office, the Fred Hutchinson Cancer Research Center, and the Department of Energy’s Pacific Northwest National Laboratory.

Those meetings gave the committee a good idea of “the pipeline of potential spinouts they see coming out of their institutions over the next couple of years,” Rhoads says. “The investment consideration is already very actively under way.”

The W Fund also will keep its ears to the ground for interesting startups that come from university students. “We don’t want to forego a Facebook,” Rhoads says.

The fundamental question with funds like this is whether they’re actually filling an unmet need in the investment market, or simply redirecting money inside a state’s boundaries to fit a particular idea that everyone can get behind.

Rhoads says the proof is in the cast of investors and participants the W Fund has been able to attract—those professionals wouldn’t donate their time to serving if they thought it was a feel-good effort. And there’s still more interest in the concept, with a few more investors expected to join the pool in the near future, Rhoads says.

“I also think, if we’re lucky enough to have early indications of success, that we’ll be in a position to contemplate a second fund,” she says.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

By posting a comment, you agree to our terms and conditions.