By Teri Willey, manager, Indiana University Philanthropic Venture Fund; executive director, Indiana University Research and Technology Corp.
The Indiana University Research and Technology Corp. launched the IU Philanthropic Venture Fund in March 2018 to help achieve one of IU’s Bicentennial Strategic Plan priorities: Building a Prosperous and Innovative Indiana. The fund invests for equity in IU-related companies and was established as a follow-up to the success of the Innovate Indiana Fund. It currently has $15 million under management, with plans to increase that amount to $50 million. It is an evergreen fund, in that equity realizations are returned to the fund for reinvestment.
Syndication, or co-investing to complete one or more rounds of financing, will be critical to the success of the IU Philanthropic Venture Fund. We search for co-investors who leverage our investment with money, yes, but probably more importantly, we search for expertise, relationships and know-how in specific industry sectors needed for the company to meet its objectives so that we can reach ours.
Syndicating well helps to address financing risk, which is the risk that a company won’t raise enough money to carry out its objectives or find enough of the right type of funding. It also includes the risk that the existing investor(s) won’t have the resources to invest in subsequent rounds. Having more than one investor can help address this, but the type of investor is critical.
The right type of investor will have the resources to make follow-on investments as well as relevant sector relationships to help the company identify and access customers and talent. They might also contribute by appointing a director from their fund or on behalf of the investors in a specific investment round. They could be helpful in identifying and recruiting independent directors with the experience and relationships critical to the success of the company. They will also know how to manage relationships among the board members, founders, management and investors.
One of our objectives is to be part of a good syndicate when we invest. In some circumstances, that means we are the first money into a new venture and will help find the other investors. Or we might lead the round of investment, including term sheet development and negotiations, as a way to attract syndicate partners. We could also follow other lead investors as one among multiple investors in a round.
Since launching the IU Philanthropic Venture Fund, we are off to a good start regarding syndication, with more than $5 invested by others for each $1 we have invested. Time will tell, but we hope this means we are in good company when choosing to invest in these particular companies.
We believe our companies and investment syndicates are more likely to be successful if they are diverse. Working to bring in investors who are new to investing in Indiana creates some geographical diversity and leverages resources outside our immediate community. The variety of investors adds to the diversity as well. We are investing alongside angels, government-related funds, traditional venture funds, foundations and corporations that have venture arms, and private funds and home offices that invest in emerging science and technology-based companies. Syndicating well is important to us, but also to every investor in our community. And each time we co-invest with a new fund, we also have an opportunity to meet the co-investors of that fund. The network of potential investors in Indiana companies expands this way.
Yes, there are challenges in syndicating. There are more relationships to manage, and there’s more effort to be made in making sure co-investors stay focused on common interests, as different types of investors might have different objectives and timelines for returns. But syndicating well is important to the IU Philanthropic Venture Fund as we support IU-related companies and do our part for an prosperous and innovative Indiana.