University of California Incubators Eager to Scout Startups, Co-Investors for UC Ventures

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turning down some of his own colleagues’ companies for funding.

Napolitano and Bachher, UC’s chief investment officer, have been visiting with venture investors, incubator chiefs, and other experts to learn about best practices in the field, including conflict of interest policies. UC Ventures will be run by an independent team of investment professionals; their names have yet to be announced. Third parties such as institutional investors will be allowed to put capital into the fund, but UC will retain a supermajority interest. Ultimately, the fund will be under the supervision of Bachher’s office.

Skydeck’s Burton, who has been meeting with Bachher, says he’s looking forward to gauging the interests of the team hired to make investment decisions for UC Ventures. He wants to start grooming some of his startups to pitch to them. Skydeck provides office space and advisory services to its startups. But unlike many incubators, Skydeck doesn’t supply seed funding or take an equity stake in its companies. Instead, it actively cultivates angel investors and venture firms that might invest in the young companies. The typical seed funding round is in the range of $750,000 to $2 million.

Burton is eager to share his global investor contacts with UC Ventures. For example, UC Berkeley alumni might like to contribute to the fund, especially if it sets aside some of the money for UC Berkeley startups, he says. “I hope they’ll consider allocating certain amounts from that $250 million to different entities, to the different campuses,” Burton says.

Investors from other nations, intrigued by the technological output of UC, might also contribute millions to the fund, he says. “It could come from a venture fund in London,” Burton says.

Kelly says he and Mission Bay Capital co-manager Douglas Crawford introduced Napolitano to one of the most prominent members of their small venture fund’s investment advisory committee: Brook Byers, a senior partner at the Silicon Valley venture firm Kleiner, Perkins, Caufield & Byers. Byers has continued to advise Napolitano, he says.

Those advisory relationships have worked well for Mission Bay Capital and its portfolio companies, Kelly says. He and Crawford choose eight startups a year to pitch for funding, which gives the founders face time with Byers and the rest of Mission Bay Capital’s VC-studded advisory committee. The VCs sometimes consider investing along with Mission Bay Capital. More often, the venture firms invite Mission Bay Capital to make a small investment in other companies the VCs have decided to back, Kelly says. Mission Bay Capital has committed about $11 million from its first fund to 15 companies, and is preparing to raise a second fund of about $25 million. Its first investment was made in 2010, and Kelly says it’s too early to gauge the fund’s return on investment.

Mission Bay Capital, which typically invests from half to three-quarters of a million dollars in a startup, may become a feeder fund to UC Ventures, Kelly speculates. He reckons that the $250 million fund will make larger investments, and in later stage companies, than does Mission Bay Capital.

“We’ll be in the seed funding space and they’ll be beyond us,” Kelly says.

Whatever strategy UC Ventures chooses, Burton says, its backing is likely to catalyze more investment in startups that have their origins in the University of California.

“The investor community has a herd instinct. If somebody invests, other people will invest too. It’s a leading indicator that the company is worth putting money into.”

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