UC President Janet Napolitano announced Thursday that the University of California will now be able to invest directly in companies that use and market technology developed at UC facilities after the removal of a 25-year-old policy that prevented such investments.
With the removal of the policy, the university can now make direct financial investments and take equity in companies that have used UC resources. Napolitano also announced a pilot project that will allow the university to accept equity from startups for accessing university services instead of charging them fees. It can also accept equity from campus-run “incubators” — such as UC Berkeley’s SkyDeck, which supports fledgling companies with resources and expertise — to keep startups from running out of cash and to allow the university to benefit from financial returns.
According to UC spokesperson Brooke Converse, the ban on such investments, which was put in place in 1989 out of concern for potential conflicts of interest among UC affiliates and the university itself, was deemed to be unnecessary.
“This is a big win for UC in terms of being able to support these kinds of companies,” Converse said. “It’s important to us to be able to forward innovation at the campuses and be able to make these kinds of partnerships.”
The policy has been under review since 2010, and it is widely accepted around the university and similar institutions that conflict of interest is not an issue, Converse said. A number of universities across the country, including Stanford University and MIT, can already make investments in companies developed with resources on campus.
To advise the UC system on projects worth investing in, Napolitano also announced the formation of an innovation council, composed of venture capitalists, investment and technology experts, and business leaders. The selection process for council members is currently underway, and the first meeting is slated to be held in August, according to Converse.
Steve Blank, a lecturer at the Haas School of Business, said the possibility for conflict of interest existed if the people in charge of approving investments were favorably biased towards a company. But, he said, as long as the decision to invest is made by an impartial authority, the removal of the ban was a positive move.
“You have to struggle to see a downside,” he said.
Errol Arkilic, CEO of M34 Capital, a seed-stage investment firm in San Francisco, said because the university has to shoulder a lot of the risk involved with marketing a new technology, it makes sense that it should be able to reap rewards from it.
Arkilic added that universities usually exchange equity in startups for intellectual property rather than capital. He therefore saw little room for a conflict of interest.
“It’s in the university’s best interest to see the project move forward. The academic researchers and students have an interest in having the project see the light of day,” Arkilic said. “Any notions of conflicting interest are misplaced at this early stage of high-risk investment.”