U. of Michigan Plans to Spend Millions on Global Projects and Tech Start-Ups

October 05, 2011

Hard times in the Rust Belt aren't disturbing the University of Michigan's efforts to invest for the future.

The Ann Arbor university plans to spend $50-million over the next five years on ways to stamp out global problems such as poverty, climate change, and social injustice—just in time for its 200th birthday, in 2017. Half of the money for the Third Century Initiative—announced on Wednesday in an annual speech by President Mary Sue Coleman—will come from the university's general budget, a mix of tuition and fees, state dollars, and the indirect costs of sponsored research. The other half will come from investment income from its designated budget, which pays for and garners revenue from conferences and continuing education.

The money has been scraped together after a decade of fiscal constraint and cost-cutting, said the university's provost, Philip J. Hanlon.

Each year the spending will be divided between student-learning activities outside the classroom (including undergraduate research, study abroad, service, and entrepreneurial ventures) and faculty research or teaching projects that draw on different fields of study. The university wants to put muscle behind faculty research and ideas to combat systemic global issues, including malnutrition, energy storage, and affordable health care, Mr. Hanlon said.

So far, not many details have emerged about how the money will be distributed among the projects that emerge, but the university expects to carry out a "robust and collaborative" review process, according to a news release.

"We want this initiative to generate excitement, innovation, and ideas on campus as we hit our bicentennial," Mr. Hanlon said. "We're not going to dictate from the top."

Given the university's institutional strengths, Mr. Hanlon said, he wouldn't be surprised if some of the best ideas involved sustainable transportation, protecting the state's famous lakes, the arts and society, and global health issues.

But the Third Century Initiative has at least one critic. A Republican state representative, Bob Genetski of Saugatuck, said that because Michigan had been running deficits of more than $1-billion in each of the last few years, the state Legislature has had to scale back budgets significantly. This year saw the largest cut for universities, 15 percent from each one, said Mr. Genetski, who is also chair of the House Appropriations subcommittee on higher education.

"It hasn't been fun," he said, adding that he was disappointed that Third Century Initiative funds are not going toward more practical programs.

"Given the challenges of the Michigan economy, I'd much rather see them putting money toward tried and true efforts that turn out quality products in those fields than theories like climate change or turning people into victims like social-justice challenges might insinuate," he said.

A Rare Move

The $50-million plan wasn't the only project the university announced on Wednesday. Over the decade, the university will also directly invest up to $25-million in the start-up companies that stem from its licensed research and inventions. That's a pretty rare move for a university, said Rafael Castilla, the university's director of investment risk.

The university will invest up to $500,000 in each round of financing in start-ups that have received investment money from venture-capital firms. Asked if selecting certain start-ups would show favoritism for particular professors' research, Mr. Castilla said the key factor for an investment would be if a professional, independent venture-capital firm had already provided financial support for a company. "That'll address any actual or perceived conflict-of-interest issues," he said. "It's pretty simple."

Ken Nisbet, director of technology transfer, said the companies would come out of his shop, but decisions to invest would not be made by the tech-transfer office. The investment decisions will belong to the university's investment office.

"I like it being separate," Mr. Nisbet said. "I don't want to be investing in my own start-ups, I want them to be investing."

Before Wednesday's announcement, a Pennsylvania-based venture-capital firm, Osage University Partners, had formed an agreement with eight universities, including the University of Michigan, to invest in their start-ups on behalf of the university's pre-emptive rights; in return, the university would get a share in profits that might come down the road. Osage's managing partner, Marc Singer, said the venture-capital firm's research showed that, hypothetically, if the University of Michigan had blindly invested in its start-up portfolio several years ago, it would have had significant returns—higher than average, in fact.

That led the university to look into finding the capital to invest side-by-side with venture-capital firms, including Osage, Mr. Singer said. Over the past 10 years, the university has started more than 100 companies, including HandyLab, a medical-technology company that was sold for $275-million in 2009.

"We've evaluted well over 60 different universities and the quality of their start-up initiatives. In selecting Michigan to begin with, we made the decision that they have a great group of companies," Mr. Singer said. "Michigan is basically validating that and coming to the same point of view. It's important for universities to invest in their start-ups and generate interesting financial returns—I think they'll do both."