The University of Washington is an absolute research powerhouse, ranking fifth among U.S. universities in R&D expenditures.
But even with more than $1 billion in research money flowing each year, those dollars don’t necessarily translate into new entrepreneurial ventures or fast-growing startup companies.
“The UW is a research machine,” notes Seattle venture capitalist Chris DeVore, managing partner of Founders’ Co-op. “But when you look at the league tables of the universities where venture-backed founders are most likely to come from, the UW’s outperformance in research doesn’t seem to be translating to an equally high volume of entrepreneurial outcomes.”
A new early-stage venture capital firm — aptly named Pack Ventures — wants to fix that problem through a unique community-based funding mechanism designed to specifically bankroll entrepreneurs with strong connections to the UW. And, in the spirit of giving back to the university that’s germinating the great ideas and amazing talent, the fund leaders plan to provide 10% of their individual future profits back to the university.
Pack Ventures has already backed five startups since its first fundraising effort last summer, including two direct UW spinouts and three startups co-founded by UW alumni. Checks to entrepreneurs range in the $100,000 to $200,000 range, and the firm plans to target startups operating in areas such as artificial intelligence, robotics, computational biology, enterprise software and other high growth industries.
More than 35 founding investors — made up of top venture capitalists and entrepreneurs in the Seattle region — have already joined the Pack Ventures investment syndicate. Those investors include Mike Fridgen, managing director of Madrona Venture Labs; Cameron Borumand, general partner at Fuse Venture Partners; Geoff Entress, longtime angel investor and co-founder of Pioneer Square Labs; and Court Lorenzini, former CEO of DocuSign.
Those are familiar names in the Seattle startup ecosystem. But Pack Ventures doesn’t just want to be the domain of the elite venture capital and entrepreneurial class.
Because of its structure as a 506c — meaning that the firm can actively promote and advertise to potential investors — Pack Ventures is designed to accommodate investment from a wide swath of the Husky nation. That means doctors, lawyers, software engineers, professional athletes or anyone else who meets the accredited investor status of $200,000 or more in annual income can participate in the fund.
“Even if you don’t think of yourself as a venture capitalist, you can be with Pack,” notes Ken Horenstein, a UW grad and former investor at Microsoft’s M12 venture fund who serves as founder and general partner of the firm.
Beth Kolko, an entrepreneur and UW professor who is serving as a venture partner for Pack Ventures, added that the new firm can help break cycles in the startup ecosystem that still tend to “be very homogenous and based on closed networks of capital and knowledge.”
Right now, Pack Ventures is small by venture capital standards at about $2.5 million in capital raised. But with promotional efforts ramping up, Horenstein is hoping the fund could grow as large as $25 million with 300 to 400 limited partners.
Investors are typically writing six-figure checks to join the fund, but Horenstein said they are also working in smaller dollar increments in order to accommodate newbies to venture capital.
The concept of tapping research-rich universities for startup ideas is not unique.
Most of the Ivy League schools are connected to similar funds. Meanwhile, E14 is a small venture fund that invests in startups connected to MIT’s Media Lab, while The House Fund was formed six years ago with $6 million to foster a mission of bankrolling University of California-Berkeley’s “boldest” startups.
The UW has operated in the startup-venture capital game in the past, too. In 2011, then-vice provost of commercialization Linden Rhoads created The W Fund with about $20 million in state, federal and private investor funds.
The fund backed more than a dozen companies, including UW spinouts like Vicis and C-SATS. But it ended up not raising a new fund in 2016, and some close watchers of the venture capital ecosystem in Seattle said the model was flawed because of its operational structure under the UW.
Pack Ventures is taking a different approach. It’s structured as a traditional venture capital fund.
And while the new fund plans to lease a small office space at the Foster School of Business on the Seattle campus, it is not part of the university.
That geographic closeness — yet at the same time structural distance — may make a big difference in whether Pack Ventures meets success.
Horenstein said he believes the independent nature of Pack Ventures will allow it to make investment decisions faster, and avoid some of the bloated bureaucratic hiccups that naturally hemmed in The W Fund.
DeVore, who along with Madrona Venture Group’s Matt McIlwain and longtime UW donor Mike Halperin came up with the concept behind the fund as part of the UW Innovation Roundtable three years ago, agreed that Pack Ventures is designed to run more free.
“I generally believe that an arm’s-length fund structure with clear incentives, but no competing or conflicting goals beyond picking the best companies and driving the strongest returns for LPs, will always produce the best results over time,” said DeVore.
Also, unlike the W Fund, Horenstein said he’s not limited in the startups he backs. In fact, Horenstein’s definition of UW startups is quite broad— meaning any company with a co-founder or advisor who attended the UW. Also, startups that participated in the UW’s business plan competition are eligible.
What about backing a Coug — meaning an entrepreneur from arch rival Washington State University? Well, that might be a little much.
“Unless they ended up having some connection to the UW, we’d stay highly focused at the moment,” offered Horenstein in his most diplomatic tone.
DeVore, for one, thinks Pack Ventures can achieve great success focusing on early-stage startups with strong UW DNA.
There’s certainly plenty of evidence those companies exist, considering successful outcomes of companies connected to the UW. That group includes Hashicorp, now valued at more than $11 billion; Turi which sold to Apple for $200 million; or Icosovax, the Seattle biotech that went public last summer and is now valued at $675 million.
In total, research compiled by Pack Ventures points to 10 unicorn startups valued at $1 billion or more that were formed in the past 10 years from the UW network, and more than 30 company exits valued at more than $30 billion.
The key question: Will Pack Ventures be able to get a bite of those deals going forward?
“Every fund needs to build trust and track record over time,” notes DeVore. “But I think a fund like this should productively be able deploy tens of millions of dollars a year given the breadth and quality of the UW’s entrepreneurial outputs.”