The Massachusetts Institute of Technology has spawned a dazzling array of innovations in its 155-year history, from disposable razors to wind tunnels to radar. Now, the university wants to open up its checkbook to turn the next generation of big ideas into businesses.
On Wednesday, the school said it was raising $150 million for a new venture capital fund called the Engine, dedicated to bankrolling startup companies in robotics, clean energy, biotechnology, and other research-heavy sectors.
The university is the lead investor in the new fund, contributing $25 million while it seeks additional investors. It’s also opening an incubator space in Cambridge and will offer startups access to MIT’s research facilities along with the labs of other schools and hospitals expected to participate in the program.
Startups don’t need an MIT connection to participate. The school hopes to open the space in the spring, and is researching possible investments and recruiting a director in the meantime.
The new program puts MIT in competition with some of the venture investors who typically finance risky, cutting-edge technologies trying to make the leap from the laboratory to the marketplace.
MIT treasurer Israel Ruiz said the Engine fund will focus on the kind of technologies that aren’t ripe for the traditional venture and private equity markets, either because they’re too expensive to get started or take too long to develop into growing businesses.
“We see the opportunity for MIT to start this process and really make a huge difference in driving down the cost of innovation in hard technology and science, which is the equivalent of what’s happened in software,” Ruiz said.
Jeff Bussgang, a venture capitalist at Boston’s Flybridge Capital Partners, said the new MIT program would be a complementary addition to the region’s investment industry.
“There’s just not enough capital in Boston right now for early-stage entrepreneurs,” he said. “And I love the niche that they’re filling, which is this hardcore tech. These are often the projects that VCs like myself are very skeptical of in these very early early stages. So it’s all the better from my standpoint to have them invest early and take on some of the technical risk.”
Like many large universities, MIT is an investor in private equity funds through its $13.2 billion endowment. But the $25 million in the new Engine investment fund will come directly from the school, not its endowment, Ruiz said.
Nevertheless, venture capitalists and incubators in the early stages of startup investment might see MIT’s new fund as a competitor because of its formidable brand name, said Diane Mulcahy, a senior fellow and investment manager for the Ewing Marion Kauffman Foundation, a nonprofit that specializes in entrepreneurship research.
“I think this is very disruptive, or could be,” Mulcahy said. “You’ve got one of the best, most entrepreneurial universities stepping in.”
Universities and other behind-the-scenes investors have taken a more active role in private equity investments as the sector has expanded in recent years, such as the direct investment by Harvard Management Co. in shared office-space startup WeWork Companies Inc., according to PitchBook Data Inc.
The University of California is the most prominent example: in December, it pledged $250 million to become the “anchor investor” in a new fund aimed at bankrolling innovations emerging from the public university system’s 10 campuses.
‘We see the opportunity for MIT to start this process and really make a huge difference.’
Several universities, including Harvard, Babson, and Northeastern, have also founded incubator and startup office space programs to help students and alumni work on their startup ideas. MIT’s newest program will add to that cluster with a 26,000 square-foot space in Central Square.
“The past five years or so has been a pretty robust and explosive time for venture capital,” said Scott Perry, a partner with investment consulting firm NEPC. “Large institutions, and endowments and foundations specifically, are looking for unique ways to gain access to new technologies. And they’re looking to do so against the backdrop of low returns and higher fees.”