An Ignition Investment is an early stage loan made to a University of Minnesota start-up company to help enable a successful launch out of the University.
Guidelines: Ignition Investments are to be used to address the critical early-stage needs in forming and launching a start-up company based on University of Minnesota technology. The ignition funding will go directly to a start-up company as a loan before the first outside money is raised for the company. Using these funds, a company could contract for a professional prototype to show potential partners, bring in a regulatory consultant to finalize the regulatory pathway of the business plan, hire expert guidance on applying for Small Business Innovative Research grants, or travel to secure follow-on funding.
Ignition Investment amounts: One-time awards of $10,000 to $50,000 per company can be used to develop a professional prototype for potential partners, engage a consultant to finalize the regulatory pathway of the business plan, hire an expert knowledgeable in the application process for Small Business Innovation Research grants through the federal government or travel to secure follow-on funding, for example. However, typical awards will be much smaller.
Maximizing opportunity: The first six months are a very risky time in the lifecycle of a start-up company. The bulk of the value of the start-up company lies in the University’s intellectual property and additional investment is needed to leverage the value of the early-stage technology for the company. The University can significantly increase the value of its technology by making an Ignition Investment.
Repayment: All Ignition Investments are made with the presumption that the Investment is a loan and will be repaid in whole from the proceeds of the first outside investment in the new company. It is possible that outside investors may insist that the University convert this Ignition Investment into first round equity, and in those cases it may be in the best interest of the University to do so. In such instances, the Venture Center will review the situation with outside advisors, the Vice President for Research and the Associate Vice President for Asset Management before proceeding. The University recognizes repayment is not guaranteed as the high risk nature of start-ups will lead to situations in which some companies will not be able to raise sufficient capital. The University will offer Ignition Investments under appropriate circumstances fully cognizant of the risks involved.
Oversight: A budget will be submitted to the Venture Center by the company’s CEO. Should an Ignition Investment be made, the Venture Center will assume a board position in the company to assist in the oversight of the investment.
Steps: 1. The Venture Center will create an Ignition Investment review document for each deal that includes:
A. Request and use of proceeds
B. Executive summary of the company
C. Management bios
D. Expected capital needs and major milestones, projected
revenues and estimates of financial returns upon success
E. Summary of University of Minnesota license
F. Risks
G. Summary of recent transactions in the relevant market
2. Ignition Investment applications will be reviewed by the IP Commitment Committee or a sub-committee appointed by the Chair. Reviews will be convened as needed to address potential commercialization opportunities. All reviews of Ignition Investment proposals must include, as a minimum, the following:
A. The Director of the Venture Center
B. The Chair of the Commitment Committee
C. The Director of Health Technologies and/or the Director
of Biological- Engineering-and Computer Technologies
D. One or more individuals from the private sector with expertise
in corporate in-licensing. (These external members will be
selected from the larger pool of expert advisors established by
the IP Commitment Committee)
3. With IPCC approval (or the approval of the designated sub-committee), the Venture Center makes a recommendation to the Vice President for Research and the Associate Vice President for Asset Management for final approval.
4. If approved, legal documents are drawn up with the company and approved by the Office of General Counsel.