The Berkeley Frontier Fund is debuting today with $50 million to invest in startups related to the University of California at Berkeley. And the fund has pledged to give $25 million to the university as state budgets get tighter.
Richard Chan, leader of the fund, said in an interview with VentureBeat that the state can only fund about 13% of UC Berkeley’s total expenditures now. That’s why he spearheaded the creation of a venture fund that could take advantage of the school’s technological prowess among its students, alumni, and faculty to fuel startups.
“This project started right before COVID-19, when [Haas Business School Dean Anne Harrison] and I hosted a dinner with local Berkeley alum leadership,” said Chan. “That’s when we learned about the Berkeley financial challenges. For the operating budget, only 13% of comes from the state funding. So it’s almost like a private school situation. What we, as alumni, were thinking about is can we do anything to help the school?”
The idea was to create a meaningful and sustainable revenue source for UC Berkeley.
“Essentially what we do is like we invest in the best Berkeley startups,” Chan said. “And when we make money, we donate a substantial portion back to Berkeley. Particularly, we’re talking about 30%. But so every $100 we make 30% goes to Berkeley, right off the bat.”
The fund is a rare effort to find new ways to fund public schools, but other universities such as UC Berkeley’s rival Stanford University have long thrived off private donations — many of which come from alumni or professors who have created startups at Stanford. In fact, Silicon Valley got its start in 1939 when Stanford alums Bill Hewlett and David Packard start HP in a garage near the college campus. Stanford has its StartX accelerator, not to mention a lot of wealthy alumni who have helped it build a huge foundation. The Massachusetts Institute of Technology’s Media Lab also has a fund.
“Because Berkeley is a public school, they cannot use public funding to make private investments,” Chan said. “So first, you need to have a fund that is arm’s length from UC Berkeley. Second, you need to have someone willing to do this and run this program. So I’m the first gear, but I have a lot of help from other gears to move this big engine. So I’m very grateful, very grateful for that alumni help.”
But better late than never. And the timing is right because of the challenges higher education institutions are facing in the wake of the pandemic, growing costs, and tightening education budgets.
While it’s a long time coming, Chan said it wasn’t easy to organize. He met with the leadership at the university and assembled an advisory board to help make it happen.
The fund has already made its first four investments: AyarLabs, Databricks, Mammoth Biosciences, and Neurona Therapeutics. All of them were started by founders affiliated with UC Berkeley. (Go Bears! My alma mater).
Donations from the fund will be directly allocated by a donation committee in support of programs that benefit students across campus and help the university address the perennial challenge of lack of program funding. The fund will make its first $2.5 million contribution to UC Berkeley in Q4 of 2022.
The Berkeley Frontier Fund has set an ambitious goal to return $25 million back to the University over the lifetime of the fund.
The fund is managed and advised by Berkeley alums. Chan, formerly managing partner of Ironfire Ventures and MBA ‘04/BA ‘96, is leading the fund with support from members of the university’s board of trustees, dean and department chairs as well as campus oversight from Rich Lyons, UC Berkeley’s chief innovation and entrepreneurship officer.
Why BFF now?
UC Berkeley is recognized as the world’s No. 1 public university; however, it has been challenged financially for years. Today the University receives less than 13% of its operating budget from the state. In addition, Berkeley’s endowment per student is approximately one-tenth of the endowment at private universities of similar stature.
Over the past 20 years, Berkeley entrepreneurs have created more than $500 billion in public and private market value. BFF was established with a mission to help Berkeley participate in that windfall.
“This extraordinary new Berkeley Frontier Fund is one of the most innovative ways for a public school to engage in the new age of entrepreneurship and is pioneering a new way for successful alumni to contribute back to Berkeley,” said Lyons, in a statement. “The incredible talent and opportunity within the UC Berkeley ecosystem gives the fund a broad range of options when it comes to investment.”
One of the supporters is Charles Huang, cofounder of Red Octane, maker of the Guitar Hero video games. He and his brother Kai sold the company to Activision years ago for $100 million. Jack McCauley, who cofounded both Oculus and Tesla, is also one of the Berkeley success stories who is contributing.
One way the fund can help the University capture that capital is through investments in technology spin outs and inventions created in its labs. BFF has a contractual relationship with the university that allows it to partner with the University’s IP office on rights; thus giving it investment access into companies utilizing this Berkeley intellectual property.
While there are a number of Berkeley-focused venture funds currently working with university startups, the majority don’t have any direct give-back to the university.
“Berkeley Frontier Fund makes these direct contributions plus a one-of-a-kind front-loaded donation component. That
means 5% of total fund commitments will be donated within the first year of operation, making BFF a standout amongst all other donation efforts,” said Loraine Binion, treasurer at the UC Berkeley Foundation and a member of the BFF donation committee, in a statement.
“To do well by doing good, we invite all UC Berkeley alumni to join us in this journey,” said Chan.
UC Berkeley also has its Skydeck accelerator program for startups.