UC Berkeley’s latest contribution to innovation is an innovative way to finance it
Innovation starts with ideas but often comes down to financing. As the first-ever chief innovation officer at the University of California, Berkeley, Rich Lyons has overseen a program that comes up with new ways of funding innovative startups and bringing the profits back to the university.
Lyons is a former dean of the business school at UC Berkeley and an expert in microfinance and economics. Naturally, he’s interested not only in the innovations that the university’s funding can support, but the innovation it can bring to how innovation gets funded. He spoke with Quartz about UC Berkeley’s venture capital funds and the idea of shared carry funds, where the carried interest, which is the share of profits paid to the general partner of the funds, gets split with the university.
The following transcript has been edited for length and clarity.
Quartz: What are you excited about right now in the world of innovation finance?
Lyons: Shared carry funds. We now have eight external venture capital funds where the general partner shares half the carried interest. A dollar gets paid to the GP and 50 cents of it comes to Berkeley.
As we think about how you design a financial model for a great research university, we make sure that there are resources coming back from some of the value we create. If we get the rights to buy future equity in a startup that we’ve licensed our intellectual property to, we actually share those participation rights with these funds. There is a quite strong connection.
Was that something you came up with on your own? Or did you see other universities doing this?
I think a number of universities would say they go into that and have a fund, but the idea that it’s eight categories and it’s growing fast—a lot of the universities that are at the top of the innovation game have been calling us to find out what’s the template.
The eighth fund, which hasn’t been announced publicly yet so I can’t give a lot of detail, is actually a gift where a donor said, “I’m going to make a big gift to the university, and the university will be the sole limited partner in this fund, and you go out and recruit general partners who will hopefully share carry.”
How did you create this template?
Berkeley Catalyst Fund number one was the first of these funds, and it grew out of our College of Chemistry. There were a bunch of PhD alums who were in the venture capital industry and saw a lot of neat companies coming out of Berkley. That template and the legal work that went into it was replicated by all the later funds.
How do these VC funds affect students?
Ultimately, the general partners get to allocate their funds. The GPs do bring students in for internships so there’s some interaction there. Some of the companies that are getting funded are student teams, so there’s that capital provision, but that part is quite competitive. Students do compete for these funds and sometimes win them. But we have other programs like other universities do like non-diluted grant funding, with $5,000 here and $10,000 there. So this isn’t the only thing in our financing ecosystem for the students.
What other types of innovative finance are you looking forward to?
There’s a sub-category of builder VCs that choose the CEO, build the company, see the business model first, and then own a chunk of it.
Given your expertise in microfinance, what’s your view of cryptocurrencies? Are they overrated or underrated?
My reframe would be blockchain technology. I think it’s underrated, actually. There was so much hype and then FTX blew up. But I think we’re still in the early innings, for instance, of digital ID.