With check sizes ranging from $1 million to $3 million, the new fund will target companies that are building what The Engine deems “tough tech”: reversing climate change and de-carbonizing industries, addressing the future of human health and agriculture, and advanced computing systems such as space exploration, quantum computing and semiconductors. “These are things with often longer [investment] timeframes,” Rae says. “They’ve almost always been backed by government-led research, and now they are ready to translate into companies.”
The move by Harvard, which oversees the world’s largest college endowment valued at $41 billion, comes as universities take an increasingly visible role in backing startups. It is also clearly a trend that is paying off: venture capital funding has become the highest-performing asset class for university endowments, with 13.4% in returns — bringing in more than private equity and U.S. equities, according to the 2019 NACUBO-TIAA Study of Endowments, the most recent data available.
Fundraising talks for The Engine’s second fund began in March, Rae says, adding that it is also backed by University of California’s Board of Regents. Other limited partners include family offices and pension funds, which Rae declined to disclose.
The Engine began as a startup accelerator at MIT before it was spun out in 2017. Rae, who previously led Techstars Boston, another accelerator, led The Engine’s first $200 million fund and has since made 27 investments. While the investments have primarily targeted university-grown projects, the fund has also focused on bringing diversity front and center in its portfolio: 80% of its startups are led by minority founders.
Among them is BioBot, a company that makes robots to test samples in sewers. Another ambitious bet is Form Energy, which raised $49 million and is building low-cost, long-duration energy storage systems. Perhaps The Engine’s most promising company is Commonwealth Fusion, a company that is trying to develop a fusion energy-backed power plant that would never expire, and has raised $200 million.
As such bets from The Engine’s initial fund take shape, the firm is preparing to announce its first investments from the new Harvard-backed fund in coming weeks. Though with the deals still being ironed out, Rae declined to disclose which companies are receiving checks. “We wouldn’t be investing in any of the verticals if we didn’t think there was societal payoff,” Rae says, “or venture returns.”