Virginia Tech and Carilion Clinic have formed a new $15 million venture capital fund designed to catapult the startups taking root around Blacksburg and Roanoke’s so-called innovation corridor.
About 60 percent of the investments will be in the life sciences industry and most will be based in Virginia. If they’re in another state, the companies must have some tie to the university or Carilion, fund managers James Ramey and Scott Horner said.
The managers are adamant that the VTC Innovation Fund is not about charity or pure economic development. They say their top priority will be showing a return on investment, but the organizers believe the fund can help boost the local startup ecosystem at the same time.
The fund plans to open an office inside RAMP, Roanoke’s new business accelerator.
“When we looked at our grand vision going forward, we see that the innovation ecosystem has a few holes in it,” Virginia Tech President Timothy Sands said. “One is in the venture capital area. It’s not the only one, but it’s one we identified that we could do something about.”
Venture capital is all about high risk, high reward as investors pump money into unproven startups.
Usually, the startups fail and the fund loses the investment. But those loses are offset whenever fund managers pick one or two big winners.
That’s what happened the first time Virginia Tech and Carilion wandered into the venture capital world with the NewVa Capital Partners fund in 2004. The group placed an early bet on Intrexon Corp. and turned a major profit when the company grew into the $2.6 billion dollar juggernaut it is today.
The two came back together to form Valleys’ Ventures in 2013, but that fund went dormant after just two investments.
The third iteration will be jointly funded by Carilion and the Virginia Tech Foundation. Washington, D.C.-based Middleland Capital, which is managing the portfolio, also made a small contribution.
“There is precedent for incredibly valuable returns being generated here,” Horner said. “They’re here and they’re in other smaller communities as well. But it takes a village, so to speak.”
Ramey said he’ll be targeting young companies at an inflection point. He wants to see some sort of technology or intellectual property that has the potential to skyrocket with a shot in the arm from outside investors.
The fund will primarily target life sciences, which includes pharmaceutical companies, medical device manufacturers and biotech startups. It will also look at “disruptive technology” startups in areas such as engineering and advanced materials.
The fund hopes to augment its funds with money from other investing groups, both locally and through Middleland’s connections across the U.S. Together, Ramey and Horner hope the average startup will be able to raise between $2 million and $10 million.
The VTC Innovation Fund itself is aiming to close seven to 10 deals over the next four years.
In the meantime, fund organizers hope the capital will attract more startups to the region and help those already here grow faster.
“The idea that we have responsibility to provide some stimulus for economic activity is real,” Carilion CEO Nancy Agee said. “We really need the whole economic ecosystem to be vibrant so we can continue to grow and serve those needs as well.”