David Phillips is a partner at the law firm Jones Day, in Atlanta, Ga., where he has spent the better part of a year engineering a unique structure for the $18.75 million
Launched in 2008, the fund advances seed and early stage companies that have emerged through the Georgia Research Alliance VentureLab commercialization program. VentureLab seeks to commercialize technologies developed at the state’s six research universities affiliated with GRA: Georgia Institute of Technology, Emory University, University of Georgia, Medical College of Georgia, Georgia State University and Clark Atlanta University.
The GRA Venture Fund doesn’t need a general partner, Phillips says, because the GRA will provide needed administrative, accounting and back-office support at no cost.
PE Week Senior Writer Alexander Haislip recently caught up with Phillips to learn more about the fund.
Q: How is the fund managed without any general partners?
We decided the firm didn’t need a general partner or management company, which comes with the immediate benefit of not needing to pay carried interest or a management fee. The deal flow comes from the graduates of the VentureLab program.
The investment decisions and the monitoring of the investments are made by the fund’s board of directors.
Q: What incentives do the investment committee members have to help these companies?
People on the board are also investors in the fund, so they have a financial interest in it. If you look at the roster of people who are on the GRA board of trustees, a lot of them are either currently or recently retired venture capitalists and angel investors. We have talented people who are going to be paying attention to the investments.
Q: What is the fund’s unique legal status?
It’s a limited liability corporation, rather than a limited partnership, so it provides a shield for investors. If limited partners, through their service on an advisory board, become actively involved in the management of the fund, they might jeopardize their limited liability. The LLC structure protects them from that.
Q: Who are the fund’s limited partners?
The investors in the fund are largely drawn from the universities themselves and the board of directors. We also got a $7.5 million investment from the state of Georgia. It has a state-created seed capital fund. It can invest directly in small startups, and it can invest in funds. As a condition of taking state money, we can only invest in young startup companies based in Georgia. Each investment we make in a portfolio company, 25% can come from the state and 75% can come from private money.
Q: How big is a typical investment?
We’ll be writing checks from $250,000 to $500,000. We have yet to make an investment and have not drawn down on investment capital.