VSpring to share carry with universities

Here’s a novel way to nudge universities into getting involved in the commercialization of their technologies: cut them into the carried interest on a VC fund.

That’s exactly what vSpring Capital is looking to do with a new investment vehicle called the Kickstart Fund. Salt Lake City-based vSpring is looking to raise about $10 million for the seed fund, which will focus on investing in university spinouts from Utah and New Mexico, though no official cap has been set.

Kickstart will invest between $50,000 and $200,000 in 20 to 30 seed stage tech startups that are born out of universities, with Principal Gavin Christensen leading the effort. The 8-year-old firm will also lean on local angel investors and university employees to help vet the investments and take some of the board positions.

Christensen says that Kickstart will share carried interest with universities, but he declined to disclose details of the arrangement.

The innovative fund structure serves to incentivize schools to commercialize their technology.

“It was just about funding early startups and getting skin in the game from the universities,” says Christensen. “What we’re seeing is an incredible spirit of collaboration. Because of the carried interest rate arrangement, they [universities] get paid in three or four different ways, which makes it in their best interest to work with us.”

The firm came up with the Kickstart plan, in part, to keep its competitive edge in Utah and New Mexico, regions that are garnering increasing interest from the venture community.

“For investors, especially regional investors, it’s a tool to keep the best deals from getting cherry picked,” Christensen says. “It’s a great way to keep a competitive advantage as our region grows.”

VSpring is shopping the Kickstart fund to its limited partners along with its third fund, vSpring III, according to regulatory documents. The firm has already raised $56 million toward a proposed third fund of $250 million, according to a regulatory filing from early 2007. The new fund would be nearly three times larger than its second, an $86 million fund raised in 2004.

The firm pitched both Kickstart and vSpring III to Arizona’s Public Safety Personnel Retirement System in March, looking for a $1 million commitment to Kickstart and $20 million for vSpring III, documents show. The pension fund has yet to commit to either fund.

Limited partners in vSpring’s previous funds include CPP Investment Board, Merrill Lynch & Co. Inc., the New Mexico State Investment Council, SVB Financial Group, Wells Fargo & Co. and Zions Bancorp.

Going off the beaten path by investing in Utah and, more recently, New Mexico, has worked out well for vSpring. Its first fund, raised in 2000, returned 15.4% as of Q1 2007, Managing Director Paul Ahlstrom told VCJ (an affiliated publication to PE Week).

With that successful track record, The firm’s inaugural fund raised $41.5 million from limited partners and another $78.5 million from the Small Business Administration.

As of last year, that fund had eight exits that returned money, three exits that didn’t and three write-offs, Ahlstrom says. VSpring notched a big win as part of the consortium that spun LanDesk out of Intel and sold it to Avocent for $416 million in 2006. The deal netted an estimated 10x return for the investors.