“Vanderbilt early-stage VC fund on hold until market turns”

Nashville Business Journal, by Judy Sarles, November 22, 2002

Vanderbilt University has delayed its efforts to raise money for an early-stage venture capital fund due to the soft VC market.

The Seges Fund was formed last year and is managed by Seges Capital Management, a company formed by Vanderbilt. It will focus on life sciences and information sciences and be a cooperative endeavor of Vanderbilt's Technology Co. and higher education institutions throughout the world. Seges is in talks with about a dozen schools.

"We've not aggressively started to raise the capital yet," says Mick Stadler, president of Vanderbilt's Technology Co. "You don't want to be in a market that is as tough as it is right now to raise capital."

Seges is continuing to work with universities interested in participating in the fund, which won't close until it raises $75 million. The fund does have some dollar commitments, but those commitments are soft, says Stadler.

"It sounds like Vanderbilt has adopted a very prudent strategy, given these economic times," says Laura Campbell of Laura Campbell & Associates, a company that provides business growth advisory services.

The shaky economy has caused venture capitalists to become cautious and not look for fresh investment capital, according to Thomson Venture Economics and the National Venture Capital Association. Year-to-date, funds have raised just $5.5 billion in new capital. More than twice that number was raised during the first two quarters of 2001 alone.

There are two views of the market at the moment, says Mary Campbell, general partner at EDF Ventures, a Michigan early-stage venture capital firm that focuses on commercializing research from universities, similar to what the Seges Fund plans to do.

"It's the best of times because there are not many people out there raising money for a fund," says Mary Campbell. "It's the worst of times because there are not many people who have money, as they did in the last two or three years, who want to put it in a venture capital fund."

Seges' objective is to have letters of intent from participating schools by the end of the year. It hopes to have six to seven schools join the fundraising process with Vanderbilt.
"The schools we're talking with all run a program that's very similar to Vanderbilt's," says Stadler. "We're not talking to schools at this point that have not had experience running a program and do not have a portfolio already investing in companies."

Vanderbilt started the Seges Fund because it faces the same kinds of problems when raising money as other university VC programs. Most start-up technology companies find that the well is dry for subsequent financing, even from traditional early-stage funds. Universities would like to see a more influential master fund or a fund that would be able to co-invest with them as companies move toward their B or C rounds of financing.

The Technology Co. also operates Vanderbilt's Chancellor's Fund, which was created in 1999 with $10 million from the school's endowment. The Chancellor's Fund has invested in 16 companies that are now valued at $50 million. The Seges Fund could work parallel to the Chancellor's Fund and could co-invest or, more likely, take the lead in later rounds of financing.

"It's a way for Vanderbilt to help diversify and also partner with schools and to aggregate business opportunities from the participating schools," says Stadler, who is also managing partner of the Chancellor's Fund.

Vanderbilt was hopeful that the Seges Fund would be further along by now and its targets have been adjusted by about six months. But the university wants the fund to be successful right out of the gate.

"We don't want to have a reputation of a fund being out there and not being successful in raising money for a long period of time," says Stadler.