The public universities that created an Ohio-focused venture capital firm are considering a second fund after the first achieved their goals – not just financial returns, but fostering tech startups in the state and creating jobs for their graduates.
The Ohio Innovation Fund is on track to return five times what limited partners put into it, averaging a 30% annual return in the five years since the Columbus firm started investing, Managing Director Bill Baumel told Columbus Business First last month.
"Everybody is thrilled by the success of the program," Ohio University President Hugh Sherman said in an interview. "It wasn’t a major amount of capital; it was a way for us to experiment to see if we could get investment returns – and it did work."
Sherman said he'd be "comfortable" presenting a second OIF fund to the OU Foundation, which holds the investment.
"It was really about building that startup ecosystem in Ohio, making those connections back to the students and universities," Ohio State CFO Mike Papadakis said. "We’re certainly happy with how Fund I has gone. We've had some conversations about future funds."
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Ohio State committed $20 million and Ohio University $15 million to create the fund in 2012, but it didn't get started investing until the schools recruited Cincinnati native Baumel from a Silicon Valley VC firm in 2016. Kent State University and the State Teachers Retirement System later joined as limited partners, according to regulatory filings; the fund's total size is undisclosed.
Typically a VC fund deploys its capital over five to seven years, with investments maturing over a decade.
Three of 20 OIF-backed tech companies were acquired and 12 more have increased their valuations, in some cases to hundreds of millions of dollars.
Baumel is a hands-on investor, coaching many of the portfolio's first-time founders on operations and strategy.
"He's shown a real skill set for doing that," Papadakis said. "A lot of the founders have had really strong relationships with Bill, which has helped them build a lot of great companies."
Ohio University ties to Stirling Ultracold
The biggest win so far was Stirling Ultracold. The Athens-based maker of energy-efficient super-low-temperature freezers was acquired last year for $235 million after raising approximately $20 million in cumulative VC – a more than tenfold return for all investors. It still employs more than 100 at its Athens-area plant.
The engine technology behind the freezer compressor had its roots in OU research, but the university did not own the intellectual property. But OU operates TechGrowth Ohio, the Third Frontier investment program for the state's southeast region, which was the first investor in Stirling, the DBA of Global Cooling Inc.
TechGrowth helped nurture the startup in its earliest days, among investors steering its focus to the biomedical industry, said Sherman, promoted to president from business school dean in 2021. That helped it grow to the stage where a larger firm such as OIF could invest.
"We provided sophisticated business case," Sherman said. "This is a 10-year success story."
Students and alumni from both schools have landed internships and jobs at OIF portfolio companies, including as CEOs. OU graduate Faith Voinovich is a principal at the VC firm.
In a 2019 survey, nearly all the students in OU's entrepreneurship and management classes said the state's environment for tech startups had improved, and they would be confident founding or working for startups in the state.
"You've got the opportunity for our students to be more engaged, for our faculty to be engaged," Papadakis said. "There’s a lot more enthusiasm for creating new startups. Success creates more success down the road."
When the schools first created the fund, Ohio State was early in its long effort to increase tech commercialization – revenue from licensing university inventions was $1.5 million in 2012.
With a potential second fund, the universities hope to have spinoffs that are mature enough to attract direct OIF investment, Papadakis said.
"With all of our (VC) fund investments, we hope to continue to build that ecosystem that didn’t exist in Columbus in 2012," he said. "We hope many startup companies will have an interest over time in locating in the west campus Innovation District. ... All these things are definitely connected."
