By providing stipends, mentoring, introductions to investors, and basic legal and accounting services, the E14 Fund provides “a six-month runway” for the recent graduates to start new companies, while encouraging current students to focus on academics, says Joi Ito, director of the Media Lab and an organizer of the E14 Fund.
In addition, a carried interest in the E14 Fund will be donated to MIT to be used for expanded research at the Media Lab. “The idea is to go a step beyond the traditional incubator model,” Ito says. “It’s a win-win: Talented recent graduates get professional guidance and seed money, and some of the return on investment from these startups could come back to MIT to advance the next generation of researchers.”
Although many successful startups have spun out of the Media Lab since its founding in 1985, Ito says, “This fund provides a greater opportunity to capture more of the Lab’s innovation and get it out into the world.”
The E14 Fund will participate as a minor investor at initial and follow-up investment rounds for these new companies. The E14 Fund also becomes a co-investor in all the startups when they earn funding from professional investors. The return on investment from the startups then goes back to the E14 Fund investors, with 20 percent of any returns (beyond the initial investment) contributed to MIT as a gift. Any of the Media Lab’s more than 70 corporate sponsors can buy into the fund — which has target equity of $6.5 million annually.
“One important advantage of such a fund is that it allows students to focus fully on their coursework, research, and thesis preparation … and enhances their opportunities to launch successful startups after they leave. This is key to advancing the Media Lab’s academic mission,” Ito says. “The students know that funding and mentoring will not necessarily disappear as soon their degrees are in hand.”
Incubation and beyond
Interested students apply to the E14 Fund and are interviewed by Ito, Media Lab alumni, and fund manager David Strand, a former technology and business developer. Accepted students form teams, build prototypes, evaluate market opportunities, define products, and launch companies.
Along with stipends of $2,400 per month, the teams receive guidance from business mentors, connect with venture capitalists and legal and accounting services, and have access to entrepreneurship programs at MIT, among other things.
This selection process is available to all Media Lab master’s and PhD candidates any time during their last year at the Media Lab. “We want students to be able to submit applications for the fund anytime they’re ready, so we can alleviate the anxiety of not having anything after graduation,” Ito says.
In the grand scheme of things, Ito says the E14 Fund should help advance efforts to make the Media Lab “a testing site for technologies and a prototyping hub” at MIT. It should also help venture capitalists and Media Lab corporate sponsors better connect with student startups.
“Our thinking is to create a fund where corporate investment in our students’ startups could help further research in the labs where these startups were born,” Ito says. “It’s a unique approach for an academic setting, and one I hope will be emulated at MIT and elsewhere.”