Controversial North Carolina nonprofit with $500M in public funds promises to bolster innovation
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UNC-Charlotte, pictured, is one of the seven universities in North Carolina where NCInnovation operates a hub. Photo: Ashley Mahoney/Axios
Armed with $500 million in state money, NCInnovation says it's well on the way to launching its first investments into research coming out of North Carolina's public universities, even as its board continues to get into public disputes.
Why it matters: NCInnovation raised eyebrows around the state when it asked the N.C. General Assembly for $2.5 billion to create a nonprofit to help promising research at the state's public universities make it through the so-called "valley of death" — the early stage when successful research struggles to attract enough funding to reach commercial applications.
- In the end, after some lawmakers balked at the amount, NCInnovation received only a portion of its ask: $500 million delivered in two lump sums and invested as an endowment.
How it works: NCInnovation plans to use the interest and income of its endowment to write grants to promising research by scientists at a public university in the state, the nonprofit's CEO Bennet Waters told Axios.
- The money is meant to help researchers who might have proof of concept begin the expensive work of scaling the research into commercial uses in North Carolina. Depending on the returns of the endowment, its grant cycles will fluctuate in size.
- NCInnovation has not yet found an investment fund to manage its endowment, Waters said, but the goal is to reach average returns of 7% to 8% a year. NCInnovation has also raised $25 million in private funds, a number that the state mandated it reach before distributing funds.
Catch up quick: In its first year of state funding, the nonprofit has now set up hubs at seven universities across the state: Appalachian State, Fayetteville State, UNC-Wilmington, UNC-Charlotte, East Carolina, N.C. A&T State and Western Carolina.
- Those universities were selected because they are institutions identified as needing more support for their research or are located in economically disadvantaged parts of the state. To receive a grant, recipients must operate here for at least five years.
- It recently opened applications for its first statewide grant cycle, with a goal of awarding the grants early next year, Waters said.
- Already, NCInnovation has invested around $5 million into research as part of a pilot program for the model, putting money into eight research projects, including lithium refining at UNC-Greensboro, drinking water purification at UNC-Charlotte and neuro drug delivery research at N.C. A&T.
State of play: That pilot program was done at the urging of the nonprofit's board of governors, which has had some contentious disagreements over the direction of the nonprofit.
- That includes one prominent board member, Art Pope, who called for the state to audit the nonprofit and has filed a whistleblower complaint against it for what he saw as transparency issues.
- Waters was also asked to testify about the nonprofit in front of an N.C. House Committee.
What they're saying: "It is safe to say there are contentious issues at the board level and with senior management," Pope, the CEO of Variety Wholesalers and a longtime influential Republican, told Axios. "I regret that, but I'm just trying to do what I think is right, in accordance with the law, and see the NCInnovation operates in an open and transparent manner."
Zoom in: Pope said he has had concerns about how NCInnovation does its accounting, especially related to the pledges by private donors, as well as how much say the board gets in deciding what research is funded.
- Pope has fought with the board over what types of information he should be entitled access to as a board member, especially related to its accounting practices and whether it meets generally accepted accounting principles.
- He says he thinks there's been progress on how much say the board gets on investments but still doesn't believe it's being transparent enough on its accounting. (Not all board members agree with Pope, including chairman Kelly King, the former CEO of Truist who called Pope's complaints a distraction.)
- An outside firm has given NCInnovation at least one clean audit, WRAL reported, though Pope still wants to see the results of a state audit. It's unclear when that audit could be completed. The state auditor's office declined to comment.
For his part, Waters said he thinks NCInnovation has made meaningful progress in its first year.
- "The first year was about getting basic capabilities in place," he said. "The next year is about beginning the process of scaling those capabilities."
- It's now accepting its first applications statewide from scientists seeking grant funding.
- "I do feel that we have done what we said we would do and the legislation charged us with doing," Walters added. "I certainly didn't expect to be called before the House Oversight Committee ... but I was happy to do that. I was happy to stay there all day and answer questions until they had exhausted their questions because I am very proud of this team."