Accelerating university spinouts and science-based startups

Technology entrepreneurs and investors are naturally drawn to the impressive research and innovation coming out of our universities and research laboratories to look for the next ‘gems’. I am as well. But the reality is that good university spinouts are really hard to come by.

Desh Deshpande, a well known entrepreneur, investor, mentor and the co-chairman of US President Barack Obama’s National Advisory Council on Innovation and Entrepreneurship recently stated that US gov’t spends more than $150 billion per annum on federal R&D. There is an expectation, not just by the government and the society, but research institutions themselves that significant technologies developed with those dollars would translate to commercial opportunities, especially in the form of new startups that would create additional jobs and drive economic growth.

So why is it that despite a strong focus from investors to back disruptive technology start-ups straight out of universities we don’t see as many as we would expect? Is there something missing in the science that our institutions are producing? or maybe investors don’t know how to find and polish a rough diamond straight out of the mine?

There could be multiple reasons but some that I have observed frequently include:

  1. University professors often stop short of taking their research output to a point where commercial potential can be more clearly visible to a non-expert in the field. Except for 1-2 short sentences used in a publication to justify the money spent, the system of peer-reviewed publications and departmental promotions etc is unfortunately not set up to motivate and encourage commercialization activities. In such a scenario, since professors themselves are lacking the entrepreneurial zeal to ‘change the world’ (entrepreneurial brilliance that is found in outliers like Bob Langer and Yet-Ming Chiang is not that common), we are often left with stranded science that doesn’t get translated into useful commercial activity.
  2. I have often heard post-docs mention that there is gap in funding research that would take early scientific breakthrough publications into engineering/product domains. Translational science is not supported to the degree it should be, and entrepreneurial grad students/post-docs are left with few options: (a) continue down the academic path and forget commercialization, (b) leave academia and join a  large company, and (c) walk the tough road of finding SBIR type funding outside of a university. It is a pity we don’t have adequate support for translational science because researchers often need to do additional technical work to prove hypotheses, demonstrate technology’s benefits in commercially tenable ways and assess risks, or develop economic projections that at least show a trajectory in the right direction. Government can likely be a strong supporter here, and organizations like DARPA and ARPA-E can play a crucial role here.
  3. Even in circumstances when the faculty might be inclined to commercialize their inventions, the single biggest gap in my opinion is not in dollars, but in the entrepreneurs that can truly make sh*t happen. Technical founders need equally strong business founders. I like to use the term Technical Business Development to describe these “sausage-makers” than CEOs. Ideally these people have some of the following characteristics, and hopefully more: (a) technically competent to understand the technology space well, (b) work experience in the space so they can quickly identify commercial opportunities to dig into, (c) have a strong network, esp with customers and commercial partners, so they can pick up the phone and get customer feedback instead of wasting hours decorating a ppt presentation, (d) know what investors look for at such an early stage and guide the discussion to focus on how initial dollars can create value, (e) have been a part of an entity where they observed success and great management closely, and internalized some of the learnings, and (e) be resourceful in difficult circumstances – so they provide comfort to the early stage investors that the entrepreneur they are backing will be able to make lemonade out of lemons if circumstances so require. Or as Mike Moritz said today at TechCrunch Disrupt: ‘able to reinvent themselves’.

So what do we do to improve the situation? I am looking for ideas myself, so please do share…Some thoughts include:

  1. We need to find more such Technical Business Development leaders and plug them into our research institutions as EIRs etc. We need less people with hefty titles but no ‘creativity’, less fresh MBA grads who want to do a startup but can’t commit time/effort to deeply understand a space, and CEOs who are really only looking for a job but dabbling to see if a CEO stint might come by out of a university interaction. We need people who are passionate about technology, about entrepreneurship, and the process of early stage commercialization. If they have prior experience in the above, they might even a higher likelihood of success. We need people who have horizontal breadth but ability to dive deep vertically on opportunities, can analytically think through market opportunities, have the resourcefulness/hustle to create customer/partner relationships even pre-funding, and are generally more creative about problem solving.
  2. We need more opportunities for faculty (and grad students, post-docs) that are doing research to be plugged into the entrepreneurial ecosystem. They should meet investors, CEOs, CTOs, company founders, potential Board members before they actually spin out the company – because with that knowledge and ecosystem around them they will do a better job crafting the spinout. Three years ago, General Catalyst Partners, and two other venture firms (Flybridge & Atlas) started an annual program called University Research and Entrepreneurship Symposium in Cambridge, MA. This is not a plug for our program, but for the idea to provide a platform for university researchers/PIs to showcase their exciting research in its relatively raw but digestable form to an audience that is comprised of investors and successful entrepreneurs.
  3. I have also griped before that at least in the cleantech/science community, we don’t see as much adoption of the new online social networking tools as we should have. While those working in IT/consumer/web are glued to their screens reading/wrting blogs & tweets etc, my twitter stream and RSS feeds are thirsty for more direct/raw conversations with scientists, innovators, creative entrepreneurs, even investors in physical sciences.
  4. Market research type organizations (eg Lux Research, GreenTechMedia etc), and possibly funding agencies like ARPA-E, can help even more by accelerating the entrepreneurship-related education of next generation entrepreneurs and investors by providing suitable workshops and forums. Topics could include state of the art technology, metrics used to evaluate new technologies’ potential and trajectory, costing exercises that can be shared across the industry, and case studies of what has and has not worked in different industries. From my own limited experience, I have seen many entrepreneurs come to me with similar business plans with several making the same wrong assumptions about the state of the art in their field of interest, capital needs, market channels, time-to-market, competitive pricing pressures etc. I just wish there was an efficient way to share learnings with them so they could develop better business plans.
  5. Last but not the least, the investor community will also need to step up to the plate and become more aggressive towards taking risks. Entrepreneurs can only move the needle so far without any support available to pay for basic expenses.

Anyways…these are just some thoughts, and I am open to learning from others. Don’t get me wrong, there are great university-based spin-outs being done regularly, and that is really the innovation/commercialization engine that I believe will be critical to our continued economic growth and success…kudos to those who have figured out better models than I have in finding, developing, funding, and supporting such enterprises. Lets share some of those learnings and promote the elements that have maximum positive impact.

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9 Responses to Accelerating university spinouts and science-based startups

  1. Sudip says:

    Bilal – Nice post, and very insightful! From our own experience in dealing with universities, the biggest gripe (as you highlight) is definitely the lack of seasoned entrepreneurs. A few universities have tried to get around this by creating “mentor-in-residence” positions, but with mixed results. Maybe there is a better and more structured way to match entrepreneurs looking for their next “gig” to some of the most promising university technologies.

  2. Auleen Ghosh says:

    Great post! At least some universities are beginning to have ‘gap funding’ pathways to fund technology (physical/bio science) companies prior to a VC stepping in. I saw at least a few ‘gap funded’ companies being scooped up by professional investors once they crossed some key hurdles. Need to have more of these and have VCs on the board to evaluate and be aware of this channel for new opportunies.

  3. psereiko says:

    Bilal, this is a good post and I think that you hit on a number of good points. Your readers should be aware of a new program that’s forming in New England to help provide some grant money to the exact types of entities that you discuss above. DOE has funded Fraunhofer, NECEC, and the ACTION incubation network to offer support in this area. Read the initial press release at http://www.cleanenergycouncil.org/node/5794.

    Stay tuned for more information in the coming weeks! Thanks, Paul Sereiko

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  8. William Brah says:

    The incentives are not strong enough for most university professors. It is their post doc fellows who are more likely to have the entrepreneurial zeal, and are ripe to be paired with a co-founder with business experience. This formula has been instrumental in the UMass Venture Development Center’s most successful Series A companies (Sample6, 4s3, etc.) We hope it will work again with our latest, enEvolv, driven by a post doc fellow from the Broad and a serial entrepreneur.

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