Demo days and venture labs won’t turn your school into MIT. That’s OK. Here’s what you can do that will work.
October 10, 2018
|In Heartland Research Universities
|By Dr. Lydia McClure, Isaac Barchas
As a university leader or a department head, you manage and serve creative PIs making world-leading discoveries. The coastal startup clusters have the capabilities – risk capital and (more importantly) commercialization talent – to drive those innovations to market. You need to bridge your most innovative PIs to the people and networks and capital sources that are as good at business as they are at science
Why you can’t solve the problem from where you sit
The issue is that the tools that you have in your toolkit, as a heartland university or departmental leader, do not give you enough leverage on the problem. The key is to put your university in position to exploit the massive investment that the American economy makes in startups and entrepreneurship, nationally.
The university commercialization toolkit is limited and not very effective. Demo days (taking opportunities to Silicon Valley and inviting investors to view them) have started to look generic and now attract mostly low ranking investment professionals. Entrepreneur-in-residence programs (hiring business people to help filter opportunities on your campus) can produce a great result if this particular EIR happens to be awesome and happens to hit an innovation where she is a market expert … but the odds of that are pretty low.
Stanford and Harvard and the other schools that are most commonly held up as being “good at” commercialization are not good at commercialization because they do better demo days or have better EIR programs. They are good at commercialization because they are located in the densest concentrations of entrepreneurial capital and translational talent on the planet. Stanford’s demo day is every day of every week. Its EIR program is Silicon Valley.
The risk capital available to turn innovation into a successful startup shows the scale of the challenge:
For every $1 of research performed by Bay Area universities, Silicon Valley has $15 of risk capital available for investment. For the Boston universities – think about how much university research gets done in Boston – it’s $5 of VC dry powder for every dollar of research.
In contrast, for each $1 of research performed at The University of Texas, located in a mid-continent tech mecca, there is only about $0.70 of VC dry powder. In The University of Michigan’s catchment area, $0.20. In the Minneapolis schools’, $0.09.
You could have Harvard’s endowment, and you still wouldn’t be able to fill those gaps.
But capital is mobile, right? Theoretically, Bay Area money can find opportunities anywhere in the country. And sometimes it does … but not very often, because venture money is tied to people, and those people value their time highly, and burning two days in transit to and from your Big 10 or Big 12 or SEC campus is an expensive proposition for them, especially given the opportunities that they have at home.
OK, so can you hire translational professionals to do that work locally for your university? You absolutely should invest in great people in your TLO and commercialization and entrepreneurial support programs. But this is table stakes, not a bet.
The market rewards the best people with these skills really, really well. As in off-the-university-pay-scale and with-comp-structured-in-a-way-that-would-be-impossible-at-a-public-school well. So you are looking for people with rare skills who are willing to work below market. That’s a tough ask.
Also, it’s a question of scale. Think of the diversity of research at your university. Is one person or even one team going to be omnicompetent against that entire spectrum of technologies and market applications? Partners’ Healthcare Innovations, the translational group associated with Harvard’s affiliated hospitals, employs about 80 people in their innovation group, and that doesn’t count their TLO or Harvard’s other commercialization programs. Are you going to make that kind of investment?
Even if you do, it won’t get you to parity with Partners’. It’s geography again. Partners’ is in Boston, with its at-scale networks of well-compensated people who can turn health innovation into billion-dollar companies. You cannot build that ecosystem from whole cloth.
As a result, although we have met fantastic and dedicated people in university commercialization programs, they alone will not bridge your commercialization gap. Some of us used to be university-employed translational professionals. We had some good wins. But we did not, in any structural sense, close the gap.
Why doesn’t your university “do commercialization as well as MIT?” We have heard this question asked by more than one alumnus and state-level policy maker. A big part of the reason is that you’re not in Boston with open access to its industry-specific talent and capital pools. And there is nothing you can do about that.
The solution is to bridge the right PIs at your university to the right commercialization resources nationally
So you can’t do it all yourself. Here is what we think you can, and should, do:
First, and above everything else, recruit and retain and resource great faculty.
The other thing about the commercialization success of the Bay Area and Boston schools, is that their PIs are really, really good at creating new knowledge. Stanford alone has 156 members of the National Academy of Sciences on its faculty. Not surprisingly, those PIs attract the most outstanding and ambitious students.
When partnered with strong translational professionals and capital, the innovation from those labs nucleates companies. The students from those labs graduate to help drive innovation into commercial products and services that create economic prosperity and make people’s lives better.
If your main initiatives focus on faculty quality, you won’t go wrong. Only a few percent of your faculty will end up as scientific co-founders of scaling companies, but that’s all you need.
Second, remove barriers to commercialization
High-impact, scaling spinouts based on deep science from research labs: that’s the objective.
University leadership can make this objective easier to obtain by breaking down barriers to commercialization. Two areas where you may have opportunities, are these:
Clarify or rectify confusing or non-market policies regarding intellectual property and/or conflicts. Common culprits include: Unclear or “non-market” IP ownership policies. Undue restrictions on faculty/student commercial collaboration (this is hard to get right.) Consulting policies that favor income-generating work (e.g., expert witness testimony) over prosperity-creating work (e.g., founding a startup).
Align TLO goals and incentives with startup creation and success. Here, be on the lookout for: TLOs measured on revenue, and/or TLOs resourced based on “eat what you kill.” (Creates incentives for short-term licenses and against entrepreneurial value creation.) TLOs asked to do significant “marketing” of university IP portfolio. (Very few people or companies want to buy IP; they want to invest in opportunities.) TLOs whose posture has become over-weighted towards compliance vs. faculty service.
We are not advocating using commercial metrics in lieu of academic metrics for hiring or promotion decisions. First, the schools that are “good at” commercialization don’t do this, so why should you? Second, it’s not clear that it adds much. In our experience, if an assistant professor has created a field-defining innovation that she instantiates in a patent, this will be brought up as part of her tenure review regardless of whether “patents” are a formal review category or not. Third, how good is your P&T committee at evaluating patent quality?
Third, create an atmosphere that celebrates and re-enforces entrepreneurial success among your faculty
Entrepreneurial activity at a university is contagious. To encourage this kind of virtuous contagion, here are some tactics that you should consider:
Play favorites by being very clear-eyed about talent. Our analysis indicates that probably 1-2% of your faculty can/should be scientific co-founders of startup companies. You know who some of them are already, and we can help you find others. Don’t be shy about providing low-cost, high-value benefits to these people – summer relief, development support, attention from you personally and from the university media.
Use your bully pulpit to aggressively celebrate success … and even good failures. Talk about the way that commercialization and entrepreneurship support the research, education, and service missions of the university. Reinforce these messages with emails and lunch invitations.
Encourage industry engagement. Ask your SRA partners how you can better facilitate interaction with faculty. (At one school, the answer turned out to be, “make it easier for me to park on campus!”)
Many schools now have translational grant programs – catalyst funds and startup grants and the like – that provide $25,000 – $250,000 of non-dilutive grant capital to pre-commercial projects, as proof-of-concept or prototype funding. These seem to be expected now, and so you probably have to do it. On the margin, we would guess that they are positive investments. However, if you have $1,000,000 per year for this purpose, we would bet that you would get more payoff from three no-strings-attached awards to your three most commercially minded, high productivity PIs, than 20 awards intended to specifically drive towards commercialization. A tiny fraction of your faculty will generate almost all of the commercial value created at your university. Double down on them.
Fourth – and this is where RPB comes in – get leverage on scale
RBP is a 501(c)(3) not-for-profit that works with you to identify the faculty – usually about 1% of a university’s PIs – who “look like” prospective serial academic entrepreneurs based on our proprietary model. Sometimes our model gives us a bogus target, and sometimes we miss somebody great, so we like to run our results past you. Usually, we end up with targets that have about 50% overlap with the PIs that deans and chairs would pick on their own, but much less overlap with the PIs whom the TLO would pick. The reason for this is that most of the innovation in most of the labs on most campuses is dark (undisclosed) and not visible to the TLO.
We can’t replicate the access to startup networks, talent, and capital that those faculty would have if they worked in the Bay Area, but we can approximate parts of it:
Provide mentorship. Not from people who just happen to be in our network or who just happen to be in your local community, but from the right people with the right experience to help triage opportunities and sculpt research programs with an eye to application. Since the density of academic co-founders tends to be lower at heartland universities than at universities in the startup clusters, we also create opportunities for PIs to interact with each other directly on these issues.
Take off the IP blinders. Universities own the IP, so they tend to focus on IP value. This can lead to commercialization strategies biased towards capital efficient IP flips. Sometimes that is the right way to go … but other times it leaves a lot of value and a lot of impact on the table. We help stakeholders look at opportunities through a value creation and value capture lens: how could this spin-out maximize value, and what corporate organization would need to be in place to capture that value?
Launch startups to succeed. Heartland startups receive about 33% of the capital, on about 60% of the valuation, of Boston startups. (These data are for bio, but the trend holds across markets.) This is because the heartland science might be as good as the Boston science, but the heartland deal usually isn’t as good as the Boston deal. The reason for this is all of the work that gets done in Boston prepping the deal, before it goes out for funding. We work with PIs and other university stakeholders to do a lot of that prep and build deals that are as good as the science behind them. We want to help your startups get 100% of the valuation, regardless of your location.
Our goal is to get your best startups ready to compete successfully for the national-quality talent and capital that they will need to be successful. Yes, we do write checks through our program-supporting venture fund, and we offer other development in-kind. The way to think about our work, though, is that we bridge your best PIs to the people and networks and capital sources that are as good at business as they are at science.