Early stage report 2015: Critical mass: At every part of the
university innovation cycle, a university needs to consider whether
there is substantial momentum behind an idea, project, or initiative to
succeed. Collaboration: In order to create this mass, smaller
universities need to collaborate on the innovation level.
Industry-university relations: The other form of collaboration
universities need to work on is building the bridge between academia and
the corporate world through discussing what issues both have, and
resolving those issues. Harnessing the student body: Students want value
for the time and money they put into studying through hands-on
experience, opportunities to well-paid jobs and, increasingly, it means
the chance to explore the
From technology transfer and incubators to providing both the talent
and the very breeding ground an idea itself, the university’s role in
creating early-stage opportunities is important in terms of what it can
offer and in how it supports the wider ecosystem.
There is an
increasing necessity for universities to be pivotal centres in the
economy, at a local, national, and international level as institutions
look to leverage their talent and knowledge. However, to understand how
to harness universities, a corporate, government, or investor must first
understand the university mission, which takes precedence over other
drivers such as profit margins or gross domestic product.
Simply
put, a university’s bottom line is education. While research supports
this mission, it is the calibre of students and the funding they can
bring to the university which ensures great research can continue.
It
is part of a circle, where strong education attracts the best students
which, along with government and corporate cash and returns from venture
and other investments, help fund higher levels of research that
attracts a higher calibre of researcher and lecturer which drives
prestige, in turn feeding back into a better academic reputation and
education and more funding.
In terms of early stage, students
create a talent pool, which both the university community and
prospective employers can pull from, and, increasingly, are generating a
higher number of startups.
Innovation programmes have been established to translate the taxpayer-funded research into
something
tangible by licensing out the intellectual property (IP) to existing
companies, or creating new spin-outs, and supporting entrepreneurship
across the campus with initiatives such as funding competitions and
incubators to give fresh companies a boost. Furthermore, more
universities are moving into an investment role, both through direct
grants and investments, and also as a magnet to attract further
investment.
It is, however, not a one-size-fits-all model. What
works for the UK’s Cambridge University will sometimes be different than
the best model for Finland’s Aalto University. Locations matter, as
does the resources a university has at its disposal. And despite every
university’s drive to achieve recognition, in a world with around 60,000
or so institutions, not every one of them is going to make it to the
ranking tables.
What universities can strive to do is increase
their interconnectivity with their surrounding ecosystems, to forge
stronger and more robust relations with corporates, and harness best
practice where possible to collaborate both on campus and beyond on a
well-developed early-stage model that can be scaled up over time for the
benefit of everyone.
The impact of the student body
When
it comes to the future of a university, its students are
representative. These are the people who will go on to become academics
at that university or others, generate startups that every university
hopes will be the next social network Facebook, and enter companies,
hopefully enhancing a university’s prestige with their work.
In what could probably be described as the Mark Zuckerberg effect – after the co-founder of
Facebook
at Harvard University and who took the company to a record-breaking
flotation – the millennial generation currently passing through student
halls are regarded as more entrepreneurially minded than any preceding
generation.
Spain-based bank Santander found that nearly a
quarter of students in the UK have set up a side business while
studying, which the bank estimated generated a collective turnover of
$67m, while UK social entrepreneurship charity UnLtd found that 55% of
16 to 25-year-olds wanted to launch a startup.
There are a number
of reasons for this, including tuition fees and low expectation of
future employment prospects and remuneration. Countries such as France
and Germany are keeping their student fees relatively low compared with
the top-ranked institutions in the US and UK.
In the US, the
average annual cost of attending a private university is $42,419,
according to the US College Board for the academic year 2014-15. In the
UK – but not Scotland where tuition is still free - tuition fees have
trebled in the past five years to $13,700 a year.
Following
graduation, students in Europe and the US are expected to find a jobs
market showing no real growth in the sort of middle class jobs to which
they traditionally aspired and where incomes in these roles have been
falling over 20 years.
The middle class in Europe and the US is
expected to show zero growth over the period from 2009 to 2030, at just
more than a billion people in aggregate, with almost all the global
growth in the middle class concentrated in the six-fold increase to 3.2
billion middle-class people in Asia-Pacific, especially in India and
China, according to research by Homi Kharas and Geoffrey Gertz in their
paper, The new global middle class, referenced in the May issue of
Atlantic magazine.
From 1988 to 2008, middle-class incomes
increased in emerging markets and fell in industrialised nations,
according to research by Christoph Lakner and Branko Milanovic in their
paper, Global income distribution from the fall of the Berlin Wall to
the Great Recession, for the World Bank.
These two factors, along
with perceived cultural changes among the most recent cohorts of
graduates, is increasing demand for more entrepreneurship programmes. In
Canada, which is going through what Martin Croteau, director of
academic entrepreneurship at the Ontario Centres of Excellence,
described as a “golden age” for technology transfer and
entrepreneurship, students are driving the movement towards company
generation.
He added: “Back in the heyday of the dot.com boom
[around 2000], if you were caught on our campuses even whispering the
idea of a startup company to a researcher, faculty staff or students,
and the dean of the department caught you, he would pick you up by the
scruff of your neck and throw you out the building.”
That has now
changed. Croteau said: “There has been a revolution over the past 15
years, and the last five in particular. “If you ased the universities
why that has occurred, they would tell you that they were doing it in
response to their faculty members looking to develop IP, and students
looking at entrepreneurship as a career option. This group of
millennials has the world by the tail.”
But looking into the data
in many regions shows a more mixed picture. The Organisation for
Economic Co-operation and Development’s (OECD’s) Science, Technology and
Industry Outlook 2014 research on the commercialisation of public
research found average annual growth of university patent applications
fell from 11.8% between 2001 and 2005 to 1.3% between 2006 and 2010,
while public research institutes (PRIs) showed negative growth of –1.3%
over the latter period compared with growth of 5.3% between 2001 and
2005.
Licensing income remained relatively stable in OECD
countries, although a few universities account for the bulk. In Europe,
10% of universities accounted for about 85% of licensing income,
according to OECD research in 2013 for the Outlook report.
The
OECD said disclosure of inventions per $100m of research expenditure
showed a slight average drop from the 2004-07 to the 2008-11 periods and
university spin-offs had failed to expand significantly in number
despite continued policy support. In the US, among 157 universities,
there is an average of four annual spin-offs per university.
The
OECD said: “While the situation may be due in part to the changing
ecology of innovation, such as the fact that modern technological
innovations are complex and rely on several patents, the slow adjustment
of institutional and public policies have also played a role.
“Many
governments and institutions have focused excessively on patenting and
licensing as a channel for commercialisation. This has led to a rise in
the number of patents filed and a narrow emphasis on exclusive licensing
of inventions. Many institutions have also focused on the role of
professors in commercialisation and less on student entrepreneurs.
“Governments,
universities and PRIs are now experimenting with new strategies to
improve the commercialisation of public research, [such as
public-private partnerships, joint research initiatives and centres,
outward and inward licensing of IP by universities and PRIs and
incentives for the mobility of entrepreneurial academics].”
A Canadian university leading the world in responding to this challenge from students is Waterloo.
The
engineering-focused institution has become a magnet for students and
entrepreneurially-minded professors, and threads a drive towards
innovation from undergraduate courses all the way up the academic food
chain. Waterloo runs one of the largest co-operative education
programmes in the world, in which last year 19,000 students participated
in paid roles at 5,000 companies, including international firms,
collectively earning them $190,000.
This experience both sets
students up for the demands of corporate life on graduation, and also
gives them insight into how to run their own businesses. Alongside
WatCo, Waterloo’s tech transfer office, the university has three other
branches to support entrepreneurship.
It runs a centre to develop
ideas generated by students on its master of business, entrepreneurship
and technology (MBET) course, from which 45% of its students emerge
with experience in leading a startup. The course is structured purely
around launching startups, as opposed to a traditional master of
business administration (MBA), offered by numerous universities, which
is angled towards management of an established firm, and provides
mentoring and access to funding, as well as developing skillsets for
starting a business.
The university also runs a public-facing
incubator, the Accelerator Centre, which works with the local economy to
develop and support ideas coming out of the locale. To date, it has led
to the creation of 1,055 businesses and they have raised $157m of
external funding.
Perhaps the best-known part of Waterloo’s
efforts to support student entrepreneurship is the Velocity incubator.
In a similar model cropping up across the country and elsewhere, it is a
university-owned incubator tasked with supporting student startups.
Since opening its doors in 2008, Velocity has brought together teams of
students and recent graduates across different subject areas to develop
business ideas alongside their studies, as well as running biannual
pitch competitions where four or five student groups win $25,000 to seed
their ventures, along with free working space and mentoring.
Velocity
has overseen the creation of 63 companies and 341 jobs, and its
startups have secured $90m in external investment. Others are following
this lead. Kendrick White, vice-rector of innovation at Russia-based
Lobachevsky State University of Nizhni Novgorod (UNN), said it had been
overhauling its innovation practices.
He said: “Previously, our
university, as most in Russia, had only a very weak internal capacity
for tech transfer, which began with the identification of new
discoveries, but then practically ended with the filing of a simple
Russian patent.
“Our university had never previously developed
any serious licensing agreements or went so far as to secure
international patents on our discoveries, and most of the spin-outs
formed by the university were only designed to secure short-term grant
funding from the FASIE [the Russian government’s Foundation for
Assistance to Small Innovative Enterprises] fund, but rarely ever
developed living spinouts which could hope to attract private sector
funding.
“We have [now] moved to completely overhaul the
commercialisation infrastructure here [at UNN], based on the best
practices of MIT [Massachusetts Institute of Technology], University of
Maryland, Purdue and other such successful [US] institutions.
“Today,
there is a growing awareness of what the missing elements are within
university tech transfer departments. It is necessary to establish
within the university ecosystem a proof-of-concept centre staffed with
professionals in tech commercialisation, VC [venture capital], tech
brokerage and management consulting. Budgets must be allocated to pay
the required market-based salaries for such professionals.
“Part
of the solution has been [for UNN] to become a founding member of the
International Proof of Concept Association (IPOCA), together with MIT,
Skoltech, ITMO and Masdar.
“The idea is to set up a global
collaborative network of like-minded business people running the
technology commercialisation centres at various US and Russian
universities, which have a common goal of creating products. I can see a
global trend in this effort and feel that both corporate and
private-sector angels and VCs will be very interested to align with this
effort.
“On a third front, I am forming an alliance with the
global association of Russian-speaking scientists, the Russian-American
Scientists Association, which will form the backbone of an international
network of Russian diaspora science and commercialisation expert
mentors that IPOCA can tap into to help develop market entry strategies
for Russian technologies into the US, EU, Israel and Asian markets.
“Additionally,
it is now becoming quite clear that additional funding should be
allocated by the federal and local governments for translational
research. Funds are urgently needed, as there are few real business
angel investors in Russia willing to support early-stage, high-tech
startups.
“The FASIE fund is working in this direction but the
effect has not been noticeable due to the lack of local professionals at
the local university level which could be counted upon to support the
project directly in their efforts.
“These funds should be managed
by the professional tech commercialisation and proof-of-concept teams
to be located inside each university and should not be attempted to be
managed by Moscow managers [based] far away.”
Translating research
The
second pillar of the university mission, that of research, also helps
the early-stage ecosystem. Not all universities conduct research, but
those that do have a significant impact on a number of sectors. Life
sciences tend to receive the lion’s share of attention from
universities, but IT, computing hardware, communications, engineering,
agriculture, clean-tech, oil and gas, transport, aviation, space, big
data, advanced materials, defence, robotics, nanotechnology and numerous
other high-tech areas all draw heavily from university-led research.
The
majority of research is still conducted through government grants or
money coming from the university itself. Often, it is not known at the
start that the end product will work, or what that end product actually
is useful for, or if there even will be an end product once an academic
paper is published.
This leads to a pile of potential ideas
stacking up in any university with a half-decent research base. The
question then becomes what to do with them. More often than not,
potential inventions will be submitted to a technology transfer office
(TTO) which will then assess the idea for market potential, choose
whether or not to pursue a patent, and then decide whether the best
option is to license the technology to an existing firm, spin out the IP
into a new company, or seek other technologies at other universities
which could combine with the IP to generate a bigger, better product.
Spin-out companies
While many US universities will label academic spin-outs as startups, it is worth differentiating between the two.
First,
unlike a regular startup or those of a student origin, the IP driving a
spin-out means that the parent university will have a stake in that
company. Most of the time, this means an equity position, as the
university will have had to put up costs to have the IP patented, paid
for the due diligence of its technology transfer team and, of course,
led the research in the first place. However, some universities, such as
MIT, choose to forego their equity stake yet are still intrinsically
tied to the success of that company as the research driving it, and
often members of either the board or the executives running the company,
originate from the university, meaning the reputation of the university
is on the line.
That stake could also be crucially important to
universities should the company achieve corporate success. Last year’s
sale of NaturalMotion, a computer games animation software spin-out of
Oxford University’s zoology department, to gaming firm Zynga for $527m
made a return of $50m for its parent university. That money can then be
reinvested in tech transfer operations, wider innovation strategies
across the campus, attracting more PhDs and professors, or developing
new facilities for faculties to produce more research.
Spin-outs
tend to be more stable than their startup peers, according to empirical
studies, including one by Uwe Cantner and Maximilian Gothner on 128
academic spin-outs in Germany, which reveals a higher percentage making
it past the three-year survival point, although this can waver dependent
on sector, university and location. There can also be mergers and
acquisitions as big corporations which start as customers or investors
at the early stage see the technology develop to a point where it is
worth incorporating into the larger firm.
However, spin-outs are
not without problems. Getting a concept from lab idea with a patent to a
functional company often requires a leap of faith on behalf of those
running the company, the university, investors and potential customers.
Often the technology backing spin-outs is unproven, and will require
further development inside the spin-out before it is market ready.
Getting from concept to functioning business is often called crossing
the “valley of death”, where a lack of funding from risk averse
universities and investors means new drugs or inventions can disappear
before they have even had a chance to shine.
There is also the
issue of building the spin-out team. Academics develop a strong
connection to the technology they develop, but there can be better,
possibly external, management candidates to lead spin-outs. While there
are those that break the mould – such as Michael Lynch, who headed
Cambridge spin-out Autonomy and led the company to be one of two
Cambridge firms valued at over $10bn – the thinking is that an academic
is best at the science, not running the business.
Therefore, an
academic is generally advised to take an advisory role that can build
into a bigger part, such as chief technology officer, as they develop
the business skillset. But to get off the ground, it is advised that
spin-outs look to bring in experienced CEOs or executives who have
worked with similar technology in the past to give the company that
initial push off the ground, while seeking a board that can advise
through the formative stages.
This is also a crucial step in
securing funding to build the spin-out. Considering how early-stage some
spin-outs are – with some even proposing entirely new markets –
investors need to see a safe pair of hands at the helm – someone who can
sit on the bridge between academia and industry.
Licensing
The main alternative to spin-outs is licensing technology from the university to an existing entity.
When
a licensing deal is struck, universities will be entitled to regular
royalty payments which can run over a set period according to the deal
made, or the length of the patent supporting the licensing deal. When
the right technology and the right partner are combined, a licensing
deal can prove lucrative to the university. There are fewer upfront
costs and heavy lifting than with constructing spinouts.
However,
universities lose out on any rewards a spin-out can bring, such as an
equity stake in the company or being a direct influence on creating jobs
in its locale, although a company may well choose to increase its
headcount to make best use of the IP.
The general split for
royalties is variable dependent on the university, but a guideline is a
three-way split on royalties between the inventor, the faculty and the
university.
So when is pursuing a licence considered over a
spin-out? Drawing on advice provided by Imperial Innovations, the
technology transfer arm of Imperial College London, we can see that
there are a range of factors that play into a TTO’s decision to go down
one path over the other.
Broadly, Imperial splits these into IP,
inventor, market opportunity versus investment required, resources,
technology, availability of prospective licensees, control and
influence, economics and business case. When considering the IP,
licensing is the best route for anything with a narrow IP position,
where there is only one obvious licensee and little significant
post-licence support required, while a spin-out is the best option when
there is freedom to operate, new IP could be generated, and a suite of
patents and know-how exists.
The inventor is also a
consideration. If the IP is outside the mainstream of that professor’s
research or there is pressure to generate cash up front, then a licence
will be pursued, whereas a spin-out is considered when the inventor can
remain involved or is willing to take a long-term view and defer
short-term rewards.
A small or unattractive marketplace, or one
where the IP represents only a slight improvement on what is available,
would sway towards licence, whereas an area that can attract future
investment and a technology that can justify high risk would lean
towards a spin-out. There is also the question of whether a TTO can
build a team that will inspire confidence as a spin-out, otherwise
licensing might be the way forward.
The technology itself is also a
sticking point. If it is only half ready and lacks data, securing a
licensee might prove tricky, or if it is fully formed and value can be
drawn from it then a spin-out may be the best option. Also, if licensees
cannot be identified yet there is certain value in the proposition, a
spinout may be the best course of action. The aforementioned prestige
and branding can come into the decision, whereby technology over which a
university wants to assert continuing influence can lead to a spin-out.
And finally, economics comes into play. Is there a business case to be
made, and which route is going to generate a greater return for the
university?
One of the other hurdles licences need to overcome is
pairing up with the right company. While TTOs will pursue potential
partnerships, multiple single entities chasing individual companies can
prove ineffective, especially for smaller universities. To this end,
there are now numerous portals, but generally through member
organisations or behind paywalls.
Collaboration
Getting
the most out of technology stemming from universities can often yield
greater results when universities work with other institutions or
corporations.
There is currently a three-year collaboration
between Germany’s Fraunhofer Institute and New Zealand’s Auckland
University to develop an exoskeletal arm which could lead to the
creation of a light-weight, low-cost exoskeleton for lifting heavy
objects, both in a home and an industrial setting, as well as in
physiotherapy.
The project is working with previously spun-out
technology, and merging it. Two Auckland innovations, muscle movement
detection device StretchSense and inertial sensor IMeasureU, will be
used by Auckland scientists to design the arm, and Fraunhofer will take
over on the physical prototype and product.
Another beacon is the
Skolkovo innovation centre project in Russia. Skolkovo is looking to
capitalise on Russia’s research base to bolster its output in areas such
as space, energy science and technology. It is drawing on corporate
partnerships with Microsoft and Intel, academic partnerships with
Cambridge and Harvard, $4.2bn from the Russian state, and a partnership
with MIT that has led to the institute establishing a campus called
SkolTech to bring MIT know-how to Moscow. It also recently secured a
$200m university venturing fund supported by Chinese venture capitalist
Cybernaut.
It is this sort of international co-operation that
Israel’s Tel Aviv University and China’s Tsinghua University are
attempting to capture with the recent launch of the Xin Centre for
Innovative Research and Education. Meaning “new” or “heart” in Chinese,
the Xin centre will focus on nanotechnology before expanding into other
fields, and will draw on leading researchers from Israel and China.
Tel
Aviv is no stranger to fostering these strong links, and has wooed
India-based Tata Industries and memory storage firm SanDisk into backing
its $23.5m Technology Innovation Momentum Fund, securing not only
corporate cash to bolster its early-stage projects but clear routes to
market for the technology that will emerge.
These corporate
partnerships can lead to big things for university companies. The
relationship between Samsung and Technical University of Dresden
spin-out Novaled, which is producing organic light-emitting diodes
(OLEDs), is an example of how a corporate partner can help a spin-out
grow while gaining an edge over its competitors by harnessing the
spin-out’s technology.
Spun out in 2001, Novaled’s technology was
ahead of its time, and it floundered for some time as the world caught
up. When it did, Samsung saw the potential. The majority of Novaled’s
OLED sales went to Samsung, which the corporation has integrated into
its products, most recently in its Samsung Galaxy S6 Edge, which allows
the phone’s screen to curve at the edges. On top of the sales, Novaled
also received funding from Samsung, which acquired a 10% stake in the
firm in 2011. It then capitalised on this in 2013 in an acquisition
worth $345m.
Models of technology transfer
Technology
transfer office (TTO) can be a broad term but its operation is complex,
and models seem to vary from country to country and university to
university.
The office
The most basic,
and most commonly seen, version of a TTO is a two-person office, often
at midlevel research universities, which tend to be understaffed and
undertrained, mostly invisible to the untrained eye, is likely to be
operating in the red and operating outside core sections of the
university. Typically, it will not have a fund of any kind to speak of,
or any incubator or mentoring services to offer.
Key points
- Easy to set up
- Ineffective at translating technology
- Tends to rack up more costs than profits
The integrated office
Often
bigger than an office is a department that has been threaded into the
wider research offering of a university. Occasionally, responsibilities
will be divided between similar offices, such as corporate relations,
outreach or liaison offices and technology licensing offices that are
sometimes the same as TTOs, sometimes not. This tends to be a much more
stable model of tech transfer, and our top-ranked TTO in the world,
MIT’s technology licensing office, follows this model. Often, directors
or managing directors will report directly to the vice-president or
equivalent of research and, in some cases, they are one and the same.
This gives an office that has been properly integrated into a
university’s research ecosystem a lot more sway in the university,
allowing it to tap into the research better and access the resources
necessary to conduct business effectively.
Key points
- Can funnel resources into tech transfer
- Often is a key stakeholder at the research table
- Is not independent
- Cannot operate outside the boundaries set by its university
The innovation arm
In
some cases, such as University College London (UCL) Enterprise, the
tech transfer office will be bundled up with other programmes to create
one innovation offering. This differs from the integrated office as it
operates separately from the research side of an office, and gives both
the university and outside organisations a one-stop shop. In UCL
Enterprise’s case, the office has a vice-provost, has a funding arm,
manages the TTO, looks after student ventures, provides staff training
and business support, provides a consultancy arm, arranges its own
partnerships, and conducts all its communications from the same
umbrella.
Key points
- Provides all innovation services as one cohesive unit
- Is built with business, international and collaborative outreach in mind
- Looks after innovation strategy as a whole, not just tech transfer
The wholly-owned business
The
wholly-owned technology transfer business, such as Oxford University’s
Isis Innovation, affords a degree of autonomy from the parent university
that can allow it to pursue commercialisation strategies more freely
than its more in-house peers, and also allows for a certain degree of
differentiation from the university while still remaining a custodian of
the brand.
Much like UCL Enterprise, the wholly-owned subsidiary
generally fulfils a number of roles beyond tech transfer. With Isis as
an example, the company incorporates the TTO, the university’s
consulting arm, and its tech transfer consulting arm Isis Enterprise. It
has also been a driving force behind setting up Oxford’s angel
investment group Isis Angels Network, which provides early-stage access
to capital, and has now set up two seed funds with fund manager Parkwalk
Advisors, while also running an incubator focused on software
development.
Key points
- More autonomy
- Ability to have greater oversight over financial instruments
- One-stop shop for businesses looking for Oxford expertise
The partly-owned business
Drawing
on the enterprising spirit of Imperial College London, its TTO,
Imperial Innovations, has the university itself retaining only a small
stake of about 20% in a listed entity. It floated in 2006, and trades on
Aim, London’s alternative investment market.
This means that not
only does Imperial Innovations manage the TTO operation, it also plays
the part of active venture investor. It has a broad reach, with
agreements with Oxford, Cambridge and UCL as well as Imperial as
potential sources of companies to back.
Key points
- Ability to run the company as the business sees fit
- Draws from university IP, but is not governed by parent institution
- Allows for cross-university collaborations
- Can hold an initial public offering (IPO) and act as a venture capitalist
Outsourced TTO
As
an alternative to running its tech transfer operation, a university can
opt to hand over responsibilities to an entirely separate entity. This
was the case with Cardiff and Sheffield universities, which outsourced
their TTO operations to UK-based commercialisation company Fusion IP,
which was acquired last year by fellow commercialisation firm and
investor IP Group.
This can be an easy way for TTOs to gain
critical mass and access to funding, resources and regions that a
university would not have been able to provide on its own. However, the
downside comes in the form of removing tech transfer from the university
bracket entirely and putting it into the hands of corporates. While
this is excellent for fellow investors and other companies, it does take
tech transfer away from its founding mission to translate university IP
if it can be done and adds a profit element that can take priority.
Key points
- An effective way to build cross-university critical mass
- Can quickly substitute an under resourced office with a well-trained one
- Places profit above the university mission
Regional TTO
One
of the biggest shake-ups in tech transfer approach has been taking
place in France over the past few years, where universities and research
institutes have moved away from running their own TTOs in favour of a
regional TTO model where 14 societes d’acceleration du transfert de
technologies (Satts) have been established, similar to Max Planck
Innovation, the TTO that oversees innovation coming out of the 78 Max
Planck institutes in Germany.
It is still early days for the Satt
programme, which began in 2012 with €78m ($93m) of backing from the
French government, but by collating independent efforts, a regional or
collaborative TTO instantly gives institutions critical mass. The
benefits of this are threefold. First, it presents a single entity in
any given region for businesses to work with, which translates into a
wider range of technology and know-how to draw on and less legwork for
companies. Second, it allows for state and university funding for tech
transfer to be focused as opposed to diluted. Finally, universities that
previously relied on a small team can now draw on a larger, often
better-resourced, team.
Key points
- Allows a number of universities to combine efforts under one roof
- Creates critical mass
- Creates a well-trained and well-resourced tech transfer operation out of a fragmented model
Incubators
As
innovation rises on the university agenda, incubators are becoming
increasingly important in providing a fertile nurturing ground for both
student startups and spin-outs. In essence, there are three types of
incubator on which a university can draw – university-owned,
university-affiliated and independent.
University-owned
When
the University Business Incubator Index (now just UBI Index) published
its inaugural rankings two years ago, SetSquared was rated as the number
one incubator in Europe – a spot it held for a second year as it moved
up the rankings to become the second-highest-rated incubator in the
world, only behind the efforts of Rice University in the US.
In
just over a decade of operation, SetSquared has seen 1,000 companies
pass through its doors with an average 80% three-year survival rate, and
which collectively have secured $1.5bn in external financing.
Similar
to the Satt model in France, SetSquared is working collaboratively. The
incubator goes further than treating incubation just as a necessary box
that needs to be ticked to attract students.
Whereas many
universities are looking to sustain individual incubators, SetSquared is
a combined effort of the UK universities of Exeter, Surrey,
Southampton, Bristol and Bath.
This gives SetSquared both critical
mass and a wider pool from which to build ideas. Both students’
startups and spin-out companies from all five universities can add to
the mix, and the incubator is open to the public as well. It also pools
mentoring, funding and know-how from all five universities into one
portal all members can benefit from.
A combination of size,
competency and success has helped build bridges between industry and
academia. By allying themselves with SetSquared, companies can draw on
talent, startup businesses and technologies, which also gives
SetSquared’s companies a clearer roadmap to market and funding.
It
also makes a more appealing proposition for government cash. Last year,
the incubator secured $5m to help spin-outs from its five universities
cross the valley of death, resources provided in the form of increased
mentoring, training and funds.
University-affiliated
Stanford’s
student-launched and managed incubator StartX is one of the most
promising university affiliated incubators. Launched in 2011 as a
non-profit spin-out of Stanford’s student enterprise department, the
incubator has quickly made itself an integral part of developing
Stanford’s highly entrepreneurial culture.
Originally staffed
purely by volunteers, StartX attract $800,000 from the philanthropic
Kauffman Foundation in 2012, as well as a further $400,000 raised from a
number of Silicon Valley companies. The development of companies such
as indoor GPS startup WifiSlam, which was sold to Apple in 2013 for
$20m, quickly turned the university on to how the incubator was
generating high quality startups that had the potential to go the
distance.
This led to Stanford getting involved more officially.
At the start of the 2013-14 academic year, Stanford announced a $1.2m
annual grant over three years to pay for additional facilities and
staff, as well as the Stanford StartX fund. The fund, which is uncapped
and drawn from Stanford’s administration, now uses the incubator as a
sounding board for investment, investing in current and alumni companies
of StartX that have raised $500,000 from angel or venture investors.
To
date, the fund has invested $31m in 82 StartX companies. Over the past
four years 220 companies have pased through the incubator’s doors. They
have raised an aggregate $700m at an average of $3m per company, and a
number have gone on to be acquired by leading tech firms such as Apple,
LinkedIn, Yahoo, and Dropbox.
Independent
DreamIt
Ventures in the US has been demonstrating a model for partnering
universities at the early stage. DreamIt has been setting up incubators
near universities, which it has been using as platforms to make
investments. Typically, regular startups receive $25,000 for a 6% equity
stake, and health startups receive $50,000 for an 8% stake, which can
go up to $300,000 in seed backing. So far, it 170 firms have passed
through its doors, generating $200m in external financing.
Its
programme has spread to New York, Baltimore, Philadelphia and Austin,
and DreamIt has partnered institutions such as Maryland, Johns Hopkins
and Pennsylvania, as well as attracting corporates such as Northrop
Grumman, Comcast and SingTel. In its second fund, DreamIt raised $30m,
including $3m from Drexel University.
Funding
The idea is forming, the team is getting into place, but how does it secure the funding to develop?
Proof-of-concept funding
In
navigating the valley of death – the funding gap between an idea being
turned into a business and the business sustaining itself – the
proof-of-concept fund helps before a seed-stage investment round.
Proof-of-concept
funding allows spin-outs to demonstrate their business model and
underpinning technology are financially viable. Generally speaking, the
cash will be used to conduct further research and develop a technology,
which can then be submitted to interested parties. This research will
normally include projected revenues, an examination of the business
model, further development costs and long-term financial projections.
Increasingly, this is becoming an essential part of spin-out life as the
fresh company seeks to demonstrate the viability of its long-term
goals.
Funding can typically be anywhere between $5,000 and
$150,000 in grants, depending on the institution offering it. There are
also other sources of proof-of-concept funding outside the university,
such as the European Research Council’s Proof-of-Concept fund, which is
available to any project that has already received council money.
Startup competitions
While proof-of-concept funding may be a viable option for spin-outs, student startups are
normally excluded from the running. To fill their place, a number of universities now offer startup
competitions. Run during the academic year, the prizes and frequency are dependent on the
institution hosting them. The general rule is that there will be mentoring and working space rewards
for winners, as well as cash prizes.
The
largest competition of this kind is run by Rice University’s Rice
Alliance for Technology and Entrepreneurship, which is ranked by UBI
Index the top university incubator in the world. Now in its 15th year,
the Rice Business Plan Competition has grown from nine teams competing
for $10,000 to 42 international teams vying for cash prizes that
amounted to $2.9m last year. At least 155 past competitors are still in
business today, and those companies have gone on to raise a total of
$844m.
This year’s winner, a child-focused smartband startup from
Brigham Young University called KiLife, secured prizes worth $588,000,
as well as a further $150,000 in services.
Rice has achieved this
by bringing on board a number of partners, including the Kauffman
Foundation, Silicon Valley Bank, Gneral Electric, Wells Fargo, Nasa,
Nasdaq, BP Shell, UK Trade & Investment, Baker Botts and others that
contribute either funding or services for the eventual winners.
Seed funds
Depending
on a university’s location, it may already have external seed funds it
can draw on, from private, corporate and government sources. However, a
well-managed seed fund owned by the university and co-investing
alongside angel and other seed investors can be an effective tool for
generating the first tranche of cash a startup needs to grow past the
proof-of-concept phase, as well as providing the means to engage with
wealthy alumni, local individuals and small investors within its
ecosystem.
In the UK, universities including Cambridge and Oxford
have recently leveraged tax relief provided by the Enterprise
Investment Scheme and Seed Enterprise Investment Scheme. Offered by the
UK government, the schemes are designed to offset the riskier investment
in the early stage by reducing an individual’s tax liability. This
model has proven popular, with Cambridge raising three such funds and
Oxford raising two since 2012.
In France, the Satts have been
clusters for seed funding. IDF Innov, the Satt overseeing the Paris
region, maintains a $6.7m seed fund, which is taken from the overall
funding provided to each of the Satts when established. As a hub for all
technology passing out of Paris’s universities and research institutes,
this means IDF Innov’s seed fund is well placed to support some of the
top-tier research coming out of France.
In the US, University of
Illinois at Chicago (UIC) set up a $10m hybrid proof-of-concept and seed
fund called the Chancellor’s Innovation Fund. It is fuelled with $2m a
year for five years, and managed by IllinoisVentures, an early-stage
investment previously established by UIC. The funding is split 50:50
between proof-of-concept and seed investments, meaning IllinoisVentures
will more often than not have already generated its seed investment
pipeline through its proof-of-concept grants, meaning it already knows
many of the companies it will be investing in.
Angel networks
Investors at this stage can be entrepreneurs themselves, pooling resources through angel networks.
Some
universities have formed their own angel networks. Since 1999, the Isis
Angels Network backs Oxford University’s entrepreneurs, while Chicago
University has leveraged its Chicago Angels Network to support
entrepreneurs’ international expansion.
US-based Duke University
is in the process of establishing an angel network and innovation fund
simultaneously with a goal of signing up 50 Duke alumni by the end of
the year and doubling that number in 2016. Its Duke Angel Network will
be supported directly by its innovation fund, which will co-invest $1
for every $3 the angel network provides. The innovation fund has
received $2m in commitment from Duke, and the university plans to expand
this to $20m.
Student-run venture capital
Michigan is a forerunner in student venture capital and has three student-led investment funds –
Wolverine
Venture Fund, founded in 1997 with a $2.5m donation, Zell Lurie
Commercialisation Fund and Social Venture Fund. Each is aimed at
providing investment to a specific part of the university’s investment
strategy while also providing the next generation of venture capitalists
with hands-on experience.
Wolverine is probably the
best-known of the three as one of the world’s first such funds, and now
draws from a $7m fund aimed at early-stage companies, both within and
outside the university. Zell Lurie acts alongside Michigan’s TTO, and
provides access to capital for the university’s spinouts. The Social
Venture Fund focuses exclusively on for-profit social enterprises, and
invests at least $50,000 a time in companies focused on education, food
systems, the environment and urban revitalisation projects that deliver
both financial and social returns.
The business school at
University of Wisconsin-Madison has had a course tied to a $1.5m fund
since 1998 and has made 20 investments in student-run businesses.
Others
have been more active. First Round’s Dorm Room Fund is a three-year-old
student-run venture firm with local branches in Philadelphia, New York,
San Francisco and Boston, and has made about 80 investments, typically
$20,000 drawn from First Round’s limited partners, which are mainly
large endowments and non-profits.
University venture funds
There
are four ways a university can go about getting involved with venture
capital – the solely owned university venture fund, the collaborative
university venture fund, investment in established venture capital firms
and maintaining a close relation with a venture capitalist.
Although
there are no global estimates for the number of such funds, in Europe
the OECD in 2014 tracked 73 university funds, such as Seed Fund Chalmers
in Sweden and Gemma Frisius Funds in Belgium.
There have been
increasing numbers of all four fund types. Global University Venturing
tracked 90 funds raising more than $5bn last year, with more this year,
including Oxford setting a ￡300m fund target in May.
One of the
oldest relationships between a university and a venture capitalist is
Chicago’s relationship with Arch Venture Partners. The VC was originally
spun out from Chicago’s own TTO, Arch Development Corporation, in 1992
and the university was an investor in its first fund. Now on its eighth
fund, raised last year and totalling $410m, the VC acts independently of
the university, yet keeps close ties with Chicago and the institution’s
peers at UIC and Northwestern as well as overseas in Japan.
State-backed
business development organisation Enterprise Ireland has committed more
than $1.4bn to seed and venture capital schemes, such as the €32m fund
set up with Bank of Ireland for Limerick University spin-outs and
startups. Limerick spin-outs have now attracted €80m in external funding
and added 260 jobs to the local ecosystem.
Universities, such as
Ohio State’s $50m commitment to Drive Capital’s $250m fund, can invest
in independent VC firms through their endowments or, as with Stanford,
from their balance sheet.
Independent VC Osage University
Partners has helped financial collaboration on investing in earlystage
spin-out opportunities emanating from US universities. Now on its second
fund worth $200m, the investor draws on 50 institutions in the US,
typically co-investing alongside other VCs and providing spin-outs with
access to capital in a fund that spans the whole country.
Finally,
the university venturing fund – a fund managed by the university or its
TTO. A notable example of how to establish such a fund is Cambridge
Innovation Capital (CIC), an $80m fund launched to service Cambridge’s
tech cluster, the largest in Europe. CIC is an evergreen fund ploughing
proceeds from selling positions back into the fund, ensuring in theory
that there will always be a pot of money for Cambridge firms to draw on.
It is also planning to hold an IPO to double the size of the fund,
which, if CIC sticks to its original plans, will be held over the next
18 months.
In order to sustain the fund, CIC is investing across
the Cambridge cluster, not just IP-driven companies coming from the
university itself. CIC was cornerstoned by fund managers Lansdowne
Partners and Invesco, which are taking a long-term view on their
investments – a crucial part of establishing a university venture fund
which will not be looking to provide returns within the normal VC cycle
of 10 years or so. It was also supported by Cambridge’s endowment, one
of Cambridge’s two $10bn valued spin-out companies ARM, IP Group, and a
number of small “friends and family” of Cambridge made up of alumni and
wealthy individuals within the Cambridge cluster.
The concept of a
university venturing fund is a bone of contention at many universities.
While the upsides are a big pool of cash to get spin-outs and startups
off the ground, the conservative nature of a university can clash with
the risky early-stage investments a fund is trying to secure.
Intellectual Property Portals
There
can sometimes seem more early-stage ideas than money, which creates a
selection problem - how to sift through and find the right ones – and a
host of platforms trying to help.
Tim Bernstein, partner at
US-based firm Yet2’s commercialisation fund, said: “It is our sense that
our most innovative corporate and CVC [corporate venture capital]
clients find much more value in being able to scan broadly across
universities. It is actually our less innovative corporates and CVCs
that we see still locking in deeper relationships with only a few
universities.
“Though there may be some nice initial wins with
specific universities, usually the corporate partner quickly exhausts
much of the relevant value that any one university has to offer.”
Easy
Access IP is one offering an open opportunity mechanism to allow
companies and individuals free access to these technologies so new
products and services can be developed that will benefit society and the
economy.
In return for free access to the research and IP, the
portal asks its licensees to demonstrate how they will create value for
society and the economy, acknowledge the licensing institution as the
originator of the intellectual property, report annually on the
progress, agree that if the IP is not exploited within three years the
licence will be revoked and agree that there will be no limitations on
the licensees use of the IP for the university’s own research.
Others
are looking to use the pricing mechanism. Scott Sharp, CEO of Leading
Edge Only, said its platform was the “LinkedIn for innovation” as
companies and universities put up profiles of innovations so that others
looking for solutions can contact them.
Launched last year, Leading Edge Only has had 60,000 views and 20 universities on the platform.
Peter
Holden, founder of IPCreate, said his company was trying to be a more
proactive portal to provide “invention on demand to help corporations
keep up with disruption”.
He added: “Startups lack the resources to file for patents and we want to be an IP support rather than tax on it.”
VJ Anma, co-founder and CEO of IdeaMarket, said its platform helps identify a problem and then invites the crowd to solve it.
He
added that Ideamarket was trying a new business model to help
entrepreneurs. Ideamarket will help those coming up with the IP set up a
business rather than just sign over the rights to the client.
Ideamarket will then own part of the startup, about 5%.
Since September, IdeaMarket has had 43 ideas with $5.4m of aggregate money funding them and the first four matches made.
Anma
added: “We are putting in place the legal framework for the three
stages – brainstorm a challenge, form a company that solves the
challenge, help the company after formation.
“Our backers are
angels – Bill Gross, Steve Case, Peter Diamandis – and we could be a
platform for their challenges, for example Startup America.”
Singularity University’s different breeding
Singularity
University could be regarded as a virtual education organisation run on
a shoe-string from a low-rise pre-fab building on a dusty air base.
Despite its name, it is not a university, has no formal accreditation,
but instead is set up as a California benefit corporation – a hybrid
legal entity allowing an organisation to pursue profit as well as, in
the case of Singularity University, “the creation of material positive
impact on society and the environment”.
It is, as David Hite, co-founder of venture capital firm Bridge 37, said: “Much more a startup than a university.”
Singularity
University existed as a non-government organisation until 2012 and
converted to benefit corporation status shortly after the creation of
that legal vehicle.
Its students arrive at the Nasa Ames Research
Centre in Mountain View, California, from around the world, and stay in
a low-rise accommodation block on the airfield while they explore
venture ideas that could affect markets of at least a billion people.
It
is, as Hite said, an “obvious contrast with super-established
universities that pursue super traditional models of tech transfer and
are sincerely dedicated to the creation of value and wealth by bridging
academic research into commercialisation”.
The Singularity
University (SU) model has already provided for the creation or
enablement of 30 “SU companies”, the top five of which raised about
$100m in 2014, and it is just launching a formal accelerator programme
to develop the companies leveraging the education and advancement of
exponentially growing technologies.
Companies in the accelerator
will be a mix of those that apply to the accelerator, having been
founded outside and having no connection with Singularity University,
and companies that spring from Singularity University’s own programmes,
Hite said, with Bridge 37 able to back the graduates from the cohorts.
