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Tag Archives: Technology Transfer

Gaps in the Research, Development, and Engineering Chain

4 Comments Posted by on January 10, 2012

I talk a lot about bridging the ‘technology transfer gap’, but there is more than one place where technologies fall to their doom in the development of a new product.  When you define each stage in the process (Research, Development and Engineering) you start to see that there are two clear gaps.  Between each of these stages, a risky transition occurs. It is not just a few outliers that fail to make each leap; it is the vast majority of inventions.  A big part of the reason for this is that very different environments work best for each stage of the R-D-E chain, meaning that technologies do not just need to transition between stages; they typically need to transition between organizations with different cultures and expectations.  Any “technology transfer” model needs to take both of these transitions into account. Let’s first briefly define the three stages.

The Research Stage. At the research stage, new ideas are proposed and tested, solutions to problems are sought or discovered, multiple ideas are combined, and inventions result.  The best macro-scale model that we currently have for this process is the university.  Universities provide the most open and free environments for research to occur, with by a wide margin the most financial resources ( Microsoft Research, probably the largest corporate research entity on the planet, spends about a billion dollars a year on research, which sounds like a lot, but it is still less than even a mid-sized university).

The Development Stage.  The task at the development stage is to rapidly risk-reduce an idea emerging from research (the process of innovation).  Outlier or extreme cases are considered, many of the scientific elements must be validated, and the fundamentals of how a new technology works will be tested and mapped out.  In other words, the technical risk of an invention not working are eliminated or largely brought under control.  This is what startups do best due to their focus, speed and flexibility.

The Engineering Stage. Products do not just need to have their technical risks resolved; they also need to be made.  That means designing the technology with aspects like cost reduction, manufacturing, production, shipping, and maintenance in mind.  Large companies, beyond any doubt, do this the best due to their economy of scale (at least in the case of hardware and similar scalable solutions).

With three steps in the chain there are obviously two transitions. And that’s where the trouble starts.

 Transition 1: Research to Development.  The usual problem in research to development transitions is that the open, loose form of universities (great for research) is a disaster for development.  In development you need focus, speed, agility, and risk money, none of which the university environment typically provides. Inventors, the most likely people to lead the technology’s development at a university, have far too many competing objectives and have much greater incentives and access to resources for basic research and invention then they do for development (for the most part).

At the same time, it is much more difficult to sell an undeveloped invention to a large company, precisely because their emphasis and strength is in engineering.   And that is assuming that universities, who are generalist by nature, are able to create and maintain the relationships needed with large corporate structures in specialized industries to pitch their inventions, and understand what the market need for these inventions is.

Transition 2: Development to Engineering. Development Startups face a similarly challenging cultural transition. At first glance that doesn’t seem to be the case. The skill set of startup developers is actually very attractive to big companies – at least in the early courtship days. Startup developers look dynamic, pro-active and goal-oriented. That is why big companies buy startups all the time.  After the acquisition, however, this beautiful vision starts to fracture a bit. Many of the best startup producers are hackers at heart. Product engineering on the other hand requires rigour, discipline and process – aspects that a startup will often deliberately suppress in order to progress faster, focusing on the key technical issues. Over time, “dynamic” becomes “can’t focus”, “pro-active” becomes “disruptive” and so forth.  That’s why most acquisitions ultimately fail.

 TandemLaunch Technologies’ mission is to improve the transition efficiency in the R, D, E chain in a way that is consistently beneficial to Canada (more on this in a future post).  We accomplish this by 1) identifying key researchers and inventions, 2) leading and providing the resources for the development stage of these inventions, 3) providing industry with a developed invention and the support they need for acquisition, and 4) keeping and creating jobs in Canada.

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Who will bridge the tech transfer gap?

2 Comments Posted by on November 17, 2011

The National Sciences Foundation kicked off its first round of I-CORE awards this October, with an Entrepreneurship Bootcamp for 21 groups of university inventors.  The idea is to develop a new generation of researchers who better understand how to develop and market their inventions for industry: researchers who are also skilled entrepreneurs. It will be interesting to see how the quarterly award will reshape the tech transfer landscape in the US by increasing researchers’ entrepreneurial skills. But the biggest payoff, at least in my mind, will be in terms of a cultural shift among academics (University inventors don’t have a reputation for pitching to industry). 

There is no question that numerous opportunities are lost simply because inventors are not tuned in to commercial opportunities and industry need.  With the current economic environment, people need to pay close attention to these missed opportunities flowing from invested research dollars. And technology transfer requires more than dollars; it requires skilled inventors, innovators, and entrepreneurs. But I don’t believe that every inventor needs to be, or should be, an entrepreneur.  There is nothing wrong with outsourcing innovation or entrepreneurship once you have an invention, so long as the mechanisms and bodies exist to do so (much more could be done here).  There are also important steps that university technology transfer offices and industry can take to meet each other half way. 

In the words of Joe Girard, “The elevator to success is out of order.  You’ll have to use the stairs… one step at a time.”

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Five Steps for University Inventors

5 Comments Posted by on November 3, 2011

For researchers working in technical fields, inventions are to be expected.  Unfortunately, many university inventors receive little, if any, training on what to do once they have an invention on their hands. Our team has put together a handy FAQ to help orient inventors to the world of university-industry technology transfer.  We’ve also put together a quick overview of what we see as the key steps for inventors to transform their ideas into commercial solutions. 

Step One: Understand the problem that you are solving

Few inventions are truly novel visions of the world. Usually, they are combinations of known ideas that, together, solve a new problem. Understanding the problem is often 90% of the invention battle. Understanding the problem also helps you to articulate market applications for your invention, and gives you a mechanism to compare your solution to alternatives. The latter is particularly important in the commercial context, where it really doesn’t matter *how* a problem is solved. I frequently read new project proposals that proudly promise to speed up a particular technique by 10x – only to overlook the fact that a different type of technique already solved the problem years ago. It doesn’t matter that you have the world’s fastest horse when people drive cars. If you are looking to have your idea commercialized, save yourself some time and make sure that what you are doing really is novel, and makes sense in the technology landscape.

Questions to ask: Has anyone been down this road before?  What challenges have they faced? How does your technology fit in with existing technologies and technology needs? Above all, what information or proofs do you need to be sure that this technology can actually work?

Step Two: Build a relationship with your Technology Transfer Office (TTO)

Like companies, most universities have some claim to intellectual property (IP) created by either faculty or students using their resources.  The mandate of a university TTO is to manage this IP and facilitate the technology transfer process for its inventors.  If you are unsure how to connect with your university’s TTO, the best place to start looking is the office responsible for research services (grants, contracts, etc.). 

I encourage early engagement with your TTO to make sure that you understand your university’s IP policies, and can take full advantage of their services.  An important thing to ask about in the early stages is what your TTOs disclosure policies and processes are.  Typically, disclosure to your TTO should happen prior to public disclosure (publication), as public disclosure will affect your ability to patent an invention. 

Questions to ask: What is my university’s IP Policy? Who, when, and how should I submit a research disclosure? What services does the TTO office offer?

Step Three: Have an IP strategy

The more fully developed your idea is, the easier it will be to sell (Which would you rather invest in, an idea that can theoretically work, or an idea with a working prototype behind it?).  As a university inventor you are typically looking to develop at least some patent protection before progressing to the commercialization stage for your technology. You don’t have to become a patent lawyer, but try to keep issues of IP ownership in the back of your mind, keep in touch with your TTO, and protect your ability to commercialize you resulting invention(s).  As a general rule any disclosure, even a quick story at a café, can severely limit your patenting options, so think through your engagements in advance (Read more about intellectual property and secrecy).

This isn’t a reason not to collaborate with other researchers. In fact, in my experience collaborations add tremendous value to most research initiatives and I would strongly encourage you to seek out partners. You just need to be clear about who will have a stake in the resulting IP and create some basic structure for your relationship to cover the IP aspects.   Similarly, there is no reason not to engage with potential investors and customers early.  They will give you valuable feedback, even if it hurts.  Discussing the problem you are solving without disclosing the specifics of your invention does not require a non-disclosure agreement.  Most investors never reach the depth where they need access to detailed information about your patentable invention (read more about confidentiality and investors, and customer engagement).

Questions to ask: Who are the key collaborators for the project? What legal relationships do they have with your university? Does everybody understand the difference between collaboration on publications (everybody is a co-author) and patents (only those who have made inventive contributions are inventors)?

Step Four: Protect your invention

Your research will become an invention when a definite idea has been conceived and translated into a practical application (a prototype is not required, but helpful).  Once you’ve arrived at the point of having an invention, your best bet is to contact your TTO (if you aren’t already in touch with them). 

University technology transfer typically involves the sale or licensing of patent rights.  A patent protects your ability to control who can and cannot use or profit from your invention.  If you are not interested in personally profiting from your invention, it can still be important to patent. Open disclosure works for some technologies, but is more difficult for concepts that require significant development investment before they can become a useful product. Without a patent, companies are unlikely to make that development investment, because there will generally be no potential for financial return on their investment.  The choice between public disclosure and patented commercialisation is one that should be discussed with your TTO to find the best option for your technology.

Questions to ask: Is open publication or patent protection the best course for your technology?

Step Five: Connect the dots

The idea of sales and marketing may seem foreign to a lot of university inventors, but you’ve likely been doing this all along.  Instead of convincing funders that your research will result in valuable products or outcomes, you need to convince investors that some of the value you intended to create really exists. 

Remember that research you did on the technology landscape? You can use it to identify companies or investors who may be interested in your technology. Ideally, you have even had preliminary discussions with some of them during the course of your project. You also need to evaluate your invention before approaching business partners, considering your prototype’s availability and stability, project documentation, and basic aspects of business and marketing (e.g. market assessments).  There are also a number of commercialization options to explore: seed funds, accelerator programs, Angel and Venture Capital investors.  TandemLaunch, for example, is a seed fund specializing in multi-media technologies that offers financing, industry connections, development staff and infrastructure on an equity basis.

At this point, you are ready to plunge in the next phase of commercialization. Gather a team, build a product (or licensable technology package) and hit the road. That’s a topic for another day.

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5 Tips for Venture Investing in University Inventions

18 Comments Posted by on August 25, 2011

Investing in university ventures is difficult but worthwhile. The following are a few things to consider when you are negotiating investment deals with universities. All of this comes from my own experience and might not reflect the engagement with your particular university.

1. Know who you are engaging

University Technology Transfer Officers (TTOs) are neither entrepreneurs nor lawyers (the two common contacts for a traditional venture investor). They are a curious mix between business developer without strong incentives and legal administrator without formal background. Your common TTO has a technical PhD (university value system at work) and very little off-campus work experience.

Add a high turn-over and a low frequency of equity deals per TTO, and you get significant knowledge variability. Some TTOs are exceptionally well versed operators, while others need an explanation of basic terminology (e.g. “vesting”). Of course both types usually share the same generic TTO title.

Try to physically meet your TTO counterpart early on to get a sense of their experience. Make sure that you carefully explain terminology of your world. Ask them to return the favour and carefully explain the university context to you. Universities have their own culture and vocabulary when it comes to commercialisation. The more you normalize your language, the better your chances of closing a deal.

2. Licensee vs. Investor

It is truly unfortunate that most university investment deals are considered a “license”. For a traditional license the TTO is usually approached by companies that have established an internal need for a certain technology and would like to procure it. The licensee wants something and the TTO has it.

The inverse is true in the venture world where it is the entrepreneur who wants the money and the investor who has it. Even in today’s frothy market, entrepreneurs pitch to VCs, write business plans, travel to partner meetings, etc. University inventors don’t pitch (or do any of the other things that you would normally expect as an Angel or venture investor). Instead, they often genuinely believe that they are doing you a favour by taking your money. Don’t get offended when this happens. It’s a consequence of their (sheltered) reality and not intended as a negotiation stance.

3. Charter vs. Folklore

Universities have a lot of fundamental charter constraints. These are unavoidable and as an investor you just need to learn to live with them. But universities also have a lot of folklore that at first glance appear like charter issues. A classic example would be the often-quoted Bayh-Dole Act in the US: “We cannot sell the technology [Charter: Bayh-Dole prohibits assignment] so we need an ongoing royalty [Folklore: Bayh-Dole makes no provision whatsoever about payment modality]”.

Understanding these differences can be critical for business decisions (e.g. the inability to collect a lump sum payout would scuttle most venture investment deals for technologies with long times to market whereas the inability to assign wouldn’t be a deal killer for the same investor). Beyond studying policy, your best bet is to ask the TTO to provide not just the “rules” but also the reasons behind them.

 4. Risk is Anathema  

University inventors aren’t just risk-averse. They don’t just assess risk and then decide against taking it – they often genuinely don’t understand the concept of risk. This usually pops up during the valuation process. Inventors, and to some degree TTOs, tend to over-value ideas. On the flip side, they tend to under-value human contributions. I have had TTOs question why we would allocate equity to (low or unpaid) employees of the venture at all.

 De-coupling past from future is your best bet for crossing this chasm. The past is sunk cost. The value of the invention has nothing whatsoever to do with the (government) money spent to get there and everything to do with the commercial opportunity going forward. You should therefore make a distinction between those inventors who will make substantial operational contributions post-founding and those that won’t. The latter will be adequately provided for by the university portion of the deal. The former should be treated as founder. Simply ignore the fact that they will also receive some proceeds through the university channel. Mixing up these two types will give you nothing but grief.

 5. Don’t Screw Them

It’s so easy. Universities are early (common) shareholders; they don’t have a voice in the company; their value contribution is mostly made already (IP injection); and they usually don’t fight back. It would be so easy to squeeze them just a bit more out of the cap table. Fight.That.Thought!

Every time that an investor or entrepreneur screws a university, it becomes part of the global university folklore. Universities and their Tech Transfer Office are like a hive mind. I recently had a TTO tell me straight-faced that “we always get diluted to nothing in equity deals” – at a university that has never actually done an equity deal. Hive mind.

Their concern is real and they get screwed often enough. But everybody who screws them a bit makes life massively harder for hundreds of upstanding investors and entrepreneurs. You are poisoning the well in the backyard. Don’t do it.

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Disrupting the University Tech Transfer Space

19 Comments Posted by on August 17, 2011

At TandemLaunch, we invest in multi-media concepts but ultimately we are trying to disrupt the university technology transfer space. I wrote about the benefits of improving this highly inefficient $50billion+ market earlier. It’s big; it’s inefficient; and we believe that it is ripe for disruption.

Technology transfer is a high risk commercialization venture like any other. Success therefore depends on three factors:

-          Product-Market Fit (quality and market relevance of the product/service/intellectual property)
-          People (quality, business/tech/operational skill set and aligned effort of the people)
-          Resources (money and all the good stuff that money buys)

The current players in the tech transfer space have great difficulty with all of this. Most conventional university tech transfer programs suffer from all three gaps. A few have created secondary vehicles (e.g. consultants, valorization centres, etc.) that can fill one and in the best case two of these gaps. Unfortunately, ventures don’t work unless you cover all three parts…

Product-Market Fit: University inventors, like all other product creators, are unlikely to achieve product-market fit in a vacuum. Achieving it requires customer interaction. Talk to people, find out their pain points and design your product to solve them. Unfortunately, the current university reward system is designed to keep researchers on campus – far away from the human beings whose live they are supposed to improve. Papers can be published from the comfort of the office, grad students arrive on campus through a convenient recruiting system, and even technology transfer offices seem to expect that licensees will happily queue up on campus. “We build it and they will come” is the campus religion.

This is made worse by structural challenges. Research grants, the principal source of support for university development, often prohibit expenditure related to finding product-market fit. So even if you want to leave campus and go beyond the reward system, you cannot.  My first university start-up was founded solely to raise a small amount of “unrestricted” funding for market evaluation – despite the fact that we had over $1M in research grants for the project. Completing the absurdity, some genius reviewer at NSERC decided during the last year of that grant that the concept of LED TV wasn’t commercially viable (at that point the first LED TVs were showing up in Korean factories…).

People: Universities suffer from skill homogeneity in a world where diversity is king. There are world-class technologist aplenty, but finding business and operational skill sets is very hard. As a result, the technology transfer world today is dominated by a tiny number of professors at each university who happen to have business and/or operational skills (essentially by accident since universities generally make no effort to encourage those). It’s not uncommon to see a university with thousands of professors where a handful of operationally-savvy inventors make up the lion’s share of technology transfer activities (and often the entirety of commercial successes). This imbalance is structural and greatly retards commercialization. It’s like re-population planet earth after a nuclear war and somebody forgot to put women into the bunker. Possible with a lot of (bio-engineering) effort, but it would sure be easier with more diversity in the first place.

Resources: Universities with billion dollar budgets will allocate a handful of millions to their technology transfer offices. In alignment with the incentive model of the university, the vast majority of that money will then be allocated to the administration and identification of even more research funding. Only a tiny trickle goes towards the actual commercialization of the research output (i.e. technology transfer). None of the money, usually, goes into actual projects. That makes technology transfer offices irrelevant as resource-providers and leaves venture investors as the only source of financing. Maybe this sounds reasonable, but venture investors are rapidly moving away from early stage investments these days. The average fund size per VC Partner has gone from $5M to $35M in the last decade as a result of the incentive model that world (management fee dominating carry as source of VC payout). Seed-stage alternatives, such as Angels or mini-VCs (Super Angels), have largely bought into the Web2.0 mania at the expense of investments into deeper technology advancements. As much as I would like to scold the venture investment world for their lack of activity at universities, I have to admit that their reluctance to engage in university tech transfer is justified – the product-market-fit and people challenges above are real and implicitly make most university ventures a bad investment opportunity for traditional investors.

So, university technology transfer suffers from bad product-market fit, lack of qualified entrepreneurs and scarcity of financing relative to other investment fields. Venture economics would tell us to just abandon such a hopeless activity. End of the road, just let it go.

Except that innovation is the engine for our economy. Without innovation and its efficient injection into society, our quality of life advantages will erode very quickly. And universities remain by far the largest concentration of innovative research in our societies. We spend more money on university research than we spend on just about any other activity related to entrepreneurial innovation. University research consumes four times more money than industrial basic research. It consumes more than twice as much money as the entire venture capital industry invests. It employs nearly as many people as the entire high tech industry (and most of those high tech employees were at university at some point). And it is growing at a 5 year rate faster than the NASDAQ, the VC industry or any other common measure of technology commercialization!

Tell me that this doesn’t sounds like a good opportunity for disruption! The question the is whether it is ready for disruption. That’s what we are trying to find out at TandemLaunch.

 

 

Update: An interesting point of definition came up in a LindedIn discussion of this article. If you define “tech transfer” as the narrow step between “receiving inventions from researchers” and “transfering inventions to product entities”, then it is definitely a much smaller space and functioning at some efficiency. That happens to be the narrow mandate of most tech transfer offices and they can usually point to getting 50-200 invention disclosures from their faculty each year, patent maybe half of those and then license maybe 10-30% of that. Not a hugely successful rate but in the same ballpark as say the success rate of venture investing (these numbers are just my experience, I am sure there are many different regional TTO statistics).

My definition of “tech transfer” in this context is a lot broader. It starts with “money spent on applied research” and ends with “commercial revenue from that research” (not university revenue, global product revenue which is as good a measure of “benefit to society” for product technology as we can come up with). That’s what really matters. With $50B+ in research expenditure at US universities and less than 5% of product-related GDP coming from universities, that’s definitely a big inefficient space (relative to the industrial pipe at ~$12B in research expenditure and implicitly the other 95% of product GDP contribution).

In that context the so-called “tech transfer office” (using the more narrow definition in their terminology) is an important player but lacks the resources to cover the entire mid-range of this chain. For example, somebody needs to work with the researchers to calibrate their problem statements to improve the chance of ultimate product market fit. That’s only possible if you are in the market. At TandemLaunch we support university projects long before we invest by maintaining a feedback loop between representative industry players and the research group (i.e. we literally travel back and forth from university to industry with incremental updates/demos/feedback/problem statements – something that a TTO has neither the budget or mandate for). We hope that doing so will increase product-market fit of our ultimate investments and thus elevate value for everybody involved.
There are many other example both before and after the TTO mandate that we are trying to fill. I am sure we don’t get everything right, but we are learning every day.

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Why we do what we do

5 Comments Posted by on June 21, 2011

For the last few months I have shared stories and opinions about university entrepreneurship. I figure it’s time to talk about the “why” rather than the “how”. Specifically, why do we try so hard to bring university technology into the world?

First same background: I spent my career commercialising university innovation as an inventor, entrepreneur and operator across technical, strategy and business functions. I love building technology organisations. That’s the basic motivation. You need to love what you to in order to be good at it.

But why universities? Why not websites or apps – a market that is about as frothy as it has ever been? I am successful serial entrepreneur with dozens of software patents and a PhD in computer science, EE and physics. Until recently I had an office right smack in Silicon Valley. I raised eight rounds of financing from over 50 investors. With that background, why am I not on Sand Hill Road where cheques are currently falling from the sky for teenagers with a landing page? Why focus on universities, an environment shunned by almost all investors today?

Because it’s the right thing to do and nobody else does it!

Technology has to improve lives. I believe that down to my very core. It doesn’t have to solve world hunger but in some form it should make lives easier, better or less environmentally impactful. Some websites and apps do this quite nicely, but creating the 17th Groupon clone to cash in on the bubble seems hardly the right choice. University technology almost always addresses meaningful human issues. It might be misguided in terms of market, implementation and economics but the goal is worthy.

Over 90% of our Nobel Laureates did their work at universities. The vast majority of technical revolutions came out of university labs. University research funding in the US alone accounted for $39B in 2008. That’s 3.5 times more than the entire basic research budget of the US economy at $12B. And almost all of it will have been devoted to solving fundamental life-improving issues.

Yet, less than 5% of all US products and services contain university intellectual property. That’s the other side of the coin. Our universities are exceptional at creating high value knowledge but truly pathetic at getting it into our hands. Unfortunately, technology without users is useless.

This tech transfer inefficiency is the result of cultural, political and economic gaps between university and industry. That leads me to the second half of my statement above: Nobody else is trying to fix this. Venture investors are moving up stream. We have gone from VC partners placing $5M per year on average in 1997 to $35M in 2007. The new Super Angels and Accelerators have re-introduced smaller early stage amounts but virtually all with an exclusive focus on websites. That leaves preciously few resources for university technology transfer.

At TandemLaunch we are committed to bridging this gap. We recognise that traditional investors are moving up stream for sound economic reasons. Giving money to a multi-disciplinary team of business-savvy founders in a frothy market yields better results than giving it to a lone university researcher. So we give more than money. We provide co-founders, team members, facilities, back-office services, industry connections and just about everything else needed to bring the risk profile of a university project in line with that of a traditional start-up (and yes, that includes money as well).

And it seems to be working. My first wave of commercialising inventions from just under a dozen universities yielded a steady 40-60% IRR from 2002 to 2007. Early results from the second wave at TandemLaunch look promising as well. Ultimately time will tell. We might succeed wildly; fine-tune the model; or even tackle the problem with a different approach altogether. But we will keep trying. It’s the right thing to do!

Spin-Off vs Start-Up, Technology Transfer , , , ,

Forget Software Patents

Leave a Comment Posted by on March 1, 2011

Software patents have been in the news a lot lately. The US broadened its position on patents a few years ago and introduced so called “Software Patents” to protect software applications directly. The first wave of these patents is now hitting the courts and the lack of precedence decisions creates lot of courtroom drama.

The problem with these news stories about software patents is that they confuse inventors. Many times I hear that “software can’t be patented, so why bother”.  Most of the time this is nonsense, especially at universities. The confusion stems from the difference between algorithms and software implementation. Algorithms are the logical core of a new computational technology. As long as the algorithm meets the patent requirements for novelty, usefulness and inventiveness, you can create solid claims for this in practically all countries (even those who don’t have the new type of software patents). You would file method claims relating to the logical steps in the algorithm, device claims relating to the implementation of the algorithm in for example a chip, and system claims describing the operation of the algorithm in a broader structure. There are plenty of examples of such algorithm patents: MPEG LA holds over a hundred patents related to MPEG-2, a concept that is purely algorithmic. There are thousands of other patents of this type, and none of them require the new regulations for “software patents”.

The new rules in the US are designed to offer patent protection for software implementations. It doesn’t go as far as protecting source code (copyright), but allows you to (maybe) protect concepts such as “sending 140 character messages in an online network by using hashtags to indicate individual or topical recipients”. That concept is truly software implementation. The underlying algorithm really isn’t novel in the patent sense. Sending a few characters over a network using cryptic recipient codes is a pretty good description of what people used to do with modems in the 1980’s…

Most university concepts are algorithms, not implementations, and thus really unaffected by all the chatter about “software patents”. Ignore all the stories and this to the patent option that is already available and proven.

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10 Tips for Student Entrepreneurs

5 Comments Posted by on February 15, 2011

Starting your own company out of university is a tricky business. You tend to have other things on your mind – like getting your degree. Here are some practical tips for university students who want to commercialise their technology.

1. Write Everything Down: Most university ventures are formed around intellectual property so you need to make that foundation as strong as possible. It is nearly impossible to retro-actively “clean up” your patents. Keep good lab books, use books with numbered pages and get your supervisor to sign your books every month or so. Keep your emails, time-stamp documents and use good backup policies for digital data. The US still uses a “first to invent” framework for patent priority. While your start-up is unlikely to engage in the legal wrangle known as interference, your future acquirer or licensees will be much more comfortable with a well-developed history (and comfort translates directly into dollars).

2. File Disclosures: Get into the habit of writing a short invention disclosure BEFORE you write your papers. In fact, I recommend that you write the invention disclosure as soon as you have clarity about your research path. They are free and don’t take long. Frequent disclosure writing will give you a good case history for your inventions but, more importantly, it gets you into the habit of thinking about invention as deliberate acts in your university life.

3. Talk to your Tech Transfer Office: Your Tech Transfer Office can help you manoeuvre through a lot of the early challenges. And they (usually) do it for free. Establish a relationship with the relevant tech transfer officer and keep in regular contact. They love hearing from students so don’t feel like you are intruding.

4. Don’t rely on your Tech Transfer Office: While a great sounding board, the Tech Transfer Office isn’t going to build your business for you. They can’t (no money, no staff, no risk capability). Every university has dozens if not hundreds of inventions where the inventors are just waiting for the Tech Transfer Office to “make it happen”. It won’t, until you get out there and build the business.

5. Leverage your Supervisor(s): For probably the last time in your career you are surrounded by world-class scientists who will help you for free. Beyond the obvious assistance with technical issues, you can ask them for advice on your business plan, for funding options, and even for networking suggestions. They will likely know a lot more potential investors, collaborators and business partners than you. Even a professor without any start-up experience will add credibility to your venture, especially for non-venture funding (e.g. commercialisation grants).

6. Network on Campus: Reach out across campus for other professors in related fields, other graduate students and anybody else who might be helpful. Most high value innovation comes from the overlap of problems and solutions form different technical fields. Try to find collaborators in different departments who can help you with specific problems but also broaden the scope of your project. For example, I started in the Physics department but early on set up collaborations with Computer Science for much of the core algorithm development.

7. Network off Campus: It might feel like it, but you really aren’t the first student to launch a company. Lots of people have done it before or contributed to new start-ups via funding, mentorship or executive work. But you will almost never find them on campus. This is one of the inherent problems of university spin-outs: Success implies departure. So you have to get out into the broader community and build relationships. Try to especially find those university entrepreneurs who have come before you but are still accessible enough to be of immediate help to you. Meet-Ups and entrepreneurship events are a good start for this, but ultimately nothing beats asking your Tech Transfer Office for past spin-outs and contacting the corresponding CEOs directly. Play the alumni angle for all it is worth!

8. Get Start-Up Grants: Canada offers some great ways to seed-fund your early commercial activities without giving away equity. Many of these options are tied to universities (e.g. the I2I program provides funding for university-industry pre-commercial collaboration). At BrightSide we raised in the neighbourhood of $6M in equity financing (over many rounds). Effectively matching this was another $5M in various grants and credits – many of which were only made possible through our close collaboration with universities. Not only is this free money, it can greatly reduce the cost of venture money later on.

9. Learn to be a Leader: Creating your own company will challenge your leadership skills. The university environment is a great place to practice those skills in relative safety. Don’t fall into the trap of becoming the lonely grad student at the bottom of the hierarchy. At the very least get some undergraduate students into your project and function as their supervisor. This will require some coordination with your professor but is well worth the effort. Those students are also a great source for initial hires into your start-up once you leave campus.

10. Start Now, Don’t Wait: More important than everything else, start now! Don’t wait until your degree is comfortably completed. Get out there, start a business and push forward. Set up a company, even if it is just a shell early on. Aside from immediate benefits such as tax credits (if you set up your employment with the company properly), this will force you to reach out to the world. Go out, learn about the market and then push your research efforts into the right direction. The faster and earlier you can start this iteration, the more value you will get out of your graduate research when you finally switch it into your start-up.

Entrepreneurship, Spin-Off vs Start-Up, Technology Transfer Offices , , , ,

Stubborn University Terms

3 Comments Posted by on November 30, 2010

Dealing with universities and their Technology Transfer Offices (TTO) can be a very frustrating experience if you don’t understand the unique cultural barriers at universities. I am often in the role of intermediary between the university and business world, so the following dialog is common:

Helge: The university wants to give you the technology but they need to carve out some intellectual property rights in the license.

Businessman: How much is it going to cost to get full ownership?

That simple question is the first step on the road to hell. Not because the question isn’t perfectly valid and reasonable, but because it misses the fundamental difference in value system between academia and industry. On the industry side the fundamental unit of value is money. All aspects of a business ultimately reduce to monetary value and maximizing them is the job of every good executive. In this case, it seems perfectly reasonable to ask about the monetary value of control (i.e. the increased cost of having control over the technology versus sharing control over it or even just being a passive licensee). This is a normal consideration in any commercial licensing discussion that I have ever seen.

Unfortunately, most universities don’t share that value system. In their context, the question makes no sense. Public universities have a mandate to pursue research in the interest of society. You can argue about their effectiveness but that mandate drives any decision that they will make. A full transfer of a technology to industry would cut the connection between the researcher and her field of innovation. That limits research in general and, depending on the scope of the intellectual property, can completely derail the activities of a larger research program. None of this is a monetary consideration and thus cannot be addressed by paying more.

Even private universities tend to operate this way, though usually for more basic monetary reasons. The TTO of most universities handle both commercialisation and research grant activities. It’s a reality of our university system that it is much easier for a university to obtain huge amounts of (free) grant money for future research than licensing revenue for a technology. Surrendering those future grant opportunities by blocking an area of research usually has a much higher monetary impact on the university than any increased payment they could get from industry for a particular invention.

There are a few other such barriers that money cannot resolve such as publications and student education. In my experience those are all fundamental barriers that are extremely hard to overcome through money or any other industry incentive. The good news is that there are solutions, just not the most obvious ones:

Freedom to Research

This is the basic problem described above. Industry wants control over the technology while the university wants to continue research. The solution comes from understanding what the company really wants. Exclusivity or ownership is usually just a shortcut for the following benefits: control over commercial development, freedom to develop and enforce the intellectual property, and preventing a “blackmail” scenario where the university develops critical improvements to the technology and demands a “ransom” later.

Each of those can be addressed with the following structure. The intellectual property is assigned to the company and the company returns a non-exclusive license back to the university. Both parties then set up a time-limited collaborative research arrangement which provides the company with either automatic assignment, a right of first refusal or at least a right of first bid for any improvements or related technologies. This structure might seem a bit complex but it achieves the goals of both sides. For smaller companies and start-ups you can replace the assignment with an exclusive license with a forced assignment option upon completion of some commercial milestones. That prevents any loss of intellectual property or research opportunity to the university if the start-up dies and is forced to fire-sale its patents.

Publications

Universities need to publish. There is just no way around it and trying to rein in this activity by force is futile. Instead, the best way to handle this is to create a review procedure for publications. This should give the company an opportunity to filter out key confidential information while still allowing the researchers to publish. A decent time interval for the review period will also ensure that any patent applications can be filed in time (6 months is usually plenty). A lot of fineness is required for this to work and I would strongly encourage companies to route this interaction through the technical counterpart to the university professor and not through their legal department.

Student Education

The last fundamental mandate of universities is to educate students. The company cannot impose specific projects onto graduate students or hold the university liable for activities of the students (as a practical matter universities generally don’t rep and warrant anything anyhow since they have very limited control over the activities of their faculty or students). Any post-acquisition support from the university therefore needs to be carefully thought through. It’s possible for the professor to give a bit of consulting support but harder for the students.

My preferred solution is to connect to the student through a separate arrangement designed specifically for industry collaboration. Good candidates for this are NSERC Industrial Post Graduate Scholarships (IPS) or the related MITACS-NSERC graduate scholarship. Those programs provide the student with a 2:1 or 3:1 top-up of her industry salary. The student will in return spend 30% to 50% of her time at the company in industrial research activities. If part-time support isn’t enough then it is also possible to front-load the arrangement (e.g. I have had a student work full-time for the first 8 months of a 2 year IPS and then “released” her back into academia for the rest of the scholarship). Not only is this arrangement university-friendly, it provides the students with a great educational experience.

All these of these issues can thus be solved in a way that is maybe a bit more complex but achieves the desires of both parties. Like all relationship issues, the process needs to be actively managed but I never actually had a problem once these structures were in place and monitored by reasonable people.

Technology Transfer Offices , ,

Inventors don’t pitch (at least the university ones don’t)

2 Comments Posted by on November 22, 2010

Investing in university innovation is very difficult. In fact, I would argue that it is nearly impossible for traditional venture funds. Part of this is the inherent expectation gap between university inventors and venture capitalists. The latter wants focused, multi-disciplinary founders (tech & biz), and universities generally don’t have those. I wrote previously about some strategies used by TandemLaunch to address these difficulties through hands-on assistance but there is a much more basic problem to overcome first.

The traditional venture capital system relies on entrepreneurs and founders to seek out the money. Decades of funding scarcity have conditioned entrepreneurs to craft business proposals, hone their elevator pitch to minimize the time drain on the VC partner, and willingly travel all over the map to get an audience with the investor. Been there, done that.

This limits the business development activities of traditional investors to brand building and similar activities that guide the flow of eager entrepreneurs to their office rather than the one next door. There are exceptions, but the vast majority of investors still operate this way. In nine round of financing I don’t remember of a single investor actually coming to our office or pro-actively engaging in any other way.

With university inventions they will wait forever in their offices…

University inventors don’t pitch, or at least not in the format expected from the traditional investment community. Part of this is a basic cultural conflict. Where VCs are “the man” in the traditional entrepreneurial game, university professors hold that spot at universities: their time is very precious compared to the rest of their environment (i.e. students), people come to them (e.g. office hours, lectures, etc.), and they have a mentorship role with an implied superiority. Moreover, they have access to substantial funding without having to knock on dozens of doors with their hat in hand. They might bemoan the administrative effort required for grant applications but imagine the outcry if NSERC were to require grant applicants to fly to Ottawa, present a 5-30 minute pitch while their audience twiddles with BlackBerries, subject themselves to merciless grilling leading to a 1:50 or so rejection rate, and then be told that they have to give up some control over their project in exchange for the money.

So the first thing you need to do if you are serious about investing in university technology is to go out and find deals. University Tech Transfer Offices can help you because they effectively aggregate some of the inventions for their institution. But at the end of the day you need to spent time on campus finding those brilliant sparks.

Spin-Off vs Start-Up , ,

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