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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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MBA or PhD – Picking the right degree as a University Entrepreneur

13 Comments Posted by on August 1, 2011

A lot of undergraduate students ask me whether they should pursue an MBA or a technical PhD as a foundation of their entrepreneurial career. I have pursued both at some point, and frequently meet (and invest in) entrepreneurs with both degrees. Each has advantages but overall I’d recommend a PhD for most tech entrepreneurs. Here is why:

Education: Both degrees will teach you something. The MBA focuses on case studies and financial concepts (e.g. accounting). A PhD emphasises independent systematic research and domain knowledge (e.g. electronics). The latter is simply more valuable for a tech entrepreneur. Steve Blank is right that most of the great entrepreneurs were Scientists and Engineers, not MBAs.

Moreover, a well-trained technical PhD will have no problem at all picking up financial concepts on the side if needed. The reverse doesn’t work at all. I came into my MBA program (Drexel, Technology Management) with an Science Bachelor (UBC H.B.Sc. Physics). There was *nothing* in any of my courses that wasn’t trivial with good skills in math, excel and Wikipedia. I have since then found this to be true for *all* aspects of “business” other than the informal aspects like Sales which cannot be taught in school anyhow. Building a business is hard, but the fundamentals, literally, aren’t rocket science.

Certification: Much of the value of an MBA is condensed in the piece of paper. Don’t laugh – this is a very real effect in a lot of domains. My wife (B.Eng., MBA) has a very successful corporate management career (Proctor & Gamble, Nortel, McKinsey & Co). Her MBA definitely contributed to that career progression. But the MBA certificate is a lot less relevant for entrepreneurs. It doesn’t matter at all for proven operators (i.e. those with successful exists in the past). Newcomers will be technical co-founders with a PhD or business co-founders with an MBA. A dozen of the latter will fight over one of the former at any networking event. That should be a hint about the relative value.

Relationships: This is where MBAs shine. You will meet lots of other bright people who can become your support network in your future career. A PhD is just too isolationist in nature to be useful in this area. Ironically, the best way to overcome this shortcoming of a PhD program is to become a student entrepreneur. Very few career options require more interaction with diverse stakeholders. So being a good entrepreneur while studying will effectively force you into more relationships than an MBA ever would. That said, in a fair comparison, the MBA will still be much more valuable in this category.

Financial Impact: Unlike a corporate career, the earning power of an entrepreneur is defined entirely by the quality of your work and not your pedigree. Neither degree has an advantage in this regard. But the PhD dominates on the other side of the financial equation: cost. PhD tuition fees are generally much lower than in the MBA program of the same university. In fact, many universities offer scholarships to anybody who makes it into their graduate program. MBA schools are profit businesses so this difference isn’t going away. A PhD can also have a long term impact on the financials of your start-up. It gives you access to several types of academic grants, allows you to co-supervise graduate students (a great way to get smart engineers into your team while they are still at school), and makes it massively either to get technical tax credits for your business.

Alignment with Entrepreneurship: This is the ultimate argument in my mind. You can do your PhD while building a tech start-up. It’s incredibly hard to do the same with an MBA. A technical founder should be able to leverage at least half of her start-up work for the PhD (and vice versa). The MBA program offers no such leverage at all. That’s the difference between success and failure for your start-up.

I am seeing this playing out at TandemLaunch right now (and saw it over and over before). We have a PhD student interested in a technical leadership role for a new portfolio company. This will combine nicely with her PhD work; any paper or patent that she writes at the company will be directly “credited” to her PhD; there are scholarships designed specifically to fund her work on the boundary of academia and entrepreneurship; and the overall alignment will be strong enough that her PhD won’t take any longer despite contributing to a company “on the side” (mine got shorter). Universities *want* her to have impact in the real world.

Her comparison was just accepted into an “elite” business school. No scholarships for him, just 5 times more tuition. No encouragement for his entrepreneurial career either; no way to get any consideration for the fact that he has already build a successful marketing business and might not need “Introduction to Marketing”. He won’t even be able to use his company work as a case study or homework assignment. Zero alignment or leverage. Encouraging real world impact? Not so much…

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Overcoming Barriers

Leave a Comment Posted by on July 11, 2011

 Today, I gave a talk to Indian students who are interested in studying or working Canada. It was inspiring to see so many eager young engineers (and one economist)! Several of them spoke about their challenges finding their way in a foreign country – mimicking my own concerns from a decade ago. I thought I would share my answer to the broader audience here.

Breaking through barriers is incredibly hard. Cultural barriers as an immigrant, gender bias as a woman in the tech community, religious intolerance, etc. etc. The circumstances might vary, but all have in common that you need to work harder, be smarter and rely on yourself to overcome these norms. Society, and particularly university, doesn’t recognise this extra effort. Your grades will be exactly the same as those of your average neighbour who didn’t have to learn the language, didn’t have to mentally align past education to the local environment and often doesn’t have the same financial pressures (e.g. 10x tuition mark-up for international students).

When you find yourself in this situation and your life lacks sunshine, remember this: You are already way ahead of the curve. You are showing more entrepreneurial energy, more will and performance than most around you. In the long term this will have a profoundly positive impact on your life and success. University is an artificial construct with a reward system decoupled from the real world. Grades don’t matter much. Getting stuff done, persevering through challenging moments and living by your wits in a difficult environment – those are the skills that will lead you to success as entrepreneurs and professionals. And you have those in spades, or you wouldn’t have come to where you are already!

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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 , , , ,

Leaving your mark

2 Comments Posted by on May 11, 2011

Last week I witnessed ancient treasures in London. No, not royal family and their wedding antics (London was a mess…). I am talking about old prototypes from past university collaborations of mine. That reminded me of the first mark I left in the world a long time ago…

My first professional trip to the UK occurred almost a decade ago. I was delivering a so-called “Coffin” display – the first ever prototype of a high dynamic range display. This beauty had a tiny screen and a horrible depth of 5 feet (~1.5m). We had lovingly crafted a 6′ deep wooden crate for the “Coffin” with all imaginable forms of interior protections to safeguard this precious prototype. Except, in our focus on protecting the device, we forgot some of the essentials for the carrier: wheels & handles.

I got as far as Frankfurt Airport before this oversight became an issue. At 200lbs (~90kg), the box wasn’t something that you could easily carry alone, even if its size were somehow manageable. The tiny luggage carts at Frankfurt weren’t up for the job. Lacking options, I dragged the box with my fingertips wedged painfully into the metal corner protectors. After a painful 200m, I noticed odd looks from passing travellers. Fingers quivering, I turned around and witnessed a (minor) disaster: The same metal corner protectors that had mauled my fingers on the front end, had scratched deep parallel groves in the floor on the back end. Those wavy lines in the marble floor at Frankfurt are still there today and serve as a frequent reminder of the foolishness (and determination) in my past.

They also serve as a reminder for a broader lesson: Work with others; go out early and often; do whatever it takes to find collaborators; and then push as hard as you can to make them successful. I was dragging the box to a research lab at the University of Bristol who would become our first international partner at Sunnybrook. Together with collaborators across Canada, US and later Europe, they would become essential for the push toward high dynamic range technologies and LED TV.

It would have been easy to avoid these relationships. We didn’t have a lot of money, our prototypes were extremely precious and long distance collaboration is inherently complex to manage. Add a laundry list of other concerns such as confidentiality, legal complexity and a healthy dose of entrepreneurial inventor ego. It’s very easy to say no to partnerships. But we didn’t. We took the hard road and supplied our new friends with everything we could to make them successful. And they returned the favour.

Working with others might lower your operational efficiency a bit, but it will act as a phenomenal multiplier on value creation. As a pre-revenue technology company we were acquired largely for the value of our intellectual property (on paper and in the heads of our people). Over half of our inventions came from university collaborators and many of our people came from our partner universities. In retrospect these partnerships were not only personally rewarding, but also incredibly powerful in terms of blunt economics – so much so that I set up TandemLaunch to do it all over again.

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Whatever you do, don’t study political sciences!

7 Comments Posted by on March 21, 2011

The TandemLaunch office is filled with engineers, computer scientists and physicists. On the business side, we tend to hire people with backgrounds in marketing, project management or controlling. But every once in a while somebody comes along with a non-traditional degree (for us) and just impresses us enough to get a position despite all that stuff on the job description. Maria Dlugosch is one of those. She has a message for everybody considering her field of study:

Whatever you do, don’t study political sciences!

If someone were to ask me about the biggest mistake I’ve made in my life so far, the answer would be quite simple. Ok, a 23 you (hopefully) haven’t made plenty of decisions that you’re already regretting, but in my case the answer is easy: My biggest mistake was to study political science.

It all sounded so good on paper. I was accepted into what one might call an “elite” degree program. I’d study for 5 years, ending with the Master – degrading the Bachelor’s degree to a mere sign post on the way. I would study at the best universities in Germany and France which would give me the opportunity to not only gain intercultural competences, see how different cultures work and study, and boost my French to an almost bilingual level, no; I would also receive both a French and German Master at the end, giving me the opportunity to work in both countries. Sounds good, right?

Well, reality proved to be much more … realistic. Most of the classes I attended / had to attend were an insult to scientific research – the professors just repeated the class they’d given one or two years before. There wasn’t any movement or innovation in the institutions. Yet, they didn’t completely fail to teach me something. I am now perfectly capable to talk about any given subject in three languages fluently and two more on a more basic level (I started studying language classes because they gave me the feeling that I was actually learning something). Yet these conversations will have little or no substance. I just know how to “bullshit” or “jouer la flute”. What I say will sound great and perhaps even make you think that I’m a very educated and intelligent person. But it’s basically just the result of random facts I picked up on the caps of the “Snapples” lemonades and all the “how to hold a speech” classes I’ve attended. I am able to not only make a tax declaration in three different countries, but I also know the rules of tax exemption, amortisations and other tricks to reduce your taxable income. Yet, I have no idea how to earn any income at all.

But I wasn’t the only one to realize this. In fact, a feeling of panic soon settled among my fellow students – heavily supported by our professors who wouldn’t stop mentioning how bad our chances of getting a job really were (except for this one guy, who, without any hesitation, told us not to accept any job offer with a salary of under 3.000 Euros a month, because that would mean we’d sell ourselves into slavery.). This feeling of panic divided the students into two groups: One I call the “experts”, the others the “chiefs”. The experts try to improve their employability by focussing entirely on one little niche. I know a guy who specialised in democracies in sub-Saharan Africa. He hoped that by gaining expertise in this little, finely marked-off topic, he’d have a better chance at finding a job. Instead, his efforts looked rather desperate and hopeless. The “chiefs” take the opposite direction. They don’t want to understand, they want to rule. They think that by virtue of having studied, they’re superior to all other workers regardless of experience. They can be easily identified by a bewildering behaviour that settles somewhere between arrogance and naiveté. My sister, who didn’t study but chose to work in a Hotel instead, knows some good stories about Chiefs. Like this one intern who studied “international Tourism” (by the way: mistrust people that study something involving the adverb “international”. It is almost always a sign of a vain attempt to give the degree a bit of unwarranted flair.) She told my sister how to do her job. It wouldn’t have been that bad if my sister hadn’t worked in her job for four years at this point and if the intern would have actually done something instead of just standing around and “using space and air” (quote of my sister). So my sister insisted that the intern gained some practical experience. It soon turned out that this 25 year old tourism student had no idea how to make a bed. Or clean a bathroom. This makes her the Chief of all Chiefs.

So what to do instead? What did I do?

1. Set your focus. Thankfully, my studies permitted that I could chose the focus of my classes. So I ended up having few political sciences classes (as few as I had to do) and lots of economics classes, which proved to be better prepared and much more up to date. I’m not saying that studying economics is the only possible way to go. Absolutely not! I chose these classes because I have always been interested in how the world works. Since it turned out that political science couldn’t answer my questions, I turned to economics instead.

2. Do it yourself. When the university couldn’t satisfy my thirst for knowledge, I took care of it myself. Get a pass to your local library or use the excellent libraries existing at almost every university. Go to the sections you usually don’t visit but which have always interested you. Ever since I started strolling through the science section of my library, I not only understood what physics really is but I also came close to understanding the theory of relativity. Once.

3. Do what you want. Instead of listening to all these “what you have to do to improve your employability” classes and books, do what you feel like doing. I chose to continue my work as a camp counsellor, and a bunch of 6 year olds taught me more management skills than all my “management skill” classes before.

4. Small is always better. When the time comes for you to look for a job (or even for an internship), look for small companies. Why? If you take the mission of running a company and allocate it to 5 employees including you then chances are good that you’ll actually learn something and get a true insight into running a company. If you’re one of 500 or even 5000 employees, all you get to do is the stuff no-one else wants to do. That doesn’t teach you anything.

5. And quite simply: Don’t panic.

People Management

10 Reasons for Entrepreneurs to Stay in School

3 Comments Posted by on March 14, 2011

A little while ago I participated in a HN discussion on Why to stay in College. My recommendation then was to not only stay in college but actually leverage the experience. My opinion remains the same, but I finally got around to writing it up in a bit more detail.

1. Statistics: A university degree will secure a better future for you, on the odd chance that you aren’t the next Steve Jobs or Bill Gates. I want to focus on entrepreneurs specifically, but all traditional benefits of university education of course apply: higher salary, faster career advancement, social recognition, etc.

2. Free Money: Universities are drenched in free money. Sure, professors and students are constantly (and maybe rightly) complaining about the continuing loss of government support, but they are still in paradise compared to the harsh world of venture financing. Being a student entrepreneur allows you to tap into many grant programs both directly for your venture (e.g. Canadian I2I grants) and indirectly (e.g. research grants for your professor which in turn apply to some of your entrepreneurial activities).

3. Access to Smart People: Universities are crowded with great minds who are socially conditioned to share that knowledge for free. Try to leverage them for your business. The most obvious advantages will be on the technical side, but don’t overlook the seasoned entrepreneurs who might just be hiding in various faculty buildings.

4. Facilities & Equipment: Short of mass production, universities can support most of the activities of a start-up. On the technical side this means specialised equipment that would be insanely expensive anywhere else. Many universities also offer discounted office space and other incubator services. Even if you have to pay for facilities or equipment, it is usually a lot cheaper than conventional buying or renting. For a student entrepreneur these facilities have the added benefit of reducing your “commute” from office to classroom. My entire B.Sc. was only possible because Sunnybrook’s office was located within a few feet of many classrooms.

5. Tech Transfer Offices: Most universities take a cut of your future entrepreneurial gain. That’s not an argument to avoid them. Their cut usually applies only intellectual property related gains and most of the value of a start-up is created post founding. The net result will be a very small cut that is definitely worth it (e.g. in my case my “university share” made up less than 10% of my total exit payout). In any case, I am listing reasons to *stay* at university, so the university cut is already sunk cost. You might then as well leverage the Tech Transfer Office’s capabilities. They generally don’t charge anything past the initial cut and you can get great patent management, business expertise and legal support from them.

6. Credibility: While completing your university degree doesn’t guarantee your abilities, dropping out really doesn’t prove anything at all. While the image of the hacker in flip-flops has been carefully crafted by the media, the reality is that most investors will be happier with a CalTech PhD than a drop-out for their next tech founder.

7. Tax Credits: This one shouldn’t be true, but very much is. Many subsidy programs, such as the Canadian Scientific Research and Engineering Development (SRED) credits, use a distinction between “science” and “product”. You can get the money if you are doing risky science but lose out if you are doing product (or worse: business) work. In theory this should be independent of the person doing the science, but it practise it really isn’t. A SRED claim with a rocket engineering PhD as the “scientist” is much more likely to get approved than the same claim with a college drop-out (especially if the “science” hovers at the boundary line to “product” work as it usually does).

8. Ability to Supervise: Earning your degree can help your venture later. For example, being a professional engineer in Canada allows you to supervise junior engineers. Some of my best employees would never have started without the ability to complete this critical step in their career. Similarly, a PhD allows you to act as an investigator on research grants, supervise graduate students and so forth. None of this cost you anything but will greatly help your venture.

9. Scholarships & Grants: Following from the above, you can get a fair bit of salary support as a university entrepreneur. In addition to all the traditional start-up grants, but you can get academic scholarships, financial assistance grants and so forth. Especially in the early days it really doesn’t matter where the money comes from, just that you have something to eat while you build your venture.

10. Entrepreneurship Test: This might be the ultimate benefit but maybe the hardest to accept. Entrepreneurship is about passion, commitment, smarts and multi-tasking skills. Completing your degree while building a business is harder than doing either one independently – but precisely that “hardness” makes it a great test for your entrepreneurial ambitions. If you cannot reconcile your venture with a degree, then what are you going to do if your venture gets hit with a challenge of similar magnitude (e.g. 20 hours of semi-aligned extra work per week)? On the flip side, if you can overcome this challenge once – through planning, extra work, resource leverage, or any other tool – then you will likely be able to solve it again. And it will need solving in your entrepreneurial career. Over and over again.

Entrepreneurship, Technology Transfer ,

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 , ,

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