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24 May 2017

University venturing comes of age

University and public research institutes (PRI) make up a sector that prides itself on the use of data and insights to drive the scientific process.

Author: James Mawson, editor-in-chief

The process of knowledge or technology transfer from universities and PRIs has been well covered and followed for decades, including by the prestigious Association of University Technology Managers (AUTM) in the US, ASTP-Proton in Europe, Praxis-Unico in the UK and the United Nations-led Asian and Pacific Centre for Transfer of Technology, while Sweden-based UBI Global has successfully started tracking university incubators and accelerators around the world this decade.

But the venture capital used to turn this knowledge into companies has been almost considered an afterthought, assumed to be provided by third-parties using market forces to identify and uncover the entrepreneurial gems of talented faculty and students. The approach has broadly worked historically.

Global University Venturing has tracked more than 100 government, venture capital or listed vehicles trying to primarily target university research and student/faculty talent and which have collectively raised billions.

Over the past few years, however, there has been a surge of interest by universities and PRIs to explore how they set up or fund university venture-focused vehicles to complement their tech transfer offices (TTOs) and incubation and education work.

To mark this year’s launch of the 100th vehicle where universities and PRIs have committed capital with an eye on helping their students and faculties’ entrepreneurial endeavours, Global University Venturing has started a benchmarking process.

At the GUV:Fusion conference on 23-24 May in London, UK, part of the broader Global Corporate Venturing Symposium bringing together hundreds of corporations investing more than $100bn in venture capital and with aggregate annual revenues of more than $4 trillion (see comment), university venturing leaders in an invite-only breakout session will discuss under Chatham House rules how to aid the industry’s development and how to better decide between the inevitable grey lines in such a nascent area. This milestone of a century of funds only represents the tip of academia’s innovation spear (see funds data). News provider Bloomberg, using data from AUTM, identified the foundation year for 149 US university TTOs but found 15 produced 70% of all patent license royalties in 2014, led by Northwestern ($361m), NYU ($216m), Princeton ($142m), Columbia ($115m) and University California System ($109m). Stanford and MIT in the top 10 with $108m and $64m, respectively. Only 11% of TTOs made a net profit for their institutions, AUTM found in Bloomberg’s article.

But with hundreds of thousands of spin-outs and startups from the leading universities, (see deals data), a focus solely on patent licensing can miss the bigger picture from an institution’s perspective.

The Harvard Impact Study, released in 2015, said the school’s 375,000 living alumni had created more than 146,000 for-profit and non-profit ventures. These had created over 20 million jobs and generated annual revenues of $3.9 trillion – greater than the gross domestic product of Germany, the world’s fourth-largest economy. MIT’s impact report, published the same year, found its 130,000 alumni had created 30,200 active companies and 4.6 million jobs, and generated annual revenue of $1.9 trillion. That’s a little more than the gross domestic product of Russia, the world’s tenth-largest economy.

Stanford University’s 2012 study fell between the two as it identified 39,900 active for-profit companies and 30,000 nonprofit organisations with combined revenues of $2.7 trillion and generating an estimated 5.4 million jobs since the 1930s.

The effects are not just seen in the US. In the UK, University of Oxford pointed to £400m (then about $600m) of gross value added to the global economy in 2014 from its work and 5,000 global jobs.

University incubators, such as the impressive Canada’s Velocity at University of Waterloo or DMZ at Ryerson University, 1871 affiliated with University of Chicago and SetSquared covering five UK universities, are providing entrepreneurial and business education to complement or supplement traditional business schools. Business schools, whether Cornell’s Big Red Venture Fund or University of Rochester’s Simon School Venture Fund (SSVF) in the US, bring skin to the game for these business case studies.

The impact of such education will show up in a variety of ways over the next few decades but whether with non-dilutive grant and awards or equity, the best entrepreneurs and ideas will need capital.

And there are no reasons why universities and PRIs should be unable to offer the capital that suits the entrepreneurs best, which includes venture. Capital is fungible but the type of funding chosen by the entrepreneur brings different incentives and governance requirements.

As Y Combinator co-founder Paul Graham has said, startups will mostly fail because they are “trying to solve problems that other people have failed to solve… so chances are you will fail”.

Universities best approach could be to allow these entrepreneurial ideas to blossom at their time of choosing by offering the menu of options. By putting the entrepreneur first, whether student, faculty or staff, the rewards will be reaped by the institution in one form or another. The profiles for this year’s GUV awards winners indicates the variety of success stories and models.

University venturing’s place is as part of this firmament. As success breeds confidence, some will grow to billion-dollar size, while others will remain at six and seven-figure size. All are fine and welcome when run professionally and with a desire to serve the entrepreneurs first.

But the bigger wins will come to those institutions that develop a holistic approach reflecting their aims and strategic goals usually encompassing research, education and economic development.

Using capital to seed third-party venture capital funds can help institutions, faculty and students better understand the technological changes across industries and how research can enable innovation and invention. Such funds might also make institutions more adaptable to changes in their own business models. They can also enable financial returns to be reinvested in operational expenses and facilities.

Funding student and faculty startups and spinouts can deliver the above goals and also tie them closer to institutions to build the long-term relationship that can benefit all parties. This also benefits the local economies and delivers the potential high-paying jobs and tax revenues of the future.

There downsides of venture are manageable with the right ethics and focus on entrepreneur as customer or a broader social mission rather than institution. This seems counter-intuitive given the source of funding is the institution but, as technology company co-founder Steve Jobs said, “focus on the product”.

Copyright Mawsonia Limited 2010. Please don´t cut articles from or the PDF and redistribute by email or post to the web without written permission.

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