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28 June 2017

Who are the founders of university spinouts?

Analysis from David Dorsey, associate at Osage University Partners

Author: David Dorsey, associate, Osage University Partners

Venture capitalists place considerable emphasis on founding teams. As VCs, we think a lot about what personality types, backgrounds and skills in a solid company founder. Some of the most important traits are qualitative. For example, we often talk about how CEOs should be excellent listeners. We look for traits like curiosity, passion, drive, low ego, sales orientation, honesty, integrity and transparency. Less qualitative indicators of potentially investable teams are strong domain expertise and success in a previous startup.

Having spoken to other VCs and read numerous blog posts by investors talking about why they backed a team, I suspect that many of these characteristics are important regardless of the sector in which the investors are working. In this article, I will consider some quantitative data about the academic and career background of startup founders – university spinouts in particular – who have received VC funding since Osage University Partners (OUP) was founded in 2009.

I was particularly interested in uncovering commonalities among the founders of university spinouts – other than recently moving to Silicon Valley – and comparing data from university spinouts and the overall startup environment. One Bloomberg report asked founders from 890 US startups where they went to college, what their highest degree was, and in what state they set up the company. Some of the statistics were not surprising and matched what we see in academic startups.

As my colleague Stephanie Stehman wrote in the previous edition of the Global University Venturing, the clear majority of venture capital goes to companies founded by men. Just 7% of the 2,005 founders in Bloomberg’s data were women. They also listed the US undergraduate schools where most of the founders were alumni, none of which was surprising – Stanford University, Harvard University, Massachusetts Institute of Technology (MIT) and University of California Berkeley were on top.

At OUP, we invest almost entirely in university spinouts – startups that are commercialising advanced research from our university partners. Osage partners 90 universities in the US, Canada, Israel and Singapore. The charts that follow consist exclusively of tech university spinouts in sectors such as enterprise and consumer hardware and software, cybersecurity, sensors, energy, materials, data analytics tools and so on.

We have excluded life sciences spinouts as the academic and professional backgrounds of founders shows far less variation when it comes to experience. These founders tend to have advanced degrees from top universities, are usually well known in their respective field, and often have previous related entrepreneurial experience. While almost 63% of founders in biotech hold PhDs, tech is a different story – the Bloomberg reporters found that there were more college dropouts than PhDs in the internet startups from their dataset.

Highest degrees earned in university tech spinouts

The data I used to produce the charts that follow come from multiple sources: PitchBook, Datafox and OUP’s proprietary database of university startups. I chose 263 startups from our database of more than 4,000 startups based on the following criteria:

•  We had enough data about the founders.

•  We consider them to be high-quality and investible.

•  They have already raised venture capital.

Given that university spinouts are building companies around intellectual property developed in research laboratories, it is not surprising that there will be a higher percentage of advanced degrees compared with what is seen in tech ventures overall. With that in mind, I was still surprised to see that over 40% of the tech startups in our dataset had CEOs with a PhD. This number does not include the scientific founders who serve as chief scientific officer or chief technology officer. This group raised about 35% of the total capital in the dataset.

Figure 1: Highest degree earned by CEOs in tech university spinouts, shown as a percentage of the number of startups in the dataset, and the percentage of capital raised by startups in the dataset. The “none” category represents CEOs without a college degree

MBAs made up less than 20% of the CEOs and raised proportionate amounts of capital. CEOs with MScs raised capital disproportionate with their numbers, mostly due to a few outliers, including virtual reality company Magic Leap and cybersecurity company FireEye. The 55 CEOs with MBAs attended 38 different business schools. The only school with a significant number of spinouts was Harvard Business School with 16%. Leading the way in terms of percentage of overall capital raised were startups whose CEOs earned MBAs from University of Pennsylvania’s Wharton School (3.4%), MIT (2.3%) and Harvard (2%).

Figure 2: Universities where CEOs in the dataset earned their highest degree. Schools with less than $100m total capital raised are not shown in graphic. The single data point for University of Miami is due to MagicLeap 

Top schools where the CEOs earned their highest degrees

Figure 2 shows a map of where startup CEOs obtained their highest degree. For clarity, I cut out schools whose startups raised less than $100m in total. Each square represents the number of university tech spinouts and the total amount raised by CEOs who earned their highest degree at the school labelled on the square. Berkeley produced far more CEOs than any other school, but Stanford CEOs raised more capital with about half the startups.

The picture looks more or less the same when we add up all the founding team members of all the startups and the schools they attended (Figure 3). From this perspective, Harvard had more founders than any other institution. Carnegie Mellon University, University of Illinois Urbana-Champaign, and Cornell University also have a strong showing.

Figure 3: All top universities attended by any founding executive

CEO undergraduate majors

Another question I had was about the technical background of the CEOs. I would expect to see more university spinout CEOs with science, technology, engineering and maths degrees than in the larger startup ecosystem.

Good CEOs are able to speak with authority about the technical details of a product while emphasising the problem that is being solved and why it matters. Figure 4 gives a sense of the strong attraction to engineering, particularly electrical engineering, and computer science degrees among future entrepreneurs.

It is also worth noting the business major is clustered with biology and biomedical engineering, physics and materials science.

Figure 4: CEO undergraduate majors

The professor founder

I have had quite a few conversations with professors who are thinking about commercialising their technology. The question they struggle to answer is: should I lead the company as CEO, or in some other capacity? I gathered data about the role graduate students and professors play in university spinouts and divided the dataset into four groups describing the founders’ connection to the intellectual property.

The first group is an alumni founder. This is usually a grad student or post-doc who worked in a research lab on a project or dissertation that he or she saw had a commercial application. On graduation, the student will license the intellectual property (IP) from the university and launch a startup. In this group, I have lumped together all the different founder roles – chief executive, chief scientific officer, chief technology officer and so on.

The second group is called the CEO professor. In this class are startups that were founded by a professor with an appointment at the university where the IP was developed.

The third class is the professor founder who is a vital member of the founding team, but is not operating as CEO. Usually an outside CEO with market domain expertise and experience is sought to take a leadership role with respect to market strategy, sales, marketing and fundraising.

The last class is external licensees. In this class are startups where the founders were neither alumni – at least not recently – nor professors, but entrepreneurs who track promising research, develop a product and market strategy for the technology, and license IP from the university – and the professor – for royalties.

Each circle represents the number of startups and the total amount raised by the startups in this class. The “external licensee” group raised the most capital, even if we subtract Magic Leap from the column. The professor founder raised about $3.9bn compared with $4.5bn – with Magic Leap excluded – raised in the licensee class. Startups in the dataset with professor CEOs raised a total of about $1.1bn. The average amount raised by companies in the external licensee class was about three times the average, and the professor founder class had an average that was twice the average of either alumni or CEO professor companies. There are more professor founder startups than the other classes, followed closely by the external licensees.

It is interesting that the number of startups and the capital raised is spread across 25 different IP source universities. The distribution of valuable intellectual property across universities is a contrast to the clustering that we see in CEO alumni universities, undergraduate majors, the location of the startup operations (see Figure 6) and the genders of founders. It emphasises the idea that as great startups find a problem that needs to be solved and customers who value the solution, there are differentiating technologies residing in universities across the US, Israel, Canada and elsewhere for the entrepreneur who looks for them.

Figure 5: Founders’ connection to the universities that generated the IP

Figure 6: Geographical distribution of the place of business for university tech spinouts. Silicon Valley is by far the top location

This is an edited version of an article first appeared on Medium.

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

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