University Startups and Spin-Offs: Guide for Entrepreneurs in Academia (2015)
Part II. Strategies for Universities
Chapter 20. More Platform Projects
Leverage Cooperations and Create Network Effects
We know that universities can take advantage of their interactions with external allies for the good of their startups. They can do this with an innovative mindset about launching startups and engaging third parties through actionable next steps. This chapter describes several initiatives to reroute energy from external parties into a university’s startup track. They take place on the existing university platform but require a little more time and effort to establish than the actions described in Chapter 19.
Communication between universities and external actors creates energy. The most important thing is to prevent this energy from escaping unused. To do this, universities need to think more like entrepreneurs themselves. They should approach third parties as partners for feedback and two-way knowledge exchange. With actionable next steps, universities can move potential partners toward the specific milestones the universities want to accomplish with their startups. When something falls short of producing the needed results, universities need to collect feedback and adjust their approach.
Just as an entrepreneur tries out his MVP with potential clients, a university should test its startup platform with its external stakeholders. When it does this, students and researchers gain access to an organic ecosystem of entrepreneurship. Startups can then draw on unique practical resources and knowledge to launch companies with much more momentum.
There are two definitions of an entrepreneur-in-residence (EIR) program. On the one hand, it can mean that an experienced technologist has the chance to develop a startup as a so-called intrapreneur within a company.1 On the other hand, the term describes a situation where an established entrepreneur comes into an organization to help with the organization’s own startup initiatives. An EIR might also provide expertise to a portfolio company of a venture capital firm.2 The entrepreneur may later become part of the portfolio company as a full-time executive if both feel there is a good match.
Multinationals and even governments have EIR programs. The Mayor’s Office of San Francisco runs its own program “to explore ways [to] use technology to make government more accountable, efficient and responsive.”3 Some business schools are starting to carry out EIR programs as well. With the goal of inviting seasoned entrepreneurs to work with their startups, universities can borrow from the playbook of corporate R&D. The main benefit consists of bringing entrepreneurial know-how directly into the university to address specific startup challenges. As you have seen repeatedly in this book, direct access to seasoned entrepreneurs can be a major asset for startups. The impact from working hand in hand with an experienced founder trumps any workshop or entrepreneurship lecture.
At a university, an EIR program could have several modules, each with a different entrepreneur (see Figure 20-1). Every founder has their own approach and experience, so a rotation brings many facets of startup entrepreneurship to light. Each module could last between four weeks and several months, depending on the university’s resources.
Figure 20-1. EIR program with modules
Let’s say there are three modules per year, and during each one a different entrepreneur comes in to work with startup teams. The EIR brainstorms with the teams, looks at their available assets, and tries new applications and combinations. The EIR works with all teams and thus serves as a connector and catalyst between diverse ideas and markets. When external parties visit the university for networking events, the EIR can lead the discussion about deeper integration of entrepreneurship to unlock synergies between the existing actions on the university platform.
An EIR program can also be the source of excellent media coverage. The university anchors its image not only as a research hub but as a center for applied, investible innovation, which may be useful when attracting partners from the business and financial community.
Universities often have an outstanding reputation as research institutes with dormant potential in entrepreneurship and startup success. When they proclaim that they would like to adopt entrepreneurship earlier in their curriculum, they can follow through by jump-starting the process with an EIR program. An initial four-week module could launch as a pilot program. This pilot serves as the guide for later modules featuring successful entrepreneurs from around the world. The risk and cost for the university are minimal. But the payoff is massive, especially considering the longer-term value of the program. Toward the end of a module, the EIR and the startups can present directly to potential joint venture partners and investors in the university’s city.
Even if a module does not directly result in marketable projects or successfully funded startups, the relationships and insight gained from the EIR program will benefit the university and its students and researchers. They learn firsthand how to present projects, assess them, and launch them in the market.
Many ideas from Silicon Valley can be useful for startup programs at universities. Demo days are just one of them. The seed accelerator Y Combinator holds two demo days per year.4 Each startup has seven minutes to make a short presentation. One week before the important day, there is a rehearsal day when startups can fine-tune their pitches.5
The demo day is a platform where startup founders can present their product and business model to venture capital firms that may wish to take them to the next step with an investment. Demo days take place at incubators and accelerators around the world. Why shouldn’t universities also hold demo days with their startups?
Some universities insist that they already have demo days. On closer inspection, those turn out to be little more than relatively passive showcases of non-investible ideas to a small group of government officials, industry representatives, or venture capitalists. Some university showcases I have seen consisted of a room full of tables with research props on them: here was a 3D-printed dish, there a block of cement, and so on. Some of the unmanned tables featured tablets with videos about the technology and interviews with the researchers. This may be OK for presentations of student work on the degree level, but it is a far cry from a serious startup demo day. Without professional organization, such events will disappoint. This will confirm the notion that entrepreneurship is like a lottery: very difficult and better left to others. The staff who organized the showcase will make a mental note that a university is not a venture capital firm and go back to business as usual.
As you saw in the examples of platform thinking in Chapter 19, putting startup teams in front of decision-makers and seeing what happens does hardly cut it. If startups want to succeed, they need to get their act together and engage others with attractive value propositions and actionable next steps. Just as on a demo day at Y Combinator, pitches must be short and to the point. They should follow the 10/20/30 format and should avoid beaming technology features at the audience. As the saying goes, when you need friends, it’s too late to make them. A demo day that a university puts together out of thin air will never attract critical mass and will fail to interest the real decision-makers. Startups and universities must be able to draw from a strong entrepreneurial network that they should have started to build long before.
Silicon Valley accelerators hold invitation-only demo days as a first opportunity for investors to meet the startups that are part of each intake. These are full-day events that begin with a breakfast buffet at the accelerator’s office. They include a series of short presentations from each of the startups, brief demonstrations of technology and products, and networking and Q&A sessions with invited industry and customers.
An incubator’s motivation for putting on a demo day is to expose its teams to the market and give them an opportunity to collect feedback, network, and engage third parties with actionable next steps. If there is a commitment to invest in a project, great; but even without it, the demo day itself is a valuable field test of ideas.
Because accelerators have excellent connections with industry and investors, the demo days are brimming with energy and are usually highlights for entrepreneurs and attendees. It is less about putting a monetary value on each demo day than strengthening the foundation of the startups and the network for future events. The accelerator made powerful friends from other venture capital, industry, and finance firms before it ever needed them, and now it can hand-pick the ones it deems worthwhile to attend the demo day.
In the context of a university, such events can engage research teams with the business and financial community and serve as a fact-finding mission for business-model generation. Because demo days include all of a university’s startups along with university staff not directly involved in entrepreneurship, they strengthen entrepreneurial idea exchange within the faculty. By inviting potential industrial users of technology developed at the university and potential joint venture partners, startup teams gather feedback on products, their application in the marketplace, and future partnerships. This enables students and researchers to leave the building and collect real-world data about the viability of their products. The focus is on inclusive listening to feedback and opinions, instead of beaming scientific facts at an audience. Such a practice speeds up the feedback loop to validate business models for technology developed at the university. It also teaches startup entrepreneurs what it takes to make a good impression and enables them to see how others are approaching the same problems they deal with.
To hold a successful demo day, a university needs to have something interesting to demo and relationships with influential partners to demo to. Research projects that are not actionable for partners and investors may be interesting to see but miss the purpose of a demo day. It only makes sense to invite potential joint venture partners and investors when startups have evolved along the path of MVP testing. They should have several business model canvases that give a clear idea about their direction, product, and position in the market. Their financial model should enable discussion with potential investors. And startups need to have developed a clear idea of what they want from potential partners and investors. One-page proposals should exist at least in their minds, if not on paper, so they are ready on demand.
Contacts made at demo days provide superb opportunities for startup teams to follow up. If entrepreneurs identify potential clients or joint venture partners, they can now approach them for meetings to move the startup along its trajectory.
Employing simple tools used in entrepreneurship hubs can give universities an edge with their startup initiatives. Knowing how demo days work puts a university on equal footing with top universities worldwide and improves its chances to establish long-term collaborations with industry and investors. Careful longer-term planning is necessary, as is the case for all initiatives with platform thinking. The sooner universities get started, the better.
Integrating Intergovernmental Organizations
Intergovernmental organizations (IGOs) are global organizations made up of member states. They are created by treaty or charter but are not treaties themselves. The North-American Free Trade Agreement (NAFTA) is not an organization, but the World Trade Organization (WTO) is. So are the United Nations (UN), the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB), and many more.
IGOs typically have a clearly defined mission. The United Nations, for example, has the following missions: “To preserve international peace and security, to develop friendly relations among nations to achieve international co-operation in solving international problems of an economic, social, cultural, or humanitarian character, and to be a center for harmonizing the actions of nations to reach these common ends.”6 As another example, the Asian Development Bank has an important mandate: to end extreme poverty in Asia and Pacific.7 Various publications and diligent research map out strategies for reaching that goal. One example is the ADB’s Strategy 2020, which postulates that member countries should focus on critical strategic agendas of inclusive economic growth, environmental sustainability, and regional integration.8
To make a long story short, many organizations exist with massive funds that could help university startups. Some universities in Asia meet with the ADB to look into joint projects, but IGOs are still sleeping giants. That is a pity, because much university research aims at solving exactly the problems that many of these organizations have on their agendas: environmentally sustainable growth, decreasing greenhouse gas emissions, better urban planning, sustainable transport, and many more. Few students and researchers know that the ADB has a Sustainable Transport Initiative(STI) with an allocation of 25% of the bank’s annual lending (about $10 billion in 2012).9 The STI aims at private sector development and operations, capacity development, knowledge solutions, partnerships, and more.10 Many other programs exist, focusing on water safety and renewable energy. What does this mean for university startups? If their products address the issues mentioned in these initiatives, they have a direct link to IGOs, which may turn out to be powerful partners for startups.
Universities usually approach IGOs with funding requests for individual research projects. A typical request for funding is around $250,000. This may seem like a lot of money, but it pales compared to the billions of dollars of an IGO’s annual budget. Therefore, the economic scale and momentum they could bring to startups lie dormant. To change that, universities could try a new strategy when approaching these organizations. Why not bundle several startups together and make them investible as a new project for an IGO? How about becoming an implementation partner (not a research partner) for an IGO and addressing issues they aim to solve with solutions built with technology from the university?
Suppose a university has five startups working on biodegradable battery technology, prediction of seismic activity, robotic manufacturing, an electric scooter, and a biodegradable glue useful for construction sites. Could they align with the ADB’s Strategy 2020 or Sustainable TransportInitiative? I believe so. The university would have to present this idea and find out.
Instead of approaching IGOs with a request for funding alone, startups can use them as a springboard to finalize their product, gain extra information about potential markets, and engage the organization for the next steps. IGOs work on the intersection of many different industries and finance, and they see various projects every day. They may be able to set powerful network effects in motion. What about private investors they work with? What about tenders for which startups could put in offers, perhaps together with joint venture partners?
Platform thinking goes a long way. Channeling the energy created on university platforms into startups should become a habit. Once it is part of everyday business, an entrepreneurial ecosystem will grow. As long as startups have a clear roadmap and can keep potential partners interested with good value propositions, this ecosystem will be their launch pad.
Presentations for Investors, Funds, and Banks
I have discussed building bridges to the market by engaging companies in joint ventures with startups. In the example of an investor visit, I talked about turning an event for a university sponsor into a great learning and networking experience for startups. What I address here involves actively reaching out to the financial sector. Except for business schools, universities rarely do this at the current time. Private equity funds, hedge funds, venture capital firms, investment banks, sovereign wealth funds, and all the other players in finance have a dubious connotation for many academics. Since the financial crisis of 2007/8, the popular press has done its best to slander the sector with stories about fraud, excess, and ruthless behavior. A famous example is one popular writer branding the American investment bank Goldman Sachs as “Vampire Squid.”11 This may have hit a nerve with universities, which are by nature risk-averse. Reputation risk is the last thing a university wants to burden itself with.
The lack of a connection between universities and the financial sector is unfortunate. Various smart academics work in finance, and a wealth of market knowledge could flow back to universities if they began engaging those individuals. Just like inviting potential joint venture partners and investors to a demo day, wealthy individuals and their advisors can be an excellent addition to a university’s network. Ultra-high-net-worth individuals (UHNWIs) are generally curious about research and science and often support projects without an immediate financial return. They are strong allies to raise unconventional financing even for slightly crazy endeavors such asteroid mining12 and private space travel.13
Some universities are in ideal positions at the intersection of research, public policy, and finance. Singapore, for example, is a melting pot of the world’s wealthiest people. Yet there exists a gulf between many of Singapore’s universities and the bustling financial sector of the city state. Nonetheless, finance professionals and wealthy individuals are open to learning about what is going on at universities. Knowledge is power, and UHNWIs very much want to have an edge over the next guy. Their curiosity could be the spark to ignite their engagement in a university’s startup track. They could be ideal candidates to ask for feedback about products and business models. Not only do they bring financial firepower to the table, but their experiences and networks are also attractive for startups. With clearer deliverables for investible, validated startups, universities can take a leadership role in bridging the gap with the financial community.
Whenever I bring this up with startup teams, they say they will get financial connections later, when they need funding. However, that misses the point entirely. Entrepreneurs should have a robust network before they ever need anything. They can engage the financial community today as a sounding board for their business and financial model and collect feedback from them along the way. When the entrepreneurs need funding down the road, they can approach those members of the financial community as existing contacts. Asking for an introduction to a venture capital firm will be easier then.
Few people have a deca-millionaire in their group of friends, let alone a billionaire. When they finally meet one, they are surprised how normal and likable that person is. Of course they are (most of them); how else could they have interested enough people to buy their products or services, which made them rich in the first place?
But what about the evil private equity funds, the vampire squids, the arrogant hedge-fund managers, and the insensitive venture capitalists? Surely you don’t want to deal with them? Granted, there may be unpleasant characters at certain financial outfits. Some of them, usually lower-level employees, can be summed up as having “one inch of power”: this means they have climbed the ladder just high enough to have an inflated ego. This is hardly who you want to do business with. As soon as you get higher up the chain of command at funds and financial institutions, things get interesting. Believe it or not, getting to the top in finance requires entrepreneurial thinking. Decision-makers at funds and financial institutions feel at ease with other entrepreneurial, unconventional types. Many of their investments are bets on special situations, unexpected economic developments, market shifts, and geopolitical changes that influence the product line of startups. They can contribute considerable pragmatic advice to startup teams and their evolution.
Stop thinking about an investment fund as a casino, and see it as an entrepreneurial think tank. Stop thinking about wealthy individuals as people who deprived someone else of their fair share, and view them as hard-working folks who once were and still may be entrepreneurs. UHNWIs live a life of very few constraints. That opens up the mind. Stop thinking in terms of entitlement—it is not the duty of wealthy people to give you money. Assume responsibility for all your actions, because nobody owes you anything. The sooner you adopt this mindset, the better. A new world will open up to you. A startup may be the vehicle that will shift your thinking in this direction.
By now, you may have noticed that all these platform initiatives involve the same deliverables: creating benefit-centered, investible startups; validating hypotheses about products and the market; adapting communications to be more inclusive for non-academics; and engaging third parties with actionable next steps. All of these should be at the top of the agenda for universities and their startups. You may have also noticed that these initiatives require the same effort on the part of the university and the startup: keeping an open mind, engaging third parties early, asking them for feedback about your products and processes, and including them in your entrepreneurial network.
Once universities have adopted platform thinking as a whole, many startup initiatives can launch with little extra effort, because they build on each other. The key is to take the first step and look for leverage. After you have carried out the first platform project, the next one will be much easier. With platform projects, your university has the opportunity to transform itself. It just has not tried hard enough yet.
An Investment Fund as the Master Platform
A final idea is creating a university-led investment fund. I know, red flags go up immediately. The university is no investment bank, and certainly it is not a hedge fund. It does not have any interest in short-term gains; only long-term scientific excellence matters. I have heard all these objections before. I understand them and agree with them. However, they largely stem from misunderstanding the intentions behind the recommendations in this part of the book. If you take these ideas out of context, I admit that some of them may sound strange. It is the underlying logic that makes the difference. Universities should keep an open mind and look for unorthodox ways to build and strengthen their entrepreneurial platform. They should reach out to as many companies as possible to enable entrepreneurial knowledge transfer back to the university. Invariably, this includes some unconventional ideas. If you can be enterprising and receptive, you will make the most of this book.
Ideas about finance are sometimes difficult to understand and often downright scary for those outside the financial sector. Besides, embracing capitalism is rarely a strong point of academics. Whatever your personal convictions, nobody asks you to convert to capitalism. This is about launching projects to engage third parties for the good of a university’s startup program. Financial institutions are such third parties. So are UHNWIs, insurance companies, and IGOs such as the World Bank and the Asian Development Bank. If interaction with those financial stakeholders makes sense, then an investment fund could be the master vehicle to unify all the platform projects described in this chapter. Let’s examine how universities can do this.
A team around Professor Andrew Lo of MIT popularized the idea of a mega fund to commercialize research. They published a paper in Nature Biotechnology that suggested pooling several biomedical research projects aimed at healing cancer into a multibillion-dollar investment fund.14Without going into too much detail, the following paragraph describes how this works.
The risk of investing in an individual biomedical research project is high. The entire investment can be lost. But if the project proves to be successful, its payoff is enormous, perhaps 100 times the investment or more. A diversified stock portfolio invested in several stocks is less risky than investing all your money in one stock. With the same logic, building a mega fund that invests in several biomedical research projects is safer than one large investment in an individual project. With relatively simple financial engineering, Lo showed that a mega fund could achieve returns of 5% or more with relatively low risk. The individual projects did not change, just the way the fund structured them and made them investible.
This approach has the power to attract a large group of institutional and private investors who would never dream of investing in individual drug-discovery projects. However, because the fund diversifies away much of the risk, they may be open to investing in a mega fund if it existed. Put another way, such a fund is comparable to investments they already know and invest in with good results. With this reasoning, an ocean of new capital would become available to finance biomedical research, and the extra capital could speed up discovery of new drugs.
This sounds intriguing. The same approach could work for research projects and university startups in general. However, most universities oppose ideas along those lines. Financial engineering is anathema for many academics and public servants. Yet private and institutional investors are allocating billions of dollars to comparable investments and often struggle to find a market deep enough to absorb all the liquidity available. Market demand from financial investors exists. With relatively low risk, a university could take the lead and spearhead the first investment fund made up of research projects and promising startups.
Of course, this would not be a slush fund to finance university overhead. It would not be “free money” like the government funding and donations that many universities receive now. Nevertheless, it would compare to a venture capital investment in exchange for equity or debt in a startup. In this light, it becomes obvious that little would change for the startups and the university. The upside is the fact that they would have a source of funding available from inside the university. Other than purely monetary benefits, the fund would serve as a master platform with network effects for all parties. As an interdisciplinary vehicle, it would occupy a position at the intersection of science, international business, and finance. Because it would be a market-oriented investment fund (not a think tank), interactions and communications on this platform would have urgency and would need to be action-oriented. This would break the habit of endless deliberation before making moves in the real world. An investment fund could be rocket fuel for university startups.
Example: Venture Capital vs. Mega Fund
Suppose a university has the five startups mentioned earlier. Their areas of expertise are biodegradable batteries, prediction of seismic activity, robotic manufacturing, an electric scooter, and a glue for construction. Assume that these startups have progressed through their MVP testing and launched a first product in the market with good feedback. Each startup has landed a joint venture partner that holds 51% of the venture; 44% is held by the research team and 5% by the university. The joint venture partner covers all overhead of the startup, so there is no immediate need to raise capital to make ends meet. The joint ventures have validated their products and are now refining production to cut costs. Several venture capital firms have approached each startup, offering $1 million to buy a 20% stake in the company (each company is valued at $5 million). Let’s see what happens if the startups take that offer. The capitalization table of the startup changes as shown in Table 20-1.
Table 20-1. Capitalization Before and After Investment
Joint venture partner
Venture capital firm
As you learned previously, venture capital looks great on paper, but it comes with strings attached. The relationship is a tradeoff. The startup receives cash and access to the resources and know-how of the VC firm. But it also has to consider the corporate interests of the new investor, which may conflict with those of the startup and the university when they have to meet certain milestones. VCs can and do veto startup team decisions. They invest other people’s money, so they have to answer to their shareholders. These may complain if returns from the investment in this particular joint venture fall short of expectations. And that is where the trouble starts.
A venture capitalist is a bit like a rich uncle who funds your college tuition, only to feel entitled later to meddle in every decision of your life. When startups need funds, venture capital may be grand. However, if a startup has another source of funding available, that may be even better. Who or what could this other source be? No bank will invest a million dollars in a company with little or no revenue, regardless of its joint venture partner. But if you had 100 companies, the story might be different. Just as with the mega fund, investing in many diverse assets is less risky than investing a large sum in a single asset. If universities structured their startup companies this way, the investment risk would decrease, and they might gain access to additional sources to raise capital.
In Table 20-1, you see that an investment in a company is a straightforward transaction. Where the investment comes from has no impact on the transaction. I said it before: investment in a startup is not a question of money alone. If a venture capital firm supports a startup with positive synergies, it can add a lot. But if it begins pushing the startup in a direction the entrepreneurs dislike, then other sources of capital would have been a better choice.
Before I discuss how to put together such a fund, let’s first look at a recent trend in finance called impact investment.15 (This differs from the slightly more settled socially responsible investment [SRI], which seeks to minimize negative effects rather than proactively create positive social change or environmental impact.) Investors forgo a small portion of returns to ensure that the projects they invest in make a difference. They should have a positive social impact or must be good for the environment. An example may be micro loans made by a bank in a developing country, which could raise $100 million from impact investors. The loan fund is rated by a renowned rating agency and syndicated on commercial terms among institutional investors, such as pension funds, in Europe and the United States. This investment yields financial returns and has a positive impact on society by making micro loans available for entrepreneurs in a developing country. However, impact investments also make sense in the developed world. For example, they may focus on sustainable energy or social causes.
Such investments produce an acceptable return, but it may be slightly lower than that of a conventional financial product like a corporate bond. Other popular applications of impact investing are clean technology, public health, job creation, community development, and more. J.P. Morgan predicts that the impact investing market has the potential to reach $1 trillion of invested capital by 2020, with profits of up to $667 billion.16 This is not a blip on the radar, but a trend on the horizon.
Let’s go back to our five university startups. Would investments in these startups qualify as impact investments? Possibly, if they are businesses with the intent of making a positive social or environmental impact. The emphasis is on business, meaning a startup cannot simply be a PhD project with no other goal than the PhD getting tenure at a university. These must be serious companies with proven market demand for their products. It must be credible that they will earn revenues sometime in the future. And their teams must have the motivation to go the distance.
To clarify, imagine the following fictitious example. The electric scooter startup has devised a socially responsible business model. Factories of a joint venture partner located in rural communities in a developing country produce the scooters from recycled material. The scooters sell for a high price in developed countries. This allows the company to pay employees a higher wage and offer free education and entrepreneurship workshops for their families. The Asian Development Bank has decided the startup is in line with its Strategy 2020, aimed at reducing poverty in Asia.17 It has therefore invested on generous terms that allow the startup to build several schools in the community. To open factories in additional communities, the startup is now raising more capital from impact investors. Because it makes a positive impact in the communities and is a force for social change, it qualifies as an impact investment.
When you get into the complexity associated with platform thinking, it should be clear that it makes sense only for serious, honest efforts of dedicated, motivated entrepreneurs. When startups have gone through the process of lean development and have identified strong demand for their product, they have taken the first step. As soon as they have attracted a joint venture partner with a mutually beneficial value proposition, they are one step further. Once they have revenue and a credible growth strategy, they are respectable businesses that could qualify as an investment by a fund.
Benefits of an Investment Fund
Within this investment fund, all the platform projects described in this chapter come together. The entrepreneur-in-residence program now takes place on the level of the fund. An EIR works with portfolio companies and is in contact with interesting stakeholders on the fund platform. Demo days showcase not only individual startups, but also portfolio companies and their potential projects, to attract new investors to the fund. IGOs may also take part on a larger scale; an impact investment fund is a more promising vehicle for them than an individual small project. And finally, the discussion with the financial sector takes place on equal footing. The financial community is no longer a donor but an investor.
This new model of knowledge exchange and interaction has many benefits:
· Action-oriented knowledge exchange with SMEs and multinational corporations
· Action-oriented knowledge exchange with large organizations such as IGOs, governments, NGOs, and industry organizations
· Better chance for startups to enter into equal joint ventures with companies
· Potential access to investment capital, if startups and spin-offs pass due diligence
· Being part of a bold initiative to enable research to make a bigger measurable impact
This fund would be the ideal master platform for a university to fully engage all available synergies. It could effectively channel energy into launching startups. When this happens, those startups have the power to reach escape velocity much faster.
In theory, this approach holds much promise for university startups. My personal discussions with investment bankers and private equity firms have shown that interest from the financial sector exists for such an instrument. Given that sustainable investment and impact investment are growing in importance each year, many university startups align with the goals of investors once they achieve traction in the market. These are all favorable developments that make the case that such a fund could take off.
However, in reality, setting up a fund in the current university structure would not be a cakewalk. Universities are unprepared to deal with investment capital, because they are not-for-profit entities, funded by the government. As with all entrepreneurship initiatives, many incumbents at the university would fear the changes that these new ideas bring to their doorstep. The terms “structured finance” and “financial engineering” scare and upset them, and they have no interest in working with private equity firms and investment bankers. There would be major debates about the principles necessary before a new entity within the university could start setting up the fund. The university would have to hire financial staff to put together the fund and manage its assets. Questions about liability and reputation risk would need answers. All this takes patience and time.
Of course, no university wants to be the first to launch a fund with the risk of a total loss for all investors a few years down the road. But when somebody cracks these issues and launches the first successful research-backed investment fund, it will open the door for universities to follow. They will be able to access large new sources of financing that infuse their startups with rocket fuel. Network effects will kick in. Students and researchers will realize early in their university career that a startup is an alternative. They will see that it is possible because many before them have launched startups that made an impact in the real world. Young founders will tap into the new entrepreneurial ecosystem of their university, their startup alumni networks, mentors, and platform projects. It will be a brave new world for startup entrepreneurship. Until that happens, much work is necessary.
There is a silver lining on the horizon, and universities have started to take the first steps. I wish them the courage to keep going and to realize their own entrepreneurial ambitions and those of their students and researchers.
1Alexander Haislip, Essentials of Venture Capital (Hoboken, NJ: Wiley, 2011).
2Stefan Lindegaard, The Open Innovation Revolution: Essentials, Roadblocks, and Leadership Skills (Hoboken, NJ: Wiley, 2010).
3The Mayor’s Office of Civic Innovation, Office of Mayor Edwin M. Lee, San Francisco Entrepreneurship in Residence, http://entrepreneur.sfgov.org.
4Y Combinator, Demo Day, www.ycombinator.com/demoday.
5Jessica Livingston, Founders at Work: Stories of Startups’ Early Days (Berkeley, CA: Apress, 2007).
6The United Nations, Charter of the United Nations, www.un.org/en/documents/charter.
7Asian Development Bank, Overview, www.adb.org/about/overview.
8Asian Development Bank, Strategy 2020: Working for an Asia and Pacific Free of Poverty (Manila: ADB, 2008), www.adb.org/sites/default/files/Strategy2020-print.pdf.
9Asian Development Bank, Financial Profile 2012 (Manila: ADB, 2012), www.adb.org/sites/default/files/adb-financial-profile-2012.pdf.
10Asian Development Bank, Sustainable Transport Initiative Operational Plan (Manila: ADB, 2010), www.adb.org/documents/sustainable-transport-initiative-operational-plan.
11Matt Taibbi, “The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet,” Rolling Stone; February 12, 2014, www.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212.
12Planetary Resources, www.planetaryresources.com.
13Virgin Galactic, www.virgingalactic.com.
14Jose-Maria Fernandez, Roger M. Steinl and Andrew W. Lo, “Commercializing Biomedical Research through Securitization Techniques,” Nature Biotechnology 30, no. 10 (2012).
15Jessica Freireich and Katherine Fulton, “Investing for Social & Environmental Impact,” Monitor Institute (2009), http://monitorinstitute.com/downloads/what-we-think/impact-investing/Impact_Investing.pdf.
16J.P. Morgan Global Research, Impact Investments: An Emerging Asset Class (2010), www.jpmorgan.com/directdoc/impact_investments_nov2010.pdf.
17Asian Development Bank, Strategy 2020.