“As much as we sometimes roll our eyes at the ivory tower isolation of universities, they continue to serve as remarkable engines of innovation” – Steven Johnson
There have always been people who consider academia to be a world of its own, detached from the real world.
People’s perspective and perceptions matter indeed, and all the more so when it comes to venture investment at an early stage. But how do corporate investors really see people from academia? To gain further qualitative insight on the matter beyond the 114 survey respondents’ primarily quantitative inputs, six university liaison officers were interviewed in more detail.
These officers represented technology provider IBM, industrial conglomerate General Electric’s corporate venturing unit GE Ventures, pharmaceutical companies GlaxoSmithKline and Merck’s respective venturing units SR One and MS Ventures, Deutsche Telekom-backed accelerator Hubraum, and the Designer Accelerator, based in California, US.
Scope
When asked about the type of universities and research centres they look to – whether to source deals, invest in spin-outs, hire students or faculty – all those interviewed unanimously claimed to be generally “agnostic” and “open to new great ideas from anywhere”, within the scope of their investment strategy and geographical reach. For IBM, MS Ventures, GE Ventures and SR One there are, in principle, no geographical limits, whereas Hubraum and the Design Accelerator operate in specific regions, the former in central and eastern Europe and Israel, and the latter in Pasadena, California.
While open to ideas from anywhere, the majority of the liaison officers targeted the top-tier academic centres in their respective region or field, such as Oxford, Cambridge, Leiden, KU Leuven, Stanford, University of California Los Angeles (UCLA), Penn State, Caltech, MIT, Warsaw University of Technology, and the Weizmann Institute of Science in Israel.
So while there is a no formal pedigree barrier, being a top-tier institution helps to draw the attention of investors. Matthew Foy, partner at SR One, said VC investors were likely to go first to the “obvious” places where they would expect quality research to be carried out, while remaining open to great marketable ideas from anywhere.
But non-top-tier academic institutions would have to reach out to such investors and be prepared to convince them that their students, research and spin-outs are indeed worth attention, time and resources.
These potential investment opportunities could be very early-stage for those who invest actively. Foy said in the case of drug discovery and development, it could be as early as having an idea on paper. Edward Kliphuis, associate at MS Ventures, agreed and added the execution and business side of the project had to be covered properly beforehand.
Faisal Syud, vice-president of strategic growth programmes at GE Ventures, said: “GE Ventures has started to engage with academic centres in developing business plans and spin-outs. GE Ventures has also started working much more closely with accelerators towards generating proof of concepts together.”
Mark Goodstein, managing partner at the Design Accelerator, said he would work with anyone with a great and potentially marketable idea as it was still in an initial stage of development, adding that Design Accelerator tries to draw and grow as many opportunities as possible through coaching and mentoring, eventually to invest in the best of them.
Luka Sučić, business development manager at Hubraum in Poland, said the accelerator invested in all types of opportunities, even before a proof of concept.
James Spohrer, director of global university programmes at IBM, said early-stage investment went through the various platforms run by IBM, such as the $100,000 in seed funding provided in January to a group of student entrepreneurs from University of Texas at Austin to launch their Watson app for social and citizen services.
University evaluation criteria
Openness and willingness to adapt to the business world are the two most important factors in corporations’ university liaison officers perceiving a university as better or worse than its peers.
Foy said openness was about the spirit of collaboration being encouraged both internally and across institutions – the idea of coming together and sharing ideas. “This type of culture elicits more good ideas among scientists and investors.”
And he called on academic institutions to take a proactive approach to building bridges to industry and entrepreneurs, as they could “accelerate the academics’ thinking and guide them towards what is a good idea, as opposed to what has been just an interesting piece of science”.
Kliphuis said MS Ventures encouraged the move away from conducting research for the sake of
research, aiming more at commercialising it as a final product.
Sučić said Hubraum placed emphasis on the importance of practical orientation of universities.
“Theory is essential but, without experimenting and trying it in practice, there is a big portion of potential being lost.” Therefore, any “university that has courses, labs or puts any kind of emphasis on practical experience during studies is perceived much better” than those that were purely focused on theory.
Goodstein said good universities, such as Caltech, Stanford and UCLA, all in California, helped investors know and understand better their internal processes related to innovation.
Spohrer said there were “many ways to grow win-win relationships with IBM”. He identified six ways for higher education institutions to stand out in their relationship with IBM – research (faculty collaborations), readiness (skills on IBM platforms), recruiting (both full-time and interns), revenue (purchase of enterprise solutions from IBM), responsibility (IBM adjunct faculty and guest lectures), and regions (startups on IBM platforms). These are open to all academic institutions, from community colleges to top research universities.
Syad said: “What makes a university a better partner than its peers is its willingness to work with GE and try to develop new business models.”
He added it was better helping “to explore and discover what could be of value versus working to secure ownership even before proof of concepts”.
Common challenges – an expectation mismatch
For Kliphuis, the greatest challenge in dealing with universities related to expectations, such as unwillingness by the institutions to share the risk involved in an early-stage undertakings, lack of alignment on commitment to the startup or spin-out project, or high and unrealistic expectations in terms of subsequent financing rounds. For universities, the challenge in dealing with corporations was to find those that were, as Tom Hockaday, head of Isis Innovations, Oxford’s commercialisation unit, put it, actually “allocating resources to engage with open innovation”. For investors, there may be a discrepancy concerning the business side of developing a startup project.
Technology transfer offices (TTOs) have picked up part of the responsibility for these expectation gaps.
One of those interviewed said: “There is quite a large spectrum of tech transfer offices and they can either be perceived as facilitators or as a barrier to innovation. I have spoken to other investors who would say: ‘I will never go back to investing in a company coming out of that university no matter how great the science is.’ And some of these are top-tier names and institutions.”
Another interviewee said: “It tends to be a tough exercise to try to find something that is actually good through TTOs. And I am not sure why that is. I wish I could pinpoint it, then we could definitely change it.”
Another added: “It is hard to make a generalisation. It is more on a case-by-case basis. Some universities are really good, others are bad. There are many that are bad. Caltech is among the best. They patent everything and have a very well-functioning TTO, whose staff are all members of patent bars and PhDs. They can both speak to research scientists and understand the market at the same time.”
Internal reasons at TTOs could be a determining factor, some said. In some universities in Europe, “either the teams are too small or the people are not professional enough, so it is tough to get quality research”.
Another liaison officer attributed the issue to differences in incentives and university policies. “They have a right to the intellectual property and do not seem to think their job is to make it easy for entrepreneurs and investors. They prefer licensing technologies to large companies.”
He also points out how a TTO could be an obstacle not only for investors but also for entrepreneurs on campus. “What happens is that only big-time research professors who go to the TTO get their invention or idea patented, whereas assistant professors without tenure do not. And that is horrible.”
Part of the issue historically has been funding. In 2009, an academic paper – How are US technology transfer offices tasked and motivated: is it all about the money? – found that the Bayh-Dole Act, which allows US universities to patent federally-funded inventions, had been “an unfunded mandate on academic institutions”, as more than half the TTOs brought in less money than the costs of operating them and, on average, universities spent 0.6% of their research budgets on technology transfers.
The paper concluded the majority of TTOs were not properly tasked and motivated, with fewer than 10% of them motivated by reaping financial returns.
A 2012 paper – Keys to the kingdom, published in Nature magazine by collaborators of the Oxbridge Roundtable – said TTO issues were best tackled by being “fully informed before initiating negotiations” and attempted to provide guidelines for investors and entrepreneurs. Negotiations with TTOs, according to the paper, would often be stymied for a number of reasons, including information asymmetries in negotiations – not knowing how to set and bargain fair market terms – lack of business experience in the founding team, lack of funding, restrictive conflict-of-interest policies and lack of access to experienced legal counsel as well as drawn-out licensing processes.
But corporations are also looking beyond TTOs for talented people and their ideas.
Targeting students
Sučić said Hubraum was involved in various programmes at a junior and senior level for universities.
“At certain times we focus on junior students while they are on campus, and help them and their ideas reach a certain maturity by mentoring, or supporting in different ways, such as organising hackathons, business modelling workshops, hardware pitch trainings. Sometimes we would target post-grads and their master or PhD thesis, helping them shape it into a product, or at least concept, and help them commercialise it in one way or another.”
From the epicentre of the technology industry in Silicon Valley, California, Spohrer stressed the importance of the “cognitive sport” trend in academia. “From high school to higher education, more and more of these competitions are combining engineering, business, as well as liberal arts and social sciences into new ventures and startups.”
Such competitions and initiatives not only raise awareness among students and people in academia but, ultimately, also “encourage entrepreneurs to make a job, not just take a job”. IBM has launched two initiatives, Smarter Cities Challenge and IBM Smart Camp, to foster and promote entrepreneurship. SR One, in collaboration with the Oxbridge Roundtable and a handful of other corporations, has set up the OneStart accelerator programme targeting people under 35 with marketable ideas or startups in the field of biotechnology.
GE has sponsored the GE/NFL Head Health Challenge I and II, focused on a specific issue, brain trauma, while others are broader.
Trends in academia
Corporations’ academic liaison officers have been observing similar trends, such as increasing openness to the world of entrepreneurship and commercialising ideas in the market, taking place in universities in Europe and North America.
Kliphuis summed it up as “increasing business savviness” following growing pressure for academic institutions to reorientate their missions and make a larger and practical contribution to social and economic welfare.
The EU’s latest seven-year budget, Horizon 2020, allocates about €69bn ($77bn) to innovation, with university-business links a focus area. This follows in the footsteps of the Lisbon Agenda, established in 2000, when European leaders committed the EU to become by 2010 “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment”.
Boosting the “the knowledge society: increasing Europe’s attractiveness for researchers and scientists, making research and development (R&D) a top priority and promoting the use of information and communication technologies” was the first of five policy actions recommended by the Lisbon Agenda as its mid-term review continued to worry that “Europe faces a twin challenge from Asia and the US”.
US and other institutions of higher learning around the world are also under a similar imperative to focus on research and its development.
Foy said the “culture shift” meant there had been changes in channelling funding to academia. He said in a grant application there was a now noticeable change relative to the situation 20 years ago.
Funding had shifted “meaningfully towards research that could be of use and potentially translate into technologies that ultimately help patients”. An academic researcher with an idea that has relevance in curing a disease was more likely to receive funding than one whose idea pertained to the realm of hard or abstract science, he added.
Foy also observed an increasing willingness to collaborate across institutions and “leverage capabilities outside an academic’s own lab”, particularly in the field of drug discovery and development, facilitated by academics’ ability to reach out to their colleagues working on similar problems rather than being bound to reading hard copies of research papers.
This connectivity avoids duplication in R&D, which Foy said was important in pharmacology, “whether it is analytics, models or even access to patients”.
Industry trends
Changes in the economy affect corporations’ university liaison officers. In computer technology, Spohrer said IBM had embraced the internet of things (IoT) by setting up a foundation and would “support many startups from universities” in the area. IBM has pledged to invest more than $3bn over the next decade to establish an IoT unit.
In health, ubiquitous internet connectivity, mobile devices and wearables have been cautiously approached by drugs groups. Foy said before investing he would want to see “some early-stage adoption, for example a regional trial” rather than just an idea in an academic paper. This was because in biotech the underlying technology is protected by patents and an idea with promise could be protected, whereas electronic or mobile health – e-health and m-health – required more steps before patenting.
Similarly, Kliphuis said MS Ventures also had concerns about e-health and m-health but had already invested in one startup in the field and could make other investments in the short and m
