Two related discussion items dominated the conversation at the World Incubation Summit hosted by the DMZ incubator at Ryerson University in Toronto, Canada, and organised by data provider UBI Global – first, whether or how university-managed and affiliated incubators could become the primary development tools for entrepreneurs, and second, how the support tools for these student and faculty startups and spinouts could become more strategic for their education institutions.
Ali Amin, CEO of UBI Global, said he had founded the company five years earlier out of his own master’s degree research in order to “speak on your [university incubators] behalf” so corporations did not have to white-label independent incubators and accelerators but instead work with universities.
Discussions at the summit by university incubators indicated many still felt their mixed strategic or financial goals put them at a disadvantage compared with independent platforms, such as Techstars, RocketSpace, which raised $336m from China-based NHA two years ago, and Plug and Play.
Holger Meyer, head of research at UBI, in an opening panel at the summit claimed this insecurity was often misplaced. He said with $4.7bn invested in clients of 259 benchmarked university-linked business incubators, they had had a 59% success rate – surviving at least five years – with 72,000 employees among them. This was good news for the more than 15,000 startups being incubated at 700 universities and contrasted with the 75% failure rate for venture-backed startups, according to a Harvard Business School study by Shikhar Ghosh.
And the message is being heard by leading corporations. In a series of discussions at the summit, Diego De Biasio, CEO of Technoport, and Warrick Cramer, CEO of Tomorrow Street, founded by phone operator Vodafone, explored the later-stage opportunities between corporations and incubators, while Shaheel Hooda, entrepreneur-in-residence at Telus-TEC Accelerator, and Amir Sayegh, strategic partnerships lead at phone operator Telus, talked about early-stage support and shifting metrics in judging the success to the Canadian telco.
Sven De Cleyn, professor in entrepreneurship at University of Antwerp and program manager at Imec.istart, and Zane Smilga, innovation lab coordinator at Verhaert, then discussed the corporate-incubator relationship and the power of the community joining together to develop the entrepreneurial ecosystem.
In a presentation by “competent tyrant” Howard Tullman, former CEO at 1871 incubator, described how its work has helped the entrepreneurs, both those who make it through and those who do not by reducing their opportunity cost, and the city of Chicago.
Initiated by JB Pritzker in 2012, 1871 had started incubating 50 startups in its 50,000 square feet of space using 125 mentors. Now, it has 500 startups in 150,000 feet of space requiring about 900 mentors, of whom half are women.
Tullman, whose successor as CEO has recently been named as Betsy Ziegler, chief innovation officer at Northwestern University’s Kellogg School of Management, admitted to a 70% to 80% failure rate and said its model required critical mass and so could not be replicated everywhere. 1871 is affiliated with eight universities, most of which have dedicated spaces at the facility for students and faculty to develop businesses.
The power of such incubators for regional development is shown in 1871’s case by its member companies and alumni having raised more than $280m and created more than 8,000 jobs.
Michael Benarroch, provost and vice-president at Ryerson University, had earlier attributed part of Ryerson’s renaissance to the DMZ, which UBI had ranked number one along with UK-based SetSquared, and its other incubator areas. He said: “In eight years, DMZ has risen to be Canada’s largest commercial startup incubator with more 300 clients and $400m in funding. The DMZ has pioneered student and faculty zone learning.”
Brandon Paschal from incubation manager at Launchlabs, based in South Africa, then moderated a panel including Jairo Orozco, associate professor on entrepreneurship at Ean University, Martin Croteau, director of academic entrepreneurship at Ontario Centres of Excellence, and PKB Menon at Ginserve–Global Incubation Services in India.
Orozco explained that three of the top five city applications to the UBI awards had come from Latin America as a result of public policies developed over the past 20 years to focus on reducing poverty through entrepreneurship.
Incubators had been one path for university students to find jobs but developing an entrepreneurial culture required everyone’s support, he added.
Menon said the shift in culture could happen relatively quickly. He said Bangalore in India had been regarded as a retirement city but now had 2,500 startups using the knowledge capital developed from locals working at the 400 or so corporate research and development centres set up in the region. The Indian government had tried to encourage incubators as a source of these startups through allowing corporations to back them too. The government had mandated that 2% of corporate profits had to be used for socially and environmentally-responsible measures, and incubators were included within this bracket.
UBI’s Meyer had earlier talked about the importance of diversifying funding for university-affiliated incubators to survive longer, and Croteau and Paschal touched on their approaches. In Ontario, Canada’s most important economic province, its centres of excellence had state funding but this had challenges given changes in political governance, while in South Africa, Paschal said its Launchlabs out of Stellenbosch University had been set up to be self-funding within three years. Pashcal said this focus on being an efficient startup itself had helped it serve startups, and whether incubators took equity stakes in startups impacted their mindset and who they chose to serve. UBI estimated the average incubator received five applications for every client taken on.
The panel involving Flavio Wagner, director of the Zenit Science and Technology Park at the Federal University of Rio Grande do Sul (UFRGS) in Brazil, Chris Lumb, CEO at TEC Edmonton incubator in Canada, Kjell Håkan Närfelt, chief strategy officer at Vinnova in Sweden, Irene Fialka, CEO of Austria’s Inits incubator, and Agnès Flemal, general manager of the WSL incubator in Wallonia, Belgium, agreed context was the most important consideration in measuring success.
The UBI metrics classify absolute and relative efficiency and effectiveness, but Lumb said Canada had set up a working group to develop a framework for Canada over the next year. Närfelt said performance indicators were useful if context applied. Its measurements looked at how incubators changed behaviour by using interviews to see the kinds of companies selected and how they had performed over three years. Given the heterogeneity of startups and that entrepreneurship results are influenced by outliers rather than normal distribution curves, it can also take a long time, seven to 10 years, to see the fruits of the policies.
Fialka and Flemal then talked through their similar approaches to matching the technology readiness of a startup with the market readiness for the product or service. Flemal said: “The maturity of a project is key.”
However, most incubators in UBI’s rankings were still effectively regarded as pilots. Monash University, Australia’s largest with more than 70,000 students, set up its incubator last year to take on five clients initially. But demand for places proved so large the cohort was more than doubled. Elsewhere in Australia there have been interesting partnerships between corporations and universities. Scott Gunther, director of commercial development at IAG Firemark Ventures, the corporate venturing unit of the local insurer, referred to its “unique partnership” with Deakin University.
Simon Bond, innovation director at SetSquared, a multi-university incubator in the UK, outlined the lessons in running a successful incubator. The goals had changed since its foundation in 2002 but the key was feeding the machine – finding out what works for its five backing universities.
UK government policy had pushed academic institutions to consider the impact of their teaching and research on the wider economy, and changed funding to encourage these policies even if their funding of universities had often fallen in absolute or relative terms.
The European Universities Association Public Funding Observatory said funding to universities had been decreasing in 15 out of 28 higher education systems since 2008, and the European Commission estimated an additional €62.4bn ($77bn) would have been necessary to fund all high-quality research proposals for 2014-16 alone.
In the US, the Association of University Technology Managers found federal sources of funding to academia had fallen from 70% in the 1990s to 58% in 2016. And Japan has since 2004’s incorporation of national and public universities seen a fall in government expenditure.
While it has been more than 70 years since Myles Mace created the first entrepreneurship course at a university, Harvard Business School, in 1947, student pressure for teaching and education has increased, particularly since the global financial crisis a decade ago.
In 2009, an Organisation of Economic Cooperation and Development survey showed 43% of students were expected to be self-employed within five years of graduating. Development of proof-of-concept funding, startup clubs, accelerators and incubators, alumni and university-managed and affiliated venture funds and deeper connections between business schools and arts and science courses have deepened since then.
Gregg Bayes-Brown, marketing and communications manager at Oxford University Innovation, in a LinkedIn discussion thread, said: “45% of our spinouts are started by foreign founders, while 78% of startups in our incubator have international innovators at their core. Having the infrastructure to support those founders says we are open to people from all walks of life to come and start something here, and positions Oxford not as a university of the past, but one of the future.”
In the same thread, Chris Donegan, co-founder of Invention Capital Associates, warned: “Universities view these things as strategic priorities because they are deluded into trying to emulate Stanford. Bolt on incubators and venture hubs are largely economically pointless vanity projects or PR stunts. It is a benefit in kind for academic staff encouraged by government quango funding.”
Nevertheless, the examples of Oxford, Stanford, Massachussetts Institute of Technology and Tsinghua have shown the potential for focusing on complementing research and teaching funding with entrepreneurship as a strategic priority.
Stanford alumni have started more than 40,000 companies since engineering department head Fred Terman encouraged two students, Bill Hewlett and Dave Packard, to set up a company in their garage in the 1930s.
These 40,000-plus Stanford-educated startups now have annual revenues of more than $2.7 trillion, and while Stanford initially tried to avoid direct funding of entrepreneurs due to risks to its now-$26bn-plus endowment, instead indirectly funded them by committing to venture capital funds, this policy has changed and the university balance sheet is used to support independent but affiliated StartX, which has an effectively open chequebook. The university still benefits from philanthropy and its technology licensing office.
And as a later Stanford’s school of engineering head, John Hennessy, has said: “There are two kinds of technologies in the world. Ther is stuff that is patentable and broadly applicable and the right thing to do is to give it to the technology licensing office, Then there is stuff that is more a preliminary proof of a concept. It is not patentable, and the real value is in the people and their understanding of that technology and how it can develop into a useful product. The office’s role there is not to get in the way. That is when the right thing to do is to say: ‘Godspeed, go do it’.”
Hennessy correctly realised the value for the institution was often more to be found in its relationship with its intangible asset, the people passing through the institution, than in trying to capture the shorter-term economics from them.
In this light, a strategic threat to universities comes less from online courses, given the power of universities to deliver accreditation, but from organisations that can convene and educate groups of people and deliver long-term network effects to them.
In this light, VC or other service providers offering portfolio companies their own entrepreneurship knowledge and networking tools, whether formalised in the way True Ventures’ True University or Tim Draper’s Draper University have started to do, or others, have less formally reached the core competence that universities have offered society, faculty and students.
As Toronto mayor John Tory said at the World Incubation Summit, his city’s policies were focused on how investing in people to become smarter and expediting immigration to boost a region’s overall brainpower can act as a rising tide to lift all boats through collaboration. Universities might ask, with an emergent strategic threat being unveiled, whether they have invested enough in their own tactical asset of entrepreneurship incubation and venture funding tools and people.
