As ID8 Nation has examined entrepreneurial ecosystems across the country, we’ve found a constant in each city we visit — a desire to harness the startup potential in local universities and frustration with the limited success in doing so.
Universities perform research that can be turned into companies and new technology, they also provide a steady stream of talent to fuel the local startup scene, pre- and post-graduation. But the obstacles are many.
The article below does a nice job of illustrating how universities are trying to turn research into startups.
By Ruth Simon
Wall Street Journal
Universities are stepping up efforts to create “spinouts,” or business startups born from some of the cutting-edge research of their students or faculty.
Some schools are creating funds that help cover startup costs. Others are pairing scientists with entrepreneurs, launching incubators, or programs to foster business development, and even including entrepreneurial activity in their reviews of faculty.
The moves come as universities face heightened pressure from trustees, government officials and others to demonstrate the value of academic research. Universities and other research institutions created 818 startups in fiscal 2013, up from 705 in 2012 and 670 in 2011, according to the Association of University Technology Managers, a trade group. Universities often receive a royalty or licensing fee from such ventures and in many cases an equity stake, typically 5% to 10% of the new company.
But turning research into viable companies is a challenge, particularly for institutions whose main job is education and research. Genentech Inc., Google Inc., Sun Microsystems Inc. and Yahoo Inc. are frequently cited as examples of prominent spinouts, though in some cases, the companies don’t see themselves that way.
“There aren’t that many success stories” of businesses born of university research, says Darrell West, founding director of the Center for Technology Innovation at the Brookings Institution.
University spinouts face a host of obstacles. Technologies emerging from research labs are often embryonic. Academic researchers are typically rewarded for research and publishing, not venture creation, and often have little business experience. Many universities are located far from the funding and people needed to expand companies. Finding ready markets and entrepreneurs to build these businesses are additional challenges.
“I feel like my place is in the lab,” says Alan Mickelson, an associate professor of electrical engineering at the University of Colorado, who brought on a Boulder, Colo.,-based entrepreneur to be the chief executive of a spinout based on his optical communications technology research. Mr. Michelson says building the new company, Red Cloud Communication Inc., requires skills in business and manufacturing that he doesn’t have.
Fewer than 20% of spinouts received venture funding from professional investors, according to the latest available data from the Association of University Technology Managers. However, that data ended in 2009. Because many spinouts aim to grow into large companies, “the financial resources and expertise venture firms bring to bear are critical,” says Andrew Nelson, an assistant professor of management at the University of Oregon who has studied spinouts.
Osage University Partners, a venture fund that invests in spinouts, found that 18% of spinouts had received venture funding as of Nov. 30. Another 18% secured financing from wealthy individuals known as angel investors, according to Osage, which has the right to make follow-on investments in spinouts from 70 universities and research institutions. The study examined more than 2,700 spinouts over roughly a decade from these institutions.
More universities are trying to fill the funding gap with their own money. In September, the University of Minnesota launched an early-stage venture fund to invest up to $20 million in university-related startups, with individual companies receiving up to $350,000. The University of Wisconsin System this past spring launched a $2 million seed fund to help commercialize faculty, staff and student research.
The University of California regents in September approved the creation of a venture fund that will initially invest up to $250 million in startups based on university research. The UC system is developing a business plan for the fund, which aims to provide solid investment returns and support technology commercialization and entrepreneurship, says Chief Investment Officer Jagdeep Singh Bachher.
Some universities are turning to foundations for assistance. HistoSonics Inc., a University of Michigan spinout, used a $400,000 Wallace H. Coulter Foundation grant to help prove the feasibility of its therapeutic ultrasound technology. HistoSonics, which has raised $14.2 million in venture funding, will be seeking another $20 million to move its first therapy to market and develop new products.
Among Coulter’s requirements: spinouts must identify a ready market, bring on a business expert and focus on patient care. Coulter, a Miami-based nonprofit, funds the commercialization of biomedical research at 15 universities, up from an initial nine in 2006.
Some schools are making the science they have developed more accessible to encourage more business creation. As part of its Arizona Furnace Technology Transfer Accelerator program, Arizona State University has translated 216 of its patented technologies into plain English.
That effort has resulted in the creation of nine startups, including NextPotential, which converts carbon-dioxide waste from manufacturing into natural gas. Without the program, “there is no chance I would have ever found this technology,” says Duncan Hoffman, 26 years old, a co-founder of the Scottsdale-based company, which has six employees. Arizona State plans to translate another 50 of its patents into layman’s terms by next spring, with the goal of creating five to 10 more spinouts.
Many schools are stepping up efforts to connect researchers with business experts. The University of Michigan employs eight time part-time “mentors in residence,” who assess promising technologies, help build startups and recruit entrepreneurs and funders.
The University of Colorado’s technology transfer office connected Mr. Mickelson with the Innovation Center of the Rockies and its network of 1,600 “domain expert advisers.” Tim Bour, an entrepreneur who directs the center, ultimately signed as chief executive of the new company. Mr. Mickelson says he plans to continue teaching and research, while serving as co-founder and chief technical officer.