University Spinoffs: Bridging the Cultural Divide

This is part of my Series on University Entrepreneurship.

 A big factor in having success spinning-out university startups is the ability to bridge the cultural gap between academia and the investment community.  I think about this divide a great deal, both as a long-time investor in this space and perhaps even moreso now that I am the director of a prominent university venture lab which spins out 10-12 new companies a year.

I was therefore delighted to recently come across this short post written by Amit Monga, Professor of Finance at the University of Alberta. He shares some excellent insights into the practice of investing in university startups courtesy of his prior experience as a venture capitalist.  Dr. Monga’s central premise is that investors want to see much more than technology when they speak with a university tech transfer office.  They are, after all, in the business of launching new companies, which require quite a bit more to succeed than the initial invention or discovery.

What really caught my eye, however, is his very first point which addresses the cultural divide to which I refer above. He points out that whereas it’s very much the custom in academia to focus on a professor’s achievements in research, (including his or her credentials, awards, honors, the number of grad students in their lab, etc.), the reality is that investors first want to hear a value proposition articulated for a potential business. Monga asserts that investors must actually have the answer to this question within the first five minutes of a pitch.

Having politely sat through quite a number of such lengthy introductions that never quite arrive at describing the “pain in the market”, I must wholeheartedly agree with Dr. Monga. In fact, I would say that this value proposition should be expressed within the first two minutes of a pitch.  If the investor is interested, there will be plenty of time to learn more about the professor’s academic achievements. 

 

I’ll go a step further on the subject of the cultural divide and say that I’ve seen instances where an investor’s motives are viewed extremely dimly by the academic. This too can be a problem.  Again, in this instance, it’s incumbent on the tech transfer folks to invite only the most reputable people into the university and to help work through any ingrained biases that might exist on either side.  For an eventual start-up to be successful, both parties will have to get along extremely well and will come to rely on each other. Start-ups are the very opposite of “arms-length” transactions.

So whether you’re an angel investor, a VC, an entrepreneur, a grad student, a post-doc or a university professor, it’s always valuable to approach university spin-offs with a great deal of cultural sensitivity and understanding.  I assure you, this sort of awareness alone can make all the difference.

 

For Part Ten in this Series, click here

Comments

[Steve Kubisen]

David makes a good point on cultural differences being one of the main hurdles in forming university spin-outs. There is a difference in values (science being prominant for the university and value proposition (providing a solution to a customer need) for the business). Another key cultural diffence is the time clock between academics and business, which can lead to frustration on both sides if not recognized and managed. Technology transfer offices can add tremendous value by translating these cultural differences and helping to define value propositions for their faculty science. Both cultures value service to the community and improving patient care. The priority of various motivations may be different, but the goal is the same.

[Earle Hager]

We have a different business model. We work with entrepreneurs worldwide under sponsored contracts. Examples include S. Korea, Mexico, India, Hungary, Chile, Poland, and other countries. Effectively, we are free to the entrepreneurs, providing training and technology evaluations services and, for a selected group, worldwide business development.

As part of a university (Ic2 Institute at UTexas), we continually work with the academics and the business folks internally and externally. Our focus on commercialization is the key strength of our program and one which runs counter to the academic evaluation of entrepreneurship. The intellectual tension - a positive one - makes for a challenging environment where both sides continually look to improve their efforts and share knowledge and ideas between the two camps.

Interesting - we work mostly in the area of licensing with larger organization or sales for companies breaking into the markets. We have been unable to attract interest from any venture groups, primarily because of geography. We have been unsuccessful in getting VCs and angels to look outside their homes.

I would be interested in discussing this further, especially if I can generate VC or angel investment in our programs.

Earle Hager
Global Commercialization Group
IC2 Institute, The University of Texas at Austin
ehager (at) @ic2.utexas.edu
ic2gcg.blogspot.com