David B. Lerner

Dave Lerner, 3x Entrepreneur, Angel Investor, Host of Venture Studio
Entrepreneur, Angel Investor, Director of Columbia University Venture Lab, Blogger, Community Organizer, Golfer-in-Exile.

Why and How Universities Should Embrace Startup Culture

If this is your first visit you may wish to follow me on twitter, subscribe to my RSS feed or subscribe via email.

Steve jobs at stanford commencement

This is part of my ongoing Series on University Entrepreneurship.

Recently an entrepreneur/investor/blogger extraordinaire I admire by the name of Chris Dixon touched on the two general paradigms people/institutions can adopt towards one another when conducting business. He first referenced the transactional/legalistic approach wherein labor is exchanged for money in the form of a contract that is enforced by organizations, (especially the legal system). The other approach is one based on trust, verbal agreements, reputation and is "enforced" (so to speak) by the community. As Dixon points out, the world of startups is overwhelmingly governed by the trust/reputation/community approach. 

Let's just juxtapose these very different paradigms against the backdrop of the modern American university.  As we've established in earlier posts in this series, it has now become fashionable and accepted for universities and their tech transfer offices to engage in the practice of spinning-off companies based on their intellectual property and know-how. In fact, according to AUTM statistics, over 600 university startups are created every year based on federally funded R & D.

As discussed in my recent post, The Parable of the Venture Capitalist, the Entrepreneur and the Professor, one of the major complaints of the investment and entrepreneurial community is that when it comes to trying to spin companies out of universities the process is far too onerous and takes far too long. As someone who is immersed in this world, I recognize this to be a legitimate gripe in most places across the country.

The cause of course is the fact that most university administrations and tech transfer offices are steeped in the "transactional/legalistic" culture. This is not a criticism by the way, just a fact. Most university administrators place great importance and faith in the opinions and judgment of their Office of General Counsel (OGC)- and with good reason. Universities are often at the economic, cultural and educational nexus of entire cities and must protect their interests and reputation, not to mention their endowments! Remember also, that university tech transfer was only born in 1980 as a result of the Bayh-Dole Act and so this commercial activity has been newly layered over an exisiting culture in the overwhelming majority of schools.

So where does this leave us in the context of university startups/spinoffs? I am certainly not naively suggesting that the university suddenly discard all its institutional safeguards for the benefit of promoting a thriving Venture Lab.  What I am saying is that it is important for university administrators and tech transfer offices to understand that there is a great distinction between licensing intellectual property to large, existing companies ("Industry" as we say) and licensing IP (and taking equity in!) a fledgling entity that is being formed for the express purpose of commercializing that IP.

A small startup comprised sometimes by nothing more than a courageous entrepreneur, a laptop and some meager seed-money can for the most part hardly wait six months to "ink" a deal with a university. Nor is it reasonable to expect such a person to pay large up-front licensing fees, immediately reimburse patent expenses incurred long before he/she entered the picture or submit to massive and arcane paperwork. Further, as this field of university tech transfer advances it is less and less acceptable to answer every entrepreneur's suggestion with the pat "this is how we do it, sorry", response during a negotiation.

Taking our cues from the investment and entrepreneurial community is key. We have been doing this for some time in our own program with a lot of success and continue to streamline and facilitate the process. But in a general sense, here are the foundational steps I believe universities ought to take:

  • First, to create a dedicated Venture Lab/New Ventures person/group who is a seasoned entrepreneur and investor to be the point person for all the entrepreneurial/venture activities of the tech transfer office. They must absolutely come from and have the confidence and respect of the early-stage entrepreneurial community.
  • The Venture Lab must then shed as much of the "transactional/legal" paradigm we have discussed above as possible and adopt the paradigm based on trust/reputation and community. The entrepreneurial and investment community will immediately recognize this as major progress.
  • As an equity partner in various startups, the University must treat its portfolio as partners, not simply as licensees. This implies working with its partners to facilitate success and to back-end its compensation and up-side as much as possible.
  • Efforts must be made to streamline license and stock purchase agreement templates so as to speed-up and facilitate deals.
  • Deal terms must be kept both fair and simple. It's not about what you can "get" from the entrepreneur along the way, rather it's about enabling them to win in what is an exceptionally difficult endeavor. An eventual sale (or IPO of the company) should be the shared goal and nothing else.

I realize that cultural change can come slowly and that each university has its own priorities and pace. There is no blame here. I am merely saying that if universities wish to continue to be in the business of spinning-out game-changing companies such as Google, Netscape, Genentech, Lycos, Sun Microsystems and Cisco, they must be willing to steadily embrace the startup culture through these dedicated programs.

Sounds like a big change I know. So how about starting with a little hug?

 

For Part 26 in in this Series, click here

blog comments powered by Disqus

Other Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

I like the idea of a simple, standardized legal process, a la Chris Dixon's & Fred Wilson's "Ideal First Round Term Sheet." Not only would this speed up the process for startups, but it would lower the transaction fees for the university.

http://www.avc.com/a_vc/2009/08/the-ideal-first-round-term-sheet.html
http://cdixon.org/2009/08/16/ideal-first-round-funding-terms/

That said, I am dubious of this ever happening unless it becomes a priority from the top-down.

Hi David - good points and esp. one about steadily embracing ( i.e. not just knee jerks ) the startup culture through these dedicated programs.

Thanks Matt- yep, that will take a long time to get done across the country, but I think there have been some early steps towards this direction... it's beginning with shorter agreements....

yes Steve- the dedicated programs are key so long as they are staffed by entrepreneurs/investors with experience...

Nice post! I wonder if it would help for someone to have a revolving list of the leading universities that have developed this type of approach. Does AUTM or the FLC or anyone else do this? MIT, Stanford, RPI, and others come to mind perhaps.

If I were a Dean, Provost, or President then it would be a priority for my university/school to be on that list and therefore a top destination for licensees and entrepreneurs.

Mike- it's definitely on its way... more and more schools are heading in this direction (with their own nuances)... this young field of university spinoffs is evolving steadily...

The comments to this entry are closed.