Sharing some founder experiences for considering your relationship with the university as a startup founder to manage your expectations and what you can get out of it.
Universities are, next to being an academic educational institute, involved in lots of fundamental research and every now and then practical applications sprouts out from that research. The institutions have become keen on utilizing these opportunities and created departments like an Office of Technology Transfer (OTT) or Innovation Labs etc from where the sprouted ideas need to find their way to society through commercialization. The main task of these departments is to discover worthy ideas, evaluate the opportunity, file their patents, and either gather and support a team to build a startup around it or try to sell/license the technology to the market. Usually, the founders of such startups are the inventors of the new technology which can be (grad) students, professors, or anything in between. Professors have often an academic mindset and invested much in their academic careers which they do not want to let go for a risky startup venture. But in the case of Bs, Ms, PhD students, or Postdocs, there is a lot of ambition to make a life’s dream come true after graduation. But for some, the DNA of a university was already not a good fit and they went on their own.
Why talk about this topic? Because many first-time founders have no idea what’s ahead of them, make better-educated choices, and plan forward to navigate the fastest scale-up path. So, let’s share some experiences around the following topics:
· Inventors and IP Ownership
· The right mindsets at the right time
· The university as a partner and shareholder
· Academic-like startup teams
· Startup office on campus
Let’s start with the intellectual property. Many first-time inventors believe that because they invented something they are automatically the owner of the IP and will be rich for the rest of their lives. That’s the first bubble to break because as employees they often signed a contract where they hand over any inventions made during work hours to their employer. So, if you make use of any object, lab, laptop or even a piece of paper of the university and the university is your employer, they have a good chance of being the owner of the invention. For students, it is a different case as they are paying clients of the university, but you will need to carefully check the policies. If your invention is possibly valid for a patent, it is also the university that will pay for the IP agents to write and file the IP. The inventors will be listed as inventors, but not as commercial owners receiving the benefits of the IP. Something to keep in mind, because now the university owns the technology and has a say about it what it wants to do with it. On the other hand, don’t forget how important you are as an inventor and founder because without you the technology can only be licensed (if there is a buyer) or they need to find a founding team who have no relationship with the technology which has a much smaller chance of success (resilience) to build a business.
From that perspective, the university will offer you a license where you will have to pay royalties and they probably want to become a shareholder. It is good to know that universities are not businesses and for that reason may not own more than a certain percentage (often 19.9%) in a commercial entity. They may ask for more, but don’t forget this is a negotiation and you can definitely push back. Without you, there is most likely no company. In the negotiation they will also offer you first right of refusal on new technologies related to yours, students, and interns, and affordable office space in their startup environment. It goes without saying that having a close relationship with the university is a good thing to have as a starting innovative company, but not as much as for the things they are trying to sell you. In my opinion, the marketing towards investors, clients and the general public where you lift on the reliability status of the university is most valuable. It will also help you with government R&D grants and often the university has an ecosystem of angels, VCs, coaches or even early adopting corporations around them scouting new technologies. It can definitely provide you a boost into the growth world of startups. Make sure you are in their positive spotlight so they will promote you as part of their success story and you can use their name for your reliability.
The relationship however has many chances of going South, and this is why. First, you have to understand the unique characteristics and different frequencies of each party to understand the underlying mismatch. A startup is a free, fast-moving, disrupting, innovative, young, flexible company with a few bloody ambitious people who want to change the world with their technology. A university is the complete opposite: an institute built upon old, traditions, long-lasting knowledge, large, slow, risk-averse, not-profit focused, image protective, and an institute for their good reasons attracts individuals who do not like the flashy business world. This is why they invented OTT’s which have people from the business world trying to make deals on licenses.
That leads to an internal clash which is immediately felt as they try to behave like a business but do not have the DNA and final decision makers to be a business. What universities do understand is the promotion and marketing of their academic brand, so if you want to make the best use of this relationship, make sure you are their flagship startup justifying the cost of their research to society.
Coming from the place of understanding the university's DNA and having them as IP owner, you now have a risk-averse partner at your table who can be a dominant shareholder and is mostly looking for his own success stories. Most important, and this is something that you might be able to influence, is to have a say in who is the representing individual. Try to find the most innovative person who has done this already a few times and knows (by their own experience) what it takes to launch a startup. As the company evolves and grows it is important that the university has an exit in some way or another. However useful they were at the technology development stages, the further you grow into a real commercial business, the less you have in common with the university's DNA and you start to speak different languages. Good to think about this university exit ahead of time and openly discuss it with them.
Being a university startup it is also important to well evaluate your founding team and partners. As mentioned before, the business world has a different frequency and you will fly into a world full of sharks while the university seemed safe and predictable (not always the case, but its perception). It is therefore important to ask the founding team if they are really up to it and if this is what they want for at least the next 5 years of their career. It is rather difficult to be a founder while you have family or mortgage responsibilities while at times you might have to wait a few months for your next salary or take even greater risks. For the inventors who need security and safety, it is better to stay in research, employed by the university, or perhaps think about a hybrid way of employment. It does require a certain personality to run a business and there are many new skills and personal developments ahead of you. Perhaps doing a pitch in front of 500 people seems like a lot of pressure, but you also have to be able to do this while you just heard you are two weeks away from unsolvability with your future, residence, and savings are at stake. University life is peaceful and startup life is survival. You can only decide this for yourself and there is nobody who can judge you for your choice. In my case, there was an OTT employee who said that I was a great researcher but could never become a CEO. I guess, I definitely proved him wrong, so let’s not go with pre-assumptions of other people. The real DNA of a good CEO lies in his character, resilience, and passion, and all the other tasks can be learned.
There is a time though when even the CEO or other founders expire to be a good fit with the company and that is also something you need to be aware of for yourself and make wise decisions. You will see this starting with employees who joined the company but at a certain point could not personally grow and evolve as much as the company did, and things become heavy and dragging. They will eventually leave (rather sooner than later) and others will join who are the best fit for the new phase of the company. This is something that will happen continuously over the lifetime of the company but is a bitter pill when you are a founder and working closely with the people you trust and build on. I will definitely come back to this in another blog.
Lastly, the university offers you “affordable” working spaces. I learned that this has become a business model of the university to rent out buildings, and I don’t always agree with it. Startups should be in environments with other startups to share the vibe, knowledge, and be each other guinea pigs, but that doesn’t mean this is always found on campus only. Their office offerings are often pricy and there are a lot of competing offerings in great buildings with other startup companies and incubator models. You really have to pick what you believe is best for your company, and your company only! It is only a no-brainer if you have a need for specialized labs (like clean rooms) which are in the building or on campus, but for the rest be wary about what and where you want to be and what works best for you.
I am sure it works differently in each region and country, and my experiences are based on the Netherlands and the US which have many things in common but also substantial differences which determine the chance of success for a company. Most importantly to keep the main ownership with the founders and give them the freedom to build their own company. The best mindset to have is what my PhD professor Dr Antonio Nanni always said to me: "When you win, we all win!"
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