Watercooler: Hard to Commercialize

Recently a reader sent me a follow-up email to my incubator post. He had a central question that goes to the heart of commercialization. Why are universities, who have such great research, so inefficient at commercializing it? We have thought long and hard about this very question. We have pulled technology out of well over 20 universities across the network including the University of Wisconsin, University of Chicago, University of Michigan, MIT, Stanford, Berkley, Cal Tech and the University of Texas. I believe that there are five challenges:

1) Difficulty – seed investing is the hardest kind of venture investing there is. You have a prolonged infant mortality phase where you are very vulnerable. Until your product is baked and you enjoy a ramping customer base, you are vulnerable to be being sidelined by the next New, New Thing. Unlike a cash flowing, old line company, technology spinouts walk on a tightrope and many things can wipe them from existence. Failure rates are high (over 50% for VC deals and much higher for non-VC backed efforts).

2) Visibility – not to sound like a broken record, but it is difficult to build a company if you are not sure where it needs to go or what challenges face it. Most university professors have two challenges. They are often regional isolated and they move in academic, not economic circles. It is very difficult to assess what customers want, what new start-ups are coming up or how to get access to strategic partners. Their connections and networks are great for research but lacking for business.

3) Experience base – professors have not done this before usually. The schools that do well have a number of professors who have  gone through the process and can mentor other professors and show them how it is done.  Just like VC’s are lacking in the detailed scientific matters, professors are usually very naïve about what it takes to commercialize their technology. Furthermore, they have great pride in their work and take exception to being told that it is not going to be the next Google or Cisco.

4) Ivory Tower – many professors are in universities because they are interested more in research than in business. Many universities feel that commerce often can corrupt research.   Publish or Perish is more prominent than profits. Culture plays a key role in all of this as do school policies around tenure track and promotion.

5) Applicability – the lion share of research makes much better licensing candidates than start-up fodder. It is usually very niche and addresses a very specific characteristic or component of an business product. It is more feature than company. Not knowing how to assess the difference is an issue so  lack of visibility exacerbates this.

More and more universities are addressing these challenges. They are creating more business savvy commercialization/licensing organizations. Many are also creating small commercialization teams or funds. Trying to find prosing research in a vast universities is like finding a needle in a haystack. These screeners and “guides” are very helpful in a) identifying the technology from the shadows and b) taking a first stab at packaging and prepping it.

People thinking about going into universities often have many of the same challenges. In particular, few have the national visibility, start-up experience or history battling with research cultures & professorial egos.

1) target professors who are clear thought leaders (nationally/globally renowned in their field)
2) pick a few academic segments and become very knowledgeable about them. For example, if you find LED’s interesting, identify and visit the top universities working in this field (including Asia in this case). Talk to researchers in the biggest commercial players (GE, etc). Talk to analysts, possible customers, etc.
3) pull together deep pockets. Most plays are under-capitalized and often get “crammed-down”. It takes much longer and much more money than you expect. Don’t run out of gas before the finish line. Find out how much similar plays had to raise before getting to self-sufficiency.
4) get one person, who is experienced in doing university start-ups, to run the effort day to day. You need an experienced hand at the wheel early on. This doesn’t need to be a  domain expert but rather a process one.

Good luck!

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