(written for BDX Access by Michael Borda, Ph.D.)
Universities are increasingly looking to diversify their research portfolio to include a more significant technology commercialization component. Flat to decreasing public funding for university research and an increasing requirement for public accountability are motivating this diversification. However, how do universities best support new ventures?
More importantly, does this fit with the greater mission of the university? After all, universities are not-for- profit institutions devoted to the creation and dissemination of knowledge for the greater good of society. Universities are idea generators, but are they well placed to develop these ideas all the way to products? Are they setup to be clever investors?
Universities can provide three resources to their spinout companies that can have real impact:
3) Services – which broadly includes new venture resources, professional resources, management and commercialization guidance, etc.
Funding is critical to success and “first dollars” may be the most crucial. Seed-stage funding is often the limiting step for young ventures to cross the so-called “valley of death” to early stage outside investment. However, seed-stage funding is the highest risk, as early stage companies are typically the most volatile. This risk can be even higher for university-affiliated start-ups, as they are frequently in the most nascent stages.
Many universities are starting funds to fill this important gap, but University of Cambridge begs the question, “Does every university need its own venture fund?”. Namely, they raise the question of “income versus impact”. The author suggests that a pitfall for university-affiliated funds is the attempt to make both significant returns and deliver the university mission. Hardiman suggests, “In trying to achieve both things, however, they run the risk of doing neither one terribly well.”
Space and services are resources increasingly offered concurrently, as universities open new incubation facilities in an attempt to foster innovation and economic development. However, a study in Strategic Entrepreneurship Journal suggests, “establishing a university-affiliated incubator is followed by a reduction in the quality of university innovations”. The study also demonstrates a reduction in licensing income following the establishment of an incubation facility.
The primary reason for these unintended consequences is competition for finite resources; which technology transfer offices, other campus programs, and the new incubation facilities typically share.
The takeaway is that universities and regional ecosystems face significant and complex challenges in supporting new ventures. Together, by balancing strengths and weaknesses, these challenges can be overcome. Nevertheless, the potential pitfalls must be recognized and avoided.
Michael Borda, Ph.D. is a strategist, implementer, change agent, and connector. Currently the Director of Initiatives in Penn’s Office of the Vice Provost for Research, Borda is maximizing the impact of Penn’s investment in innovation at Pennovation Works and expanding Penn’s footprint in MedTech. At the interface between Penn and the region, Dr. Borda is hoping to create deep connections into the PHL entrepreneurial ecosystem.