Shooting for the Moon: How Universities Can Turn Innovation into Companies

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moon11-19-02bEditor’s note: This is a guest post by Vivek Wadhwa, an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Executive in Residence at Duke University. Follow him on Twitter at @vwadhwa.

In my last post, I explained the motherlode of innovation hidden in the huge stacks of patents and discoveries backlogged at our universities and research labs. While entrepreneurs in Silicon Valley trip over each other to create the next iPhone app, they ignore the early-stage discoveries which could lead to the next Internet,  a revolutionary memory device, or a cure for infectious diseases. Researchers in university labs find vast numbers of breakthroughs which can better the world. Most of their work never sees the light of day. Hardly 0.1% of all funded basic science research results in a commercial venture.

To boost our economy, we need to bridge this gap and improve the university research commercialization system. Many are working on solutions. Unfortunately, things change slowly in academia and those solutions are years off, at best. In the meantime, there are opportunities for ambitious entrepreneurs to do what some smart VC’s do — tap into this goldmine.

To create a guide for you, I did some brainstorming with Barry Myers, a colleague at Duke University who plays the Dr. Jekyll and Mr. Hyde roles of university professor and venture capitalist. A disclaimer on his behalf:  Barry would never tell you (unless under the influence of alcohol) to go around the university system but here is our roadmap for finding treasure.

First, pick a field which you are really interested in and spend the time to learn what the science really means. This will be like going back to school. Except you know the importance of what you are studying.

Now let’s be clear about what you are looking for. You will find many ideas in academia, but you want the “propriety ideas” – the ones which VC put in the “proprietary deal flow” category. These are inventions which no one else is aware of (and no one else is bidding on). You need to use your judgment to figure out whether you have one of these nuggets. Ask yourself: If the technology works, will its technical abilities be sufficiently better than anything in the market to make a big impact? If the answer is yes, bet on the technology and run with it. But make sure you have the exclusive. That usually means a materials or biological patent or a process patent that relates to an actual process.

Now let’s go mining. Start by knocking on the front door. All research universities have technology transfer offices which are assigned the task of commercializing research. They manage all of the patents and negotiate licensing deals. Some of these offices are really competent and will help you analyze their portfolio of discoveries. They’ll take the time to explain the value and help you shape your thinking. They will connect you with the inventors and may even team you up with other entrepreneurs and potential investors.

But that’s Fantasy Land. Unfortunately, very few tech transfer offices are like this. Most are staffed by lawyers and bureaucrats whose purpose in life is to squeeze every dime out of a potential licensor while protecting their butts just in case they asked too little and the technology makes it big.

So, you may need to get in through the back door. Universities have departments called “centers” which focus on specific areas of research including entrepreneurship and research commercialization (which are trying to fix the system). For example, at Duke, we have the Center for Research Commercialization and Entrepreneurship (which Barry runs and I am a part of), at Berkeley, Iklaq Sidhu runs the Center for Entrepreneurship & Technology, and at Stanford, Tom Byers runs the Stanford Technology Ventures Program. These centers hold regular events and maintain mailing lists – which are open to anyone. Sign up and attend a few of these meetings. The meetings which feature academics talking about their research can be extremely boring (that’s how researchers are), but just by being there, you will get to meet key faculty and learn what’s going on at the schools. And in most cases, you’ll be the only ones of your kind there (few like you have the time or intellect to sit through these).

If you do hear of some great ideas, ask the faculty if you can learn more over a cup of coffee. Most hard-core academics don’t get to tell their stories to regular human beings and are happy to talk. Go prepared – read all the articles the faculty has written and seem smart. As you start meeting university staff, start asking to find the person(s) who knows everyone at the university and can make things happen for you. You’ll find that every university has two or three people like this. Frequently they hold non-“line” administrative positions (vice dean, associate provost of research, etc.). Find them, buy them coffee and all doors are open.

Students at universities also have entrepreneurship clubs and host events like business plan competitions. The competitions are a total waste – I can’t name one real company which has ever been a winner at one of these. (Everyone cites Akamai, but they actually lost the MIT contest.) But students, particularly PhD researchers, are usually in the know about what’s happening at campus. For example, I met Eli Chait soon after I came to UC-Berkeley and he has been introducing me to faculty and other student groups who are wired into the universities research system. Eli is a senior at the school,  works part time at Alsop Louie Partners and heads the entrepreneurship group Startup @ Berkeley (startup.berkeley.edu).

When you do strike gold, then the hard part starts. Negotiating a deal with the tech transfer offices can be painful. They will ask for the world, but be aware that almost everything is negotiable. They will ask for milestone payments, royalties, upfront, patent costs. All of these are negotiable except patent costs (typically $10-50K – earlier, the lower) because this goes into a different bucket and funds further patents. Ownership demands will usually range from 0-5%, and they’ll hit you for around 2.5%-5% royalties. Late stage marketable technologies will draw 10% demand while early stage breakthroughs will only garner perhaps 1%.

If you do find worthwhile inventions, discuss licensing directly with the faculty. Faculty are open to discussion. Don’t encourage them to go around their tech transfer offices — this can create immense amounts of litigation and deferred liability risk. Be honest and open with them and they will generally be honest and open with you in return. They may be protective of their IP but that is natural. They understand the potential value of their work better than anyone else. Protect their interests and guide them through the system (the tech transfer office, term sheets, valuation, options, vesting, etc.).

Become the person who navigates this and they’ll do the world for you. But whether you succeed or fail in your mission, you’ll come out a lot smarter. If everything goes really well, you might change the world. So what do you say – do you want to launch another dumb iPhone app or shoot the moon? I thought so.

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