Tag Archives: Universities

Two Challenges of Technology Transfer – Part 2, Get to Know Your TTO.

My second post about Technology Transfer (following the one about National Systems) is about the micro-economics of the activity. This is motivated by the very good Keys to the kingdom – subtitled What you need to know about your technology transfer office.

Before summarizing its content, let me remind you about the posts which already cover the topic so you will agree it’s not a new topic for me and I consider it as important:
– University licensing to start-ups in May 2010 (www.startup-book.com/2010/05/04/university-licensing-to-start-ups) followed by
– University licensing to start-ups (Part 2) in June 2010 (www.startup-book.com/2010/06/15/university-licensing-to-start-ups-part-2)
– How much Equity Universities take in Start-ups from IP Licensing? in November 2013 (www.startup-book.com/2013/11/05/how-much-equity-universities-take-in-start-ups-from-ip-licensing)
– Should universities get rich with their spin-offs? in June 205 (www.startup-book.com/2015/06/09/should-universities-get-rich-with-their-spin-offs)

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Co-authored by 18 people from Stanford, Oxford, Harvard, the University of California in San Francisco and the University College London, the article describes what should know people interested in getting a license on intellectual property to create a start-up. The paper begins with “As an academic […]entrepreneur, you will face many challenges” and the second paragraph follows with “In addition, you will most likely have to negotiate with your university’s technology transfer office (TTO) to license the intellectual property (IP) related to your research”.

What are these challenges related to TTO? they are written in the article in bold fonts as follows: Overcoming information asymmetries – Long negotiations – Inexperience – Lack of funding – Conflict of interest rules – Experienced legal counsel. This means that as a future entrepreneur, you should be prepared and ideally be knowledgeable about these.

The challenges

The main challenge seems to be the administrative complexity and opacity (page 1), including confidentiality of contracts, which makes it difficult for outside observers to understand fair market terms (page 1 again). In the end, they nearly conclude with: “Indeed, even for the universities for whom we have data regarding equity policies, it was often hidden deep within a jumble of legalese. To that end we encourage universities and research institutes receiving public monies to be fully transparent in their equity and royalty policies, and not use these information asymmetries as a bargaining advantage against fledgling […]entrepreneurs.”

On page 2, I note:
– A negotiation may be long (6-12 months, even 18 months) and one way to make it short is to take the proposed terms.
– A way to mitigate inexperience is by “preparing an adequate business plan or strategy for your IP before approaching your TTO” or by “bringing aboard team members with prior experience in […] commercialization to improve your team’s credibility”.
Lack of funding can be partially solved by signing “license option agreements”.
Conflict of interest rules “exist to prevent academics from playing both sides of a technology licensing deal or devoting too much time to nonacademic obligations”. Furthermore, “TTOs represent the interests of the university (not the academic), yet the academic is technically an employee of the university. “Our policy is to never negotiate directly with the faculty,” says a US-based TTO representative”.
– Experienced legal counsel is advised for assessing the quality of the IP but also because “[…]entrepreneurs often fail to appreciate the opportunity cost to the TTO in outlicensing. If a technology is licensed to an ineffective team (particularly with an exclusive license), the university forgoes any success or revenue it may have received from licensing the technology to a better organized industry partner. Moreover, universities have limited resources and manpower to protect IP, and, for this reason, prefer to license technology to teams they believe are well prepared to commercialize it.”

The equity deal terms

“Perhaps the most striking difference between the United States and United Kingdom is seen with equity deal terms. In the United Kingdom, a typical licensing deal is a rarely negotiable 50:50 split between the university and the academic […]entrepreneur, whereas US interviewees often reported universities taking a 5–10% negotiable equity share.”

You now understand why I said I was not convinced in my previous post about taking the UK as a reference. The US practice shows space for debate. You may check again my article from November 2013, where you will see that a typical deal is either 10% at creation or 5% after significant funding. Very rarely more.

Again the authors mention “US founders often do not realize that some deal terms are negotiable, including upfront fees, option payments, equity, royalty payments, milestone payments, territories covered, field of use and exclusivity versus nonexclusivity” and “In the UK, licensing deal equity terms are often perceived as being non-negotiable, though this is not always the case. In fact, many institute policies explicitly state that equity terms are negotiable.” This may however make the process lengthier.

On page 4, the authors add: “It is difficult to understand the justification of UK TTOs, such as Oxford’s Isis Innovation, taking 50% of a company’s equity at formation — which after investment can leave the academic entrepreneur with an extremely low stake from the get-go, for what was likely years of work, and will require many years and millions more to develop.” and indeed “The data would suggest that TTOs taking less upfront and leaving more to the academic and investors who will actually carry the idea forward pays off in the long term. Simply put: holding a smaller piece of something is still more valuable than a large piece of nothing.”

The mystery of royalties

“It is also worth noting that while a discussion on royalties was outside the scope of this study, it was clear from our research that many university TTOs “double dip” and take significant equity and royalty.” but again “Perhaps more disquieting than the out-sized equity and royalty stakes that universities are claiming is the lack of transparency from many universities on this critical issue.”

My conclusion: any wannabe entrepreneur should read this short 5-page paper and be prepared to negotiate. I would love as much as the authors that universities and research institutes be fully transparent in their equity and royalty policies, though I am also aware of the possibly weakened position of universities which would do so.

Two Challenges of Technology Transfer – Part 1, the National Systems.

Two documents have led me to describe two types of challenges facing the technology transfer of academic institutions.
– First, at a macro-economic level, the challenge comes from the various possible administrative structures, but also the complexity of the operations. The report Transfert et Valorisation dans le PIA (in French) by Bruno Rostand compares the national policies of Germany and the United Kingdom to that of France.
– Secondly, at the micro-economic level, the journal Nature published the article Keys to the kingdom with the subtitle, What you should know about your technology transfer office. I will come back to this in my next post.

Mise en page 1

The report of Bruno Rostand addresses the challenges that France meets after having established regional structures for technology transfer, the “SATT”. He notes that Germany has built a similar system with its “PVA” in the Länder. In both cases, there is a goal of financial independence which seems difficult to achieve if not unrealistic, despite the existence of public subsidies. In Germany, two of these companies have even filed for bankruptcy in Lower Saxony in 2006 and Berlin in 2013.

Why such difficulties? Because the returns on investment have not been up to the expectations. For example, approximately €10M euros have been invested each year in the form of public funds in Germany, but revenues remained much lower. In addition the regional structure has its limitations, as it is difficult to gain expertise in all areas of technology.

The United Kingdom has a different situation. The state has been a marginal actor and technology transfer was organized either by universities (Cambridge, Oxford, Imperial College) or by private structures close to venture capital (IP group) which organically helped in structuring technology transfer. Through externalization, these organizations have become private organizations, which have become rich in financial and human resources. At Oxford, ISIS employs 80 people for £14.5m in revenue in 2014. Imperial innovation has been publicly traded since 2006, employs 45 people and generated a profit of £27M in 2014. Imperial innovation has expanded its initial base in collaborating with other universities. Finally, the IP Group has agreements with over 15 universities for a profit of £9.5M in 2014. The report shows very different philosophies, whether public or private, with profitability as an end or not, with an obvious entrepreneurial dimension in the UK. if the focus on start-ups is important, this will lead to different structures, including maturation funds and incubators.

The report also shows that a licensing policy and a policy to support the creation of start-ups are very different. Finally, the new TT structures often have the sole responsibility of the development and maturation of IP, while research collaborations with industry remain the responsibility of universities. This separation could be a weakness when the two topics are linked.

A sensitive issue is that of exclusivity that can create tension when TT management is pooled over many universities. Some universities want to maintain some autonomy, especially in areas where the technical competence of the TT structure seems weak to them. Another sensitive issue is that of the structure by region while a transregional structure by field of expertise might be more appropriate. (The report also addresses research partnerships and international cooperation that I will not discuss here.)

In the final part, Rostand shows the complexity of the challenges. One must first define the mission of technology transfer which can be for profit or not. Externalization seems to be a trend in the three countries, but it has its advantages and disadvantages. It also seems that there is a lot of instability and fluctuations in funding cycles, which does not help to make an analysis of the transfer tools. The report also addresses the issue of human resources (types of skills and experience), another subject which may be related to the available resources of these organizations.

The only personal comment I make here is about my slight frustration at not having found in the report (which is extremely informative) an analysis of the US situation. The country of liberalism and private universities have very few external technology transfer structures, let alone for-profit. I have in mind WARF at University of Wisconsin-Madison – www.warf.org) while revenues of TT in the USA are significantly higher than in Europe. The explanation could simply come from a far more dynamic private innovation, regardless of all the systems in place.

Emerging Science and Technologies, why so many promises? (Part 4)

This is my final post about what I have learned from Sciences et technologies émergentes, pourquoi tant de promesses? (For the record here are the links to part 1, part 2 and part 3).

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The last chapters of this excellent book try to explore ways to solve the problem of excessive promises that have become a system. In Chapter IV.2, it is question of “désorcèlement” (the closest term I found would be “disenchanted”); I read it as a critical analysis of the vocabulary used by those who promise. The chapter speaks at length of the transhumanist movement, the promise of promises! “[…] Describe how these actors certainly produce, but especially divert away, reconfigure and amplify these promises […] in front of passive and naive consumers.” [Page 261] and later “[but] transhumanists are first activists, mostly neither engineers nor practitioners […] attempting answers to questions not asked or badly expressed, […] hence a really caricatural corpus,” to the point of talking about a “cult” (quoting Jean-Pierre Dupuy), “a muddled, often questionable thinking.” [Page 262]

In Chapter IV.3, the authors explore unconventional approaches, a possible sign of disarray to “scientifically” react to the promises. For example, they have contributed to the creation of a comic book to answer another comic which wanted to popularize and promote synthetic biology.

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The final chapter explores scenarios that may follow the explosion of promises, like the idea of ​​increasing the number of Nobel Prize. New promises?!! More concretely, the author shows that the initial promises are not followed in practice: “The wait & see phenomenon in investment, or lack of innovation, is less known, though widespread: the effect of general and diffuse promises maintains the interest of players but too much uncertainty holds back investment in cycles of concrete promises-requirements.” [Page 297] “A game is at work which continues as long as the players follow the rules, […] they are prisoners of the game. […] They may also leave it if the right circumstances occur and then the game collapses.” [Page 298]

In conclusion, beyond a very rich description of many examples of scientific and technical promises, the authors have shown how a system of promises was built through interactions between the various stakeholders (the researchers themselves, the (political, social and economic) decision makers who fund them, and the general public which hopes and feels anxiety). The relationship to time, not only the future but also the present and the past, is beautifully described, in addition to a desire for eternity. And finally, we mostly discover that the promises have led to numerous debates that were perhaps, if not entirely, useless, as we could have known that the promises can not be kept, even from the moment they were created…

Emerging Science and Technologies, why so many promises? (Part 3)

This is my third article about the book Sciences et technologies émergentes, pourquoi tant de promesses? After the general considerations on the system of promises, the book presents contributions describing specific areas:

I.3: nanotechnologies
II.1: semiconductors through Moore’s Law
II.2: big ata
II.3: digital Humanities
III.1: neurosciences and psychiatry
III.2: The Human Brain Project (HBP)
III.3: personalized medicine
III.4: biodiversity and nanomedicine
IV.1: assisted reproduction
IV.2: regenerative medicine

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Each chapter is interesting for the curious reader as it shows the dynamics between promises and expectations of stakeholders (researchers, politicy makers, general public). The chapter about the HBP is particularly interesting in the description of the disconnection between content and form. “How was it possible that the HBP “won the competition” despite the lack of evidence to establish pragmatically the scientific relevance and the legitimacy of its ambitious organizational goals? We develop the hypothesis that this deficit, criticized afterwards, was both hidden and compensated by the production of promises shaped to anticipate and / or respond effectively to the political, economic, social and health-realted stakes on the agenda of the “challenges to come”. [Page 166] The credibility of the HBP sealed by this decision has been built […] following an adaptation process and reciprocal validations in the double register of the politicization of science and the scientification of politics. In other words, we show that one of the important conditions of this credibility was the successful co-production of a strategic congruence between [scientific] promises and the agenda of policy issues. [Page 171] The connection between knowledge of the brain and forms of social life took place mainly in the domain of discourse. […] In this contrasting situation, discursive inflation around the brain and neuroscience seems to be the consequence of a lack of evidence, as if it had overcome, positively or negatively, the differences between the present and the future, the proven and the possible, the absence and the desire. This regular feature of big science projects has resulted in the development and implementation of a prophetic rhetoric that seeks to anticipate the possibility of a better future by borrowing to the notions of hope and promise.” [Page 176-77]

I come back to a quote from chapter 3 that is essential to me as a conclusion to this new post: The real progress of techno-science will less come from their ability to keep promises than from their ability to do without them, to inherit critically from the era of great technological promise. This is not to break an idol, but to learn how to inherit. [Page 111]

Emerging Science and Technologies, why so many promises? (Part 2)

(A word of caution: my English is reaching its limits in trying to analyze a demanding book, written in French. I apologize in advance for the very awkward wording…)

So just one day after my article describing Chapter 1 of Emerging Science and Technologies, why so many promises?, here comes an analysis of the second chapter, where the relation to time is analyzed, as well as presentism, futurism and the role of time in the promise system. There is the nice following passage:

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Since The New Atlantis, futuristic speculations have accompanied the development of modern science. And in the twentieth century, Jean Perrin has sealed a new alliance between science and hope. But for him, it is science that preceded and provoked hope while now, it is rather hope that drives research. Technosciences reverse, in fact, the order of the questions that was following the three critiques of Kant: “What can I know?” – the issue addressed in Critique of Pure Reason – then the question “What can I do?” – treated in the Critique of Practical Reason – finally the question “What can I expect?” – discussed in the Critique of Judgment. In contrast, in the current scientific policies, one determines what to do and what we can possibly acquire as knowledge by identifying the hopes and promises. (Page 50)

Yet there is a paradox already expressed in the first chapter between futurism with the terms of promise, foresight and prophecy that project us and presentism particularly marked by the memory that freezes the past and transforms the future as a threat that no longer enlightens neither the past nor the present. To the point of talking about a future presentification…

The chapter also deals with the question of the future as a shock, a time “crisis” due to the acceleration. To the feeling of the misunderstanding and helplessness, is added the experience of frustration and stress caused by the accelerated pace of life, the disappointment of a promise related to modernity, where techniques were supposed to save time, to emancipate.

Another confusion: the features of planning and roadmap which are typical of technology projects slipped into research projects where is used the term of production of knowledge, while in research, it is impossible to guarantee a result. But the author shows through two examples, that this development is complex.

In the case of nanotechnology, there has been roadmap with the first two relatively predictable stages of component production followed by a third stage on more speculative systems crowned by a fourth stage which speaks of emergence, and all this by also “neglecting contingency, serendipity and possible bifurcations,” not to predict, but to “linearize the knowledge production”. The roadmap predicts the unexpected by announcing an emergence, combining a reassuring scenario of control which helps in inspiring confidence and with at the same time an emerging scenario, to create dreams. (Pages 55-56)

In the case of synthetic biology “despite a clear convergence with nanotechnology,” the rapid development occurs without any roadmap. “A common intention – the design of the living – gathers these research paths.” And it is more to redo the past (“3.6 billion years of genetic code”) than to imagine the future. The future becomes abstract and it comes as proofs of concept. And the author adds that in normal science in the sense of Kuhn, these proofs of concepts would have fallen into oblivion. The paradox is that there is no question of right or wrong, but of designing without any needed functionality.

In the first case, “prediction or forecasting are convened as the indispensable basis for a strategy based on rational choice”, “the future looks to the present. “In the second case, there is the question of “towing the present” and “fleeing out of time.” We unite and mobilize without any necessary aim. The future is virtual, abstract, and devoid of culture and humanity; the life of the augmented human looks more like eternal rest …

Ultimately, the economy of promises remains riveted on the present either by making the future a reference point to guide action in the present, or it is seeking to perpetuate the present.

Chapters three and four are less theoretical, describing on one hand new examples in the field of nanotechnology and on the other, how Moore’s Law became a law when it was initially a prospective vision of progress in semiconductor. Perhaps soon a follow-up about the next chapters…

Emerging Science and Technologies, why so many promises? (Part 1)

Sciences et technologies émergentes, pourquoi tant de promesses? (Emerging Science and Technologies, why so many promises?) is the title of a book (in French only) from a group of authors under the direction of Marc Audétat, a political scientist and researcher at the Sciences -Society Interface of the University of Lausanne. This is not an easy reading book, it is quite demanding, but it raises important questions.

I have already reported on this blog about books that speak of a certain crisis of science, for example in The Crisis and the American model (in French), about the books “La Science à bout de Souffle” or “The University bubble. Should we pursue the American dream?” or in The Trouble With…, a book by Lee Smolin, not to mention the most violent criticism of the promises of technology by Peter Thiel in Technology = Salvation.

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This new book explores the promises related to science and technology to the point of talking about an economy of promises. This is a collective work which does not make it an easy reading, but the diversity of points of views is certainly an asset. I have not finished reading it and I will certainly come back to it. In the first chapter, P.-B. Joly describes the system of techno-scientific promises. He begins by introducing the concepts of Imaginary and Vision [Page 33] This “couple of concepts takes into account how various sources of inspiration are involved in the technical creation. […] The Imaginary gives an almost tangible appearance to concepts and ideals that are a priori devoid of it … [and becomes] a common sense that founds the action into society. […] The concept of Vision is close to that of Imaginary, but on a smaller scale. It is akin to that of “rational myth” used to analyze the dynamics of collective action in changing contexts. […] Coalitions of actors form around these visions of a prospective order and contribute to their dynamics. […] If we accept this conceptual distinction between Imaginaries (at large scales – the Nation – and in the long term) and Visions (at a level of coalitions of actors and active over periods of medium length) then comes the question of the interaction between the two.”

“Unlike Visions and Imaginaries, for which the content of technical arrangements is essential, what is essential for the techno-scientific promises is the creation of a relation, as well as a time horizon of expectations. […] Promises are essential in technology creation, because they enable innovators to legitimize their projects, to mobilize resources and to stabilize their environment. […] Any techno-scientific promise must convince a large audience that it determines a better future than the alternatives, even if the realization of the promise requires major, sometimes painful changes.” (The author mentions the history of electricity or the green revolution as the solution to world hunger)

“Our concept of techno-scientific promises has been systematized and became in the last forty years the governance of the new techno-sciences (biotechnology and genomics, nanotechnology, neuroscience, synthetic biology, geo -engineering, etc.) The construction of a techno-scientific promise meets two conflicting constraints: the constraint Radical Novelty and that of Credibility. […] (And I interpret that) for this request to be credible, one must disqualify alternatives. [Furthermore] For a scientific theory to be credible, its validity is neither necessary nor sufficient. […] The techno-scientific promises must have the support of a circle of specialists. Otherwise, they cannot resist the opposition manifested either in scientific arenas, or in public arenas. An extreme version is observed when the specialists refer to natural laws to justify the inevitability of technological change. (Examples are Moore’s Law and Gabor’s Law.) Thus, in principle, generic promises are not subject to validity tests.”

Finally, this intensification is reinforced by three complementary elements [page 39]:
– the future is more a threat than a source of hope;
– research and innovation are often presented as the only way to solve problems;
– the research stakeholders should demonstrate their societal impacts.

This leads to pathologies [pages 40-43]:
– the myth of a public victim of irrational fears and to be educated becomes an intangible scheme;
– the promises turn into bubbles;
– the radical novelty and uncertainty create conflicting discourses, sources of mistrust because the effects of such radicalism is not predictable so that through experimentation, the technologists become sorcerer’s apprentices and society, a laboratory;
– finally promises lead to endless discussions on fictions, on issues that may have nothing to do with the reality of research.

In conclusion Joly thinks this promises system is one of the enemies of the future because of the clear separation it creates between those who make the promise and those who are supposed to accept it. The recognition of this regime and therefore these problems is a prerequisite imperative.

After reading the first chapter, I remembered the societal concerns of Cynthia Fleury, about whom I have already said a few things in a digression in the article On France Culture, Transhumanism is Science Fiction. Our democratic societies are in crisis, and the distrust of politics as well as of experts has never been stronger. The issue of research and innovation is a component of this crisis. I am eager to discover the rest of this very interesting (and important) work …

How can we foster student entrepreneurship?

I was in Eindhoven today for the great EVP program (20 young entrepreneurs from 4 European technical universities spent two weeks on four campuses developing their projects). I had two inspiring moments: 1st the mayor of Eindhoven had a great speech about the importance of innovation and entrepreneurship. 2nd we had a meeting of 20+ people debating about how to foster entrepreneurship in universities.

Eindhoven’s efforts for entrepreneurship and innovation

The mayor of Eindhoven, Rob van Gijzel, explained that Philips had been nearly everything for Eindhoven for decades (jobs of course, schools, hospitals, PSV…) but a lot of the jobs have been delocalized, and Philips has struggled. He mentioned that the life expectancy of Fortune 1000 companies has gone from 70 years to 12 years (these are notes so I may be wrong with my recollection of facts, but the spirit was it) and the life expectancy of a product is 2 years.

So as a mayor, it is his mission to think about the future, not the present only. Eindhoven still strives because it has NXP and ASML (Spin-off from Philips), because they have the largest Samsung R&D center outside of Korea, and an antenna of the Singularity University. Rob van Gijzel unusually knows a lot about technology for a politician! Maybe it’s because it is Eindhoven… and Eindhoven is putting a lot of energy and money in universities, accelerators, start-ups and the unique high-tech campus Eindhoven (www.hightechcampus.com) which hopefully will create a lot of high value jobs. Big established companies, SMES, start-ups and universities seem to work together in the same direction. I am sure it is not perfect, but the effort is impressive!

Eurotech about Entrepreneurship

My second moment of inspiration was during a meeting of Eurotech about entrepreneurship. For once, it was not about the usual start-ups vs. SMEs, fast growth vs. controlled growth, but we had a great discussion about how to really help students interested in start-ups, about what is important, exposure to or teaching of entrepreneurship,

Just a few notes:

“early on you find inspiration, you are interested and you go where the crazy people are” … “it was the thing to do” …“I was an entrepreneur because my mother pushed me to be responsible and independent, then I tried, and failed twice, and then succeeded once”.

It is a long term effort, you teach, you expose, you inspire, and “you infect them with the virus” with possibly a long incubation. But should we do it early or late, compulsory or elective, filter the good entrepreneurs or expose/teach everyone…

“You need to teach entrepreneurship outside of the class…”

So you need a friendly ecosystem, where the university has its role (unclear which exactly, but it has one!) “Young entrepreneurs should know they do not need to pay for lawyers, they need to find friends who are lawyers, or who have a legal expertise.” You need to break the barriers, help people meet and find the people they need, also break the regional barriers because regional support focuses on local development, which is not necessarily the best friend of an entrepreneur who needs to think globally. Ecosystems have to be open, people need to travel, where the talent and money are

So we agreed there was not a general agreement on the strategic way of fostering entrepreneurship…though it is very important…

Should universities get rich with their spin-offs?

The issue is discussed in the June 2015 issue of Horizons, the research magazine of the Swiss National Science Foundation, to which I was asked to participate.

Dozens of startups are launched every year in Switzerland to commercialize the results scientific research funded in large part by the State. Should universities that have supported them become rich in case of commercial success?

Yes, says the politician Jean-François Steiert.
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Over the last twenty years, about a thousand companies, mostly small, contributed to the success of Switzerland. The majority of them are successful, although investors, inclined to take risks, are rare in Switzerland as compared for example to the United States. Most of the time the spin-offs are supported by taxpayer money, in terms of infrastructure, social networks, scholarships or coaching services. The objective of this kind of public investment is primarily to encourage employment and research.

With the support from public funds, these innovations generate through sales or patents significant benefits in the order of tens or hundreds of millions of francs. The public, as an investor, must be able to require a portion of those profits. Not to allow the State or the universities to get rich, but to reinvest these funds in fostering the next generation of researchers.

At a time when the Confederation and the cantons implement programs of savings due to exaggerated tax cuts, additional funds must be generated in this way and support young researchers in the economic development of their innovations.

“The public, as an investor, must be able to require a portion of the profit.” Jean-François Steiert

When the sale of patents is concerned, it is not a question of aiming for the maximum return, nor of making profits with a unique key. Universities need flexibility to optimize the return. On the one hand, we need the creation and management of start-ups to remain attractive. On the other, one must reinvest adequately in the next generation of researchers.

What is lacking today is transparency. If universities want to maintain the confidence of the taxpayer, they must declare how much money is generated by their successful startups. This information, they owe it to the taxpayer who, rightly, wants to know if her money is well invested in research, a key area for Switzerland.

Jean-François Steiert (PS) is a member of the National Council since 2007 and member of the Commission for Science, Education and Culture.

No replies Hervé Lebret, manager of an EPFL investment fund.
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When Marc Andreessen launched Netscape in 1993, one of the first Web browsers, the 22-year old American chose to start from scratch rather than sign a license with the University of Illinois, the conditions of which he considered abusive. Instead, Stanford University had less tensed relations with the founders of Google, taking a modest 2% stake (which become $336 million six years later at the company IPO). The same university asked nothing to Yahoo! as it considered that the founders had developed the web ite on their spare time. A few years later, one of the founders of Yahoo! made a gift of $ 70 million to Stanford – whereas Andreessen does not want to hear anything about his alma mater.

These examples show how the relationships between universities and corporations can worsen when they do not share the same perception of the value of a knowledge transfer. The latter is often free when it comes to education; but when it comes to entrepreneurship, the overwhelming majority of people think it should not be. Nevertheless, an indirect return already exists: first in the form of taxes and, more importantly, through the hundreds of thousands of jobs created by start-ups. Their value is ultimately much higher than the tens of millions of dollars reported each year by the best American universities from their licenses.

“Abusive conditions can discourage the entrepreneur even before she starts.” Hervé Lebret

How then to define a fair retribution for universities? The subject is sensitive, but poorly understood, partly because of a lack of transparency from the different actors. In 2013, I published an analysis of the terms of public licenses from thirty startups [1]. It shows that universities hold on average a 10% equity stake at the creation of the start-up, which is diluted to 1-2% after the first financing rounds.

It is impossible to know in advance the commercial potential of a technology. We must first ensure that it is not penalized by excessive license terms. Abusive conditions can discourage the entrepreneur even before she starts and discourage investors. And thus kill the goose in the bud.

[1] http://bit.ly/lebrstart

Hervé Lebret is a member of the Vice President for Innovation and Technology Transfer at EPFL and manager of the Innogrants, an innovation fund from EPFL in Lausanne.

Jacques Lewiner about Innovation

I had the chance to meet this afternoon Jacques Lewiner, the renowned French professor and entrepreneur, who has contributed a lot in making ESPCI a completely atypical engineering school in the French landscape. This is probably the school that “innovates” the most, especially through its spin-offs.

Lewiner-at-ESPCI

No need to tell you much about the meeting because all his messages can be found in an excellent interview he gave to the newspaper Le Monde last November entitled “In France, there is a huge potential for innovation.” The article is online (and for a fee – it seems) but there is also a pdf document available, both in French. Allow me then to provide my translation below. His philosophy is simple: encourage and encourage again, with a lot of flexibility; in particular, we must strongly encourage entrepreneurship with Silicon Valley, Boston and Israel as models.

An anecdote before I let you read the interview: he enjoyed reminded me several times that his vision did not make him only friends, as he thought the proximity to the industry and flexibility are essential. But he told me he was the successor of a famous lineage with a similar philosophy: Paul Langevin was a renowned scientist, inventor and author of patents on sonar and… a communist. ESPCI was founded by engineers concerned about the weakness of France and its universities in chemistry after the loss of Alsace and Lorraine in 1870. The Protestant culture of its founders facilitated perhaps closer links between academia and industry. (See History of the Graduate School of Industrial Physics and Chemistry of the City of Paris in French again.)

“In France, there is a huge innovation potential”

For the researcher and entrepreneur Jacques Lewiner, we must fight the idea that research does not support the creation of wealth. Jacques Lewiner is Honorary Scientific Director of ESPCI ParisTech engineering school. This former researcher with “a thousand patents” (taking into account the many countries where patents have been filed) is also the head of the Georges Charpak ESPCI endowment intended to help researchers to put their ideas into practice. He is also the Dean of the valorization at Paris Sciences and Letters (PSL), a new entity bringing together several academic institutions. In addition to his research career, he created or co-founded many companies, including Inventel (Internet box manufacturer) Finsecur (fire safety) Cytoo (cell analysis) and Fluigent (fluid management).

What do you mean by innovation? This is what transforms the knowledge acquired – through study, imagination, research … – into a product, a process, a new service. Among this knowledge, those from the research have a very strong leverage. But innovation does not necessarily give a Nobel Prize. And conversely, intellectually beautiful ideas can be of no industrial interest! For example, I was convinced of the value of the piezoelectric plastic materials for which a voltage appears when distorted. I have filed patents and thought that these devices would be used everywhere. It was more than twenty years ago and it is still not the case. Only a few car seats have been able to detect thanks to them the presence of a passenger … In fact, often, the ingredients of an innovation are already around, but it lacks someone to put them together. When we designed the first Internet box with Eric Carreel, creating Inventel, there was no rocket science. We just had the idea of putting in one device a modem, a router, a firewall, a radio interface… It was also very difficult to convince operators of the interest of such a device but, fortunately for us, Free arrived and opened the market.

You did not always meet with success, as shown in the adventure of the first e-book, available from Cytale who filed for bankruptcy in 2002. What lessons did you learn from these failures? By definition, innovation means taking risks. Nothing is taken for granted. In case of failure, we must analyze the reasons and win an experience that others do not. It is enriching. I also remember very well my first failure. I was convinced to have found new properties of “electrets”, the electricity equivalent of what the magnets are in magnetism. I finally realized that they were already known for over a century. However, they could enable the design of new sensors, especially microphones. I tried to convince large corporations by contacting their research center, and not their business units. It was a mistake. These laboratories had obviously no interest in defending an invention that they had not made! I then had the chance to meet a remarkable entrepreneur, Paul Bouyer, with whom I could create my own business. The future was opened to us, but I did in record time all possible errors. I wanted to do everything myself, without understanding the importance of team work. The adventure lasted a year …

Where is France in terms of innovation? It has a huge potential. People are well trained and research is of quality. The basic culture is in place. But there are too many barriers between scientific discovery and the application that will appeal to the market. Our system blocks initiatives. We must simplify French law and do away with some nonsense.

Which ones? Before the 1999 Allegre law, a researcher could not even get into a board! That changed but nonsense persists. Today, it is very difficult for a researcher to become a consultant, the authorization may be received at the end of a very long time, sometimes a year, and, in addition, it has to be out of its filed of competence! Fortunately, some resourceful people manage to get by, but it is an obstacle for most. A ESPCI ParisTech, to help our researchers, we have created an endowment fund. We make strong efforts to answer within two weeks to a researcher who claims an invention. In some institutions, this response may take from six months to eighteen months! Such a delay is likely to delay the scientific publication of the researcher. One could imagine a rule that states that beyond two months no response means agreement.

Are patents necessary? Yes, they are useful in two ways. On the one hand, they avoid if successful innovation is copied and, secondly, they secure investors at a fundraiser. But patents can sometimes be like mirages. CNRS has long received many patent royalties from Pierre Potier’s antitumor drugs Taxotere and Vinorelbine. But when the public domain, these patents do not bring any revenue. [In 2008, they accounted for 90% of CNRS royalties]. To create wealth from research, we must also encourage the creation of innovative companies. At ESPCI ParisTech, we help in patenting but also in the creation of start-ups, by granting them very favorable terms in exchange for 5% of their capital. It is a model of operation similar to that of Stanford University [in California], which portfolio of ownership in start-ups (like Google) represents more income than from patents. Some universities charge a 10% to 25% ownership in start-ups, and further require the repayment of loans. It is far too greedy and discouraging for researchers. A few years ago, the Ecole Centrale estimated that its start-ups had generated a ten-year cumulative revenue of € 96 million. For ESPCI ParisTech, over the same period, it was 1.4 billion. And for the Technion Institute in Israel, it was 13 billion in 2013. Do not tell me you cannot do the same in France!

Maybe is it a question of culture. Can we change it? One should not oppose research and creation of economic activity. But it is true that in France sometimes persists the idea that researchers should not benefit financially from their work. However, it is not shocking that good research also creates economic wealth. We must create a favorable ground leaving the most possible freedom for researchers. We can also improve the training of researchers and engineers. Stanford University and the Technion are also models here. The former, with its Biodesign Center, promotes the mixing of cultures between physicists, chemists, medical doctors, biologists, computer scientists… As part of their curriculum, students are required to file a patent, or even start a business! At PSL, we have created with this in mind a new curriculum, the Institute of Technology and Innovation, in which research and innovation are mixed.

Many economists are pinning their hopes on the digital world to boost growth. What about you? Of course, the digital world will have its place in the future as it will be used in all activities. Sometimes we assimilate the digital technologies and the Internet start-ups. The latter sometimes have phenomenal success, sometimes ephemeral. Many fail. The area that can benefit directly from the research is the industrial sector, creating jobs and activities. Have we reached the peak of development and innovations? Certainly not. On the contrary, a new world is opening for the next generations at the confluence of chemistry, physics, biology, electronics and information technology. All this will continue to result in improved quality of life. Let’s not put artificial obstacles on this path and therefore be optimistic about the results that will follow.

Interview by David Larousserie
Le Monde, November 23, 2014.

Founding Angels

I was interviewed last Thursday by Martin Würmseher, a PhD student at ETHZ working on the concept of Founding Angels [0]. “Founding Angels help bridge the so-called gap, which exists between academic research and the commercialisation of the new technologies. Together with inventors, they found start-up companies to further develop the research and commercialise the results. The Founding Angels business model is similar to that of Business Angels, but the operational and financial support of Founding Angels begins before the actual founding of the start-up and, as a member of the founding/management team, continues in the founding and building up of the new start-up company.”

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Martin sent me yesterday the transcript of the interview and I liked it very much. Martin authorized me to publish it so here it is!


Interview: 16.01.2014, 11:00-11:45, Skype Call
 
WM: OK let’s start with your professional activities at the Technology Transfer Office for EPFL  – if you can just describe your activities?  #00:00:16-6#
 
HLE: OK, so I am not at the Technology Transfer Office, I am the Vice President for Innovation and TechTransfer. The TTO, the Technology Transfer Office, is one of the units and they manage patent applications, licenses or also research contracts. I am managing another unit called “The Innogrants“, which is also part of the same Vice-Presidency and I am also supporting entrepreneurs. I can give them grants for one year, similar to the PioneerGrants at ETH Zurich that Professor Siegwart I think put in place. Innogrants also organizes conferences called “Venture Ideas” with Venture Lab where I invite entrepreneurs. And I try to support entrepreneurs in ANY [!] manner which they need.  #00:01:01-9#
 
And for your information, before being at EPFL, I was in venture capital with IndexVentures in Geneva. So I have been in the start-up world for many, many years. And before being at IndexVentures I was a researcher in applied mathematics. So my background is technologies and venture capital and now I support entrepreneurs.  #00:01:21-7#
 
WM: OK, so for how many years did you work for a venture capital firm?  #00:01:23-5#
 
HLE: Six years, from 1997 to 2003, and I have been with EPFL since 2004.  #00:01:31-2#
 
WM: OK, then it’s a quite senior position now… and experienced person.  #00:01:39-1#
 
HLE: “Senior” I’m not sure but “experienced” for sure!  #00:01:41-5#
 
WM: In which stage do the people come to you?  #00:01:51-8#
 
HLE: Usually they come because they have an idea and they most often come when they are finishing their Ph.D. and they are thinking: “Maybe I have something that COULD [!] have a commercial interest, I would like to work on the idea.” So I give them the opportunity to work on that idea for ONE [!] year, an Innogrant is a one year salary, but it’s open to any students at EPFL. So a Bachelor or Master student could come and I could fund them, too. And I can even fund people outside from EPFL, coming with an idea and then they would be employed at EPFL for a year. But it’s mostly Ph.D. students, statistically it’s for 80% Ph.D. students and then maybe 10% engineers from the outside with an idea  – in terms of the people I fund.  #00:02:39-8#
 
WM: But from all academic fields or are you just focused on Life Science or….?  #00:02:46-5#
 
HLE: No, all technology fields.  #00:02:48-6#
 
WM: And how many people are there coming [to you] per year?   #00:02:52-2#
 
HLE: So in fact, so if you are interested in the details… – but there is a page on the Innogrants and there are documents that you can download –  but basically I have about 60-70 people coming to me and I give about 5 to 10 grants  – eight; 10 Grants in the good years, 5 grants in the poor years.  #00:03:17-1#
 
WM: My primary focus is on spin-off / start-up companies: How many start-up companies are emerging from EPFL per year?  #00:03:27-1#
 
HLE: So EPFL creates about…  -usually said-  one start-up per month, so it’s about 12-15 start-ups per year. In the good year it were 20 in the bad year it were 5. Again these numbers you could find on the same document I was mentioning. In fact I am always comparing with ETH Zurich, which always has about twice the number of start-ups we have, they have about 20-24, we are more in the range of 12-15.  #00:03:55-2#
 
WM: Can you please send me the link to the document.  #00:04:00-2#
 
HLE: Yeah, in fact I will send you the link to both, the webpage of the Innogrants and then the PDF-document. […] [sending; see eMails] [..]  #00:05:16-3#
 
WM: And what are in your eyes the main challenges of the young people to create their own start-up company?  #00:05:26-9#
 
HLE: So there are many, many challenges. Let’s try… I wrote a book on start-ups in 2007 and I have a blog, which is called “Start-up book” and you can have a link about it. In fact, yesterday I put on my blog a very long article about the reasons why European start-ups’ failures compared to the American ones. OK, I think the MAIN [!] challenges, the MAIN [!] challenges and people are not aware of that is the fact that in Europe we don’t have an entrepreneurial culture. The culture in the US or in Israel is so developed, it’s much easier for a young guy with no experience to develop something just because he has around him people who know how to do it. So the main challenge is a) about culture… – and we can have debates, but that’s my point. Then there are two more, let’s say, tangible challenges, which is the lack of experience and the lack of financial resources. People don’t know how to build a company because they don’t have the business or just poor product development expertise. So they need to be surrounded with people who can help them because there are maybe GREAT [!] ideas, but no experience and they lack the financial resources. So what is missing is really: Talent and Money.  #00:07:12-4#
 
That’s what I would say: So first culture, then the amount of money. And when I’m saying “culture”, you know the fear of failing, the risk-taking mentality which is…  all these elements. But I can send you this in writing if you want. But then it’s really talent and money.  #00:07:29-6#
 
WM: OK, that was exactly the next question: what do you understand by “culture”? But…  #00:07:37-7#
 
HLE: Well let me send you the link to the article I wrote, in fact I wrote it, to be honest,  in 2012… – never published it because it was a kind of working document with a colleague and finally I published it yesterday, so it was a kind of accident. And then you will see what I mean by “culture”, so the 2nd eMail that you will receive in a few seconds [see eMail]. But it would be a very long discussion about culture. But it’s really what I called: “Fear of failing”, “Risk taking attitude”, which is basically: it’s better working for Credit Suisse or ABB or Nestlé because you can have a solid career versus going to a start-up where your parents and your friends will tell you: “Are you crazy??! This is really a bad choice to making your life!” Whereas in Silicon Valley, I studied there for 2 years, most of the engineers are thinking: “Well should I do a start-up first because if I don’t do it now, then I will never do it?!!” So it’s what I called “culture”.  #00:09:04-8#
 
WM: OK, I think I understand it. And with regard to the Professors: Are they usually involved or they pushing, or what is their…?  #00:09:14-4#
 
HLE: Well it depends: It’s very interesting, there is one Professor who is very friendly with start-ups and in his lab, there have been 13 start-ups which have been created. Thirteen… – well it’s probably now 15 but I think it was 13 last year and among them you have very successful ones. His name is Philippe Renaud  [1] , it’s in micro technologies and he is very friendly with entrepreneurs. There are also Professors, they just don’t care, it’s not that they are against, but they don’t care. They are focused on their academic career, publishing papers, teaching… – and they don’t think that’s in their mission to to do technology transfer or innovation, so they don’t care. I think it’s a pity, but it’s a free world and  people should do what they love. There are cases where I have the feeling that people are even AGAINST [!] start-ups, saying that it’s a harder way to create innovation and they should do it with SMEs, small companies, or established companies. But I don’t think this happens often.  #00:10:18-4#
 
WM: Do you think the Professor is decisive for this attitude or…?  #00:10:31-6#
 
HLE: It’s a good question. When I was studying at Stanford University, all the Professors… -well most of the Professors I had were saying: “If you have a great idea, maybe you should think about creating a start-up…” So it’s, again we are going back to “culture”: So the Professors can be inspirational, so they can have a high impact just because they are encouraging. Whereas if the Professor is just neutral, then the students don’t know what it is about and then the impact is zero. Then if you are talking more concretely about the help, yes they do, because when I was over there, most of the Professors were founders of the start-ups, they would never quit their academic position, they were sometimes chief scientists or they were advisors in the Board. Some of them were even taking a one year sabbatical because they were passionate about the idea and I know many of them who have done that. And of course when a Stanford Professor or a famous Professor is in a start-up, when you go to investors it gives much more credibility or  weight because investors have the feeling that you have a strong technical background, whereas students who are alone may have less credibility. So the Professors would never be the managers or never be full-time in a company, but they can still have an impact in terms of credibility.  #00:11:55-6#
 
WM: And in your are in Lausanne how are they usually involved? Are they shareholders or are they just in an advisory position?  #00:12:06-1#
 
HLE: I don’t have the details but I can give you the example of two companies like Kandou or Typesafe , where the Professors were in fact the early CEOs of the companies, so they have taken a one year sabbatical and they are extremely active and hands-on. And I see other cases where the Professors are board members, are small shareholders, advisors. Philippe Renaud is careful because he is helping all his start-ups, he doesn’t have the time to be a board member on all these companies, but he is an advisor for most of them even if it is informal. And I would claim that… -I’m not sure-   but most of the Professors are [co-]founders and shareholders of the start-ups. Yes!  #00:12:49-2#
 
that’s another strategy: they are not managers.  #00:12:57-4#
 
WM: And who is preparing the businessplan of those start-up companies then?  Is it….?  #00:13:01-8#
 
HLE: Now I will tell you something that my colleagues at ETH would be shocked about because I know that… certainly Silvio Bonaccio and Matthias Hölling at ETH Transfer… and from what I understand to be an ETH Spin-off, you need to provide a businessplan. When I was in venture capital I was always saying, and I’m saying that to all my students and entrepreneurs, I don’t care about businessplans! The best companies ever never had a businessplan, so businessplans are not important. Of course it’s important for the entrepreneur because it’s a document which helps him to structure his own project. But in terms of the business value of the businessplan, it is nearly zero. So as a venture capitalist I never read a businessplan, I am reading the first page of a businessplan and then I say: “Whow this is interesting…!” Then I go quickly to the team and I say why it is interesting. I put an eye on the numbers, I never believe in the numbers because they cannot be right, they are either too optimistic or pessimistic but they are never right, so I don’t care. So we were just asking for a meeting and in the meeting with them if there was something we liked, we made our own Due Dilligence because you cannot base your decision just on what the entrepreneurs say. And then you decide whether to invest or not.  #00:14:23-6#
 
So who is writing the businessplan?! The entrepreneur, he has to write it and usually it’s a young student… – but again: I’m not sure whether the businessplan is an important element. What is important is: Do these people have the drive to go to potential customers to understand if there is a business [market]. It’s a debate. Of course you need a businessplan, the investors will always ask you for a businessplan, but I think what is important is: Do they have an idea which has some potential and which is credibile? And then they can convince investors by talking to them. [hesitating 3 seconds]  #00:15:03-5#
 
It’s a long debate…  #00:15:03-5#
 
WM: And regarding the financing: Who is responsible for this and when are the Venture Capitalists… ?  #00:15:12-5#
 
HLE: There has to be an entrepreneur right??! The entrepreneur might be a student, might sometimes be the Professor but it’s not often a Professor, but it’s usually a student from the lab. And the one who is writing the businessplan and who is trying to find a funding is this young entrepreneur who is not much experienced. So that’s what I see most of the time.  #00:15:33-2#
It’s not… So I’m not sure why you are asking me this but it’s not an external consultant who has some business experience and who is helping the entrepreneur to write his businessplan. There are many such people like the CTI coaches are providing guidance, but the one who is writing the businessplan, these are the people with the idea hereafter, because they are the only ones who understand in this state what they are doing.  #00:16:05-2#
 
WM: OK, and now with regard to external entrepreneurs: Do you have frequent experiences with them?  #00:16:18-2#
 
HLE: Yes we have.  #00:16:19-1#
 
WM: And what are your experiences with external entrepreneurs  – are they helpful or are…?  #00:16:27-1#
 
HLE: So are you talking about entrepreneurs who would help these young people…  #00:16:34-4#
 
WM: So a serial entrepreneur.  #00:16:37-6#
 
HLE: Well two things: So it’s clear that if these young people, I am talking to you about, are going to investors it is more difficult for them to find funding. So if they can work with people with experience, like you are saying, it certainly increases the chance of rising money. We have an example, which is a company called “Aleva Neurotherapeutics” which is in the medical field and the technical founders tried for one or two years to raise money and he couldn’t. And today they found this serial entrepreneur and he managed to raise 10 million Swiss Francs. So it’s clear that Serial Entrepreneurs DO [!] bring some credibility.  #00:17:20-9#
 
But I have also examples where these young entrepreneurs could raise the same amount of money with NO [!] Serial Entrepreneur (Examples such as Nexthink, Abionic, Distalmoition). So I am not not…  it’s not clear to me that it’s statistically changing the situation. Now let me tell you something about Serial Entrepreneurs… – I am not sure but I think you couldn’t find it on SlideShare; I am also trying to do some research about entrepreneurs; I do not have time to publish serious papers but I go to conferences and I published some papers and I did one this is about Serial Entrepreneurs from Stanford University again, because I have access to a big data base of such people. And what I noticed is that Serial Entrepreneurs with time have a tendency to do worse than better. And I know that there is a paper from a Professor at Harvard (Josh Lerner) saying that Serial Entrepreneurs are important because they bring credibility to firms, and I agree. But they don’t increase… – according to me –   they don’t increase the likeliness of success of companies. So I am not pushing for Serial Entrepreneurs, because Serial Entrepreneurs usually are too self-confident and don’t help young entrepreneurs to do their own homework about learning and doing. So gain it’s a debate, but I am not fully convinced that the young entrepreneur needs to be associated with a Serial Entrepreneur. Now a young entrepreneurs certainly needs to be helped by people who have expertise in start-ups and technology, for sure. But it’s a different story. They may not be entrepreneurs, they may be managers who have worked in other start-ups, they may be former employees. I don’t believe so much in Serial Entrepreneurs.  #00:19:10-7#
 
I am happy to send you the link, I think I can find it on SlideShare… [see eMails] I am sending you now a 3rd eMail with a 3rd link and you can have a look at what I try to do, you will see.  #00:19:49-9#
 
But clearly don’t misunderstand what I am saying: Experience of people in technology IS [!] helping entrepreneurs to build their company, but I am not sure it has to be systematic… – that’s all what I am saying.  #00:20:09-0#
 
WM: I’m just sending you something [see sent eMails with the shortened/extended slides for the Foundation Process]  In which cases could you imagine it is reasonable to include an external entrepreneur?  #00:21:17-4#  #00:21:27-0#
 
HLE: I think it’s reasonable to include an external entrepreneur when the young entrepreneur is very technically oriented but has no interested in business and is so shy that he does not know how to communicate his idea to the business world… – it can be investors, it can be partners, it can be customers. So if someone is only interested in the technical aspects of his idea, then he needs to be surrounded with the right expertise. But when an entrepreneur who has a great idea is also enthusiastic, knows how to explain simply what he does and he has the drive and energy to do it, I am not sure whether he needs so much people with experience versus just a co-founder who is as enthusiastic as him and can help him in solving the challenges that he will be faced with. So it’s mostly a question of energy versus experience.  #00:22:25-5#
 
WM: For the next question please take a look at the first document that I have sent you [Slides]. So you see here the famous technology transfer gap and on the second slide you see the foundation process: On which step in the foundation process do you see the biggest problems of the young academics in creating their own company?  #00:22:59-3#
 
HLE: So the biggest challenge, and this is something I have heard so many times, is financing! Because, in fact, I am sure to can say it for ETH Zurich and EPFL, having ideas, helping them on the concept, writing businessplans… – you know, you all have these courses sponsored by VentureLab and CTI and even EPFL. Then create a company is not so difficult, you need a little money but it’s not so difficult, and once you have the money it’s easy to find… – even finding office labs is easy. But FINDING FUNDING [!] is a BIG [!] challenge [speaks very slowly and impressive]! It’s a BIG [!] challenge! Maybe because the idea are not good, it doesn’t mean that the money is difficult to find because these people have ideas which shouldn’t be founded. But for me this [rising funding] is for what I see the biggest challenge.  #00:23:52-5#
 
WM: And for the other steps, you do not see any bigger problems?  #00:24:03-5#
 
HLE: Well I am not saying it’s easy, it requires a lot of help, but so I am looking at your second document [extended slides]: Technology Transfer and the Foundation Process. Technology Transfer: some people complain that it’s a lengthy process and it’s difficult to negotiate with universities, but for me there is not much problem. Businessplan competition: There are so many, as you are writing, competitions on courses… – I think someone who is motivated can do it. Consultants: you have tons of consultants from the CTI start-up process, so you can find these people who are helping you. But THEN [!] finding… – I am not even talking about venture capital, because it nearly doesn’t exist in Switzerland, but if you are looking at Business Angels, it’s VERY [!] difficult to convince them and it’s very lengthy and it’s for very little amount of money. I don’t know if you noticed, there was in TechCrunch  – this is this big website –   the announcement of an EPFL start-up called BugBuster which raised one million Swiss Francs. And TechCrunch said: “Well the Swiss scene is such that a series A-Round is one million, whereas in the U.S. a 1-million-round is more an Angel round and a serious A-round would be 5 million.  #00:25:21-5#
 
So there is such a lack of understanding about the funding needs, there is a difficulty. Furthermore there is no venture capital. And then technology centers… – you know, you have the Technopark in Zurich, we have our Innovationpark, there are so many office space for start-ups, so I don’t think that it’s an issue. I didn’t see as much difficulties there as in the funding.  #00:25:45-3#
 
WM: OK, you now mean…?! What is not the difficulty?  #00:25:52-3#
 
HLE: So the difficulty is ONLY [!] in funding and everything else is… – it’s a challenge, but it’s a small challenge compared to finding money.  #00:26:00-7#
 
WM: But my question / research question now is on external entrepreneurs. If you go in the second document and there on the first slide you see that the BAs and VCs they enter in a later stage in the foundation process, but exactly in the very early stage there is a financial and operational gap. And here I am working on an idea that was developed by a colleague of mine called “Founding Angel”, those are people who do provide funding… – yes, but they are just co-founders, so it’s from the idea very close to Business Angels, but they start right from the beginning in the area of business idea and business concept development, and then they are co-founders. Typically they have a technical background as well but also experiences in start-up creation. And I am working on the evaluation of this concept whether this would make sense to have such a model besides BAs and VCs. Because as you already mentioned there are some severe difficulties with these two types [of actors] and those difficulties might be overcome by such a FA.  #00:27:53-8#
 
HLE: You are absolutely right. In fact if you look at the best, the biggest success stories in the U.S. in technology, you would often find such cases, as early as in the 50s or the 60s with Fairchild and Intel and then with Apple Computers and then again even with Google and Facebook recently. You find such people, if you have seen the movie “The Social Network” on Facebook, you would see that you have Sean Parker and Peter Thiel, who were such people who helped Mark Zuckerberg and then they went to VCs. If you look at Apple Computers, Steve Jobs and Steve Wozniak had no experience but there was a guy Mike Markkula who became a kind of manager and Business Angel. But what is interesting is that these people are OFTENTIMES introduced to the entrepreneurs by Venture Capitalists, saying: “Guys your idea is very good, but it’s still too early for us but maybe you should work with that guy, he might help us! And then depending on the development we WOULD fund you.” So and then in the case of Apple Computers, Mike Markkula was introduced to Steve Job and Steve Wozniak by Don Valentine, he was a famous Venture Capitalist, and then later he (Valentine) invested in the start-up.  #00:29:22-8#
 
The difficulty in Europe is: Who knows these people? Do they even exist?! Because the big challenge is that a start-up has nothing to do with an established business. So if you go to Nestlé, if you go to a big SME, asking these people to help these entrepreneurs, they may provide traditional business advice, which has nothing to do with the  advice we need for high-growth companies. A high-growth company is a very specific entity, so what you need are people who know exactly how start-ups need to grow and these people do not exist in Europe because they have never done start-ups themselves, they are more managers of established companies. So in the U.S. it works, but in Europe in many, many cases I have seen such people who have have given BAD [!] advice to entrepreneurs.  #00:30:12-0#
 
But it’s still a good idea.  #00:30:15-3#
 
WM: But isn’t it exaclty what I say: so these Founding Angels, they are typically experienced founders, so serial entrepreneurs with a technical background and they line up with researchers in a very early stage, so they go into a university to Professors and talk to them informally about new ideas and then they decide if the personal chemistry is right…  #00:30:43-7#
 
HLE: Now let me ask you a question: In the Zurich area, there have been some similar examples but it’s not exaclty what you are telling me now, because what I see is such people are not going to the professors to evaluate ideas. They are going to young entrepreneurs who have already decided to do something and then they help them. If you look at the case of Sensirion which is a very good spin-off from ETH Zurich, right: Felix Mayer, for example the founder of Sensirion is now helping entrepreneurs like the founders of Optotune.  So he is doing what you are mentioning, but now he is helping entrepreneurs, I am not sure whether he is helping Professors. The difficulty I see is that I have the feeling that Felix Mayer is very friendly with the concept of building a big SME, but I’m not sure he’s building start-ups the American way. But he is doing that, so it’s an example.  #00:31:42-2#
 
But I am not sure Felix Meyer has the time to go in the labs and assess technologies, he has the time to be the board member for entrepreneurs who want to do things themselves. I don’t think Felix Meyer would leave Sensirion, but he has the time to be a board member.  #00:32:01-4#
 
Well I have the feeling that you are talking to me about people who would become manager of the start-ups, maybe the CEO. Whereas I’m telling you, I see people becoming board members and giving very good advice. Do we agree on what I understand from what you are telling me?  #00:32:13-4#
 
WM: Yes, I know what you want to say. But I have to say that I am personally a little bit involved in a small start-up company through a part-time job, which is in the biotech area. And there was a Professor from the University of Frankfurt in Germany in Biochemistry, he has developed some yeasts for producing 2nd generation biofuels and then he matched up with such a Founding Angel, who is by the way also my boss and they decided together: “Hey let’s found a company together!” The Professor is still at the university and they are developing their technologies further, but the other guy is managing the company, they have 50:50 shares, so it’s an equal participation.  #00:33:19-5#
 
HLE: But if the company needs to grow, to go to the next step of going to funding: Who would manage the company? Would this Business Angel [means FA] be able to be the full-time CEO or is he just…  #00:33:32-7#
 
WM: He is the CEO until financing is guaranteed and then there is a full-time CEO hired.  #00:33:47-3#
 
HLE: Who is managing the technology?  #00:33:47-3#
 
WM: The technology is developed by the academic scientists.  #00:33:54-8#
 
HLE: But then you have to be careful, very careful about the way you manage all this, right. Because is the company just an extension of the lab or is it an independent entity which has it’s own employees? It’s always very difficult to manage such things right, because you still need someone who is technically oriented, but he is part of the company. Or maybe it’s still early, OK, I see your point. I understand what you are saying, it’s something which I have seen sometimes, not so often because there is always a difficulty of how do you manage the TIME [!] of the people involved and are you sure that you are not creating distortions because the business guy and the technical guy are not fully aligned in terms of strategy and on the things ongoing. So it MAY [!] work, but do you have examples of famous start-ups that have been built this way? That’s my question to you.  #00:34:53-5#
 
WM: The problem is that this expression, this idea is quite new; there are maybe several examples, but they are not aware of this name [so “Founding Angel”] or that this is a distinct model with different characteristics compared to Business Angels or Venture Capitalists. As you saw in my last eMail, I have sent you a second eMail  […]  #00:35:35-7#
 
I just know one of my colleagues at ETH, Lesley Spiegel, she is very active with start-ups, and there are also some students coming to her asking for some advice for a start-up. I think at the beginning it was more planned as a coaching role, but now it has developed and now she is a co-founder. But she had never heard about this expression before.  #00:36:19-7#
 
HLE: You know what is interesting Martin: If you look at the biotech industry, particularly in the Boston area around MIT and Harvard University, the Venture Capitalists themselves, the good ones, Versant and Polaris, are doing precisely what you are saying. They become the CEO, they put a little money, more than 10’000, usually up to half a million or a million, they do the job and when they have early validations, then they put a lot of money in it with other funds. So the Venture Capitalist are doing precisely that in the biotech industry. Why in the biotech??! Because in biotech, the business is quite simple, you have a molecule, if it works, it might be a blockbuster drug and if it does not work you stop early, but then you need to pull tons of money. And because these Venture Capitalists are usually medical doctors, they understand precisely how it is. But outside of biotech, it’s not so binary  – does the molecule work or not?!? In all the other fields, medical devices or anything in information technology it’s about product development and it’s about understanding if the technology you provided is bringing something to the future product. And THEN [!] it’s much more difficult, because these Founding Angels, as you call them, need a VERY BIG EXPERTISE [!] in the field where they are. And then it’s difficult to have them to do it systematically for many ideas one after the other. In biotech a medical doctor can do molecules one after the other, so every three years you can change up to another one (A famous example is Christoph Westphal [2]. In that cases it’s very difficult to build an activity, an industry of these people who would create funds or their own money and they would do it systematically because the challenge for you or for an entrepreneur is: How do I find such people?!? How am I sure that for my specific project I find, in Switzerland, in Europe or in the U.S. someone who is eager to do that? So the concept is good but the matching is the challenge  #00:38:33-8#
 
WM: But usually it should be… – maybe it’s actually not the case, but the perfect situation or how it should work is that they offer themselves to the technical scientists or at least to give the technical scientists… to be popular/known at the department if they [the technical scientists] have an invention… – this is the perfect situation. If they have a good invention and want to create a company but don’t know how, they would know who to call, that they always have the the tickmark next to the desk: “If I have something I would know who to call.” And such a person should only involve in such a project where is technically familiar with because it’s also his own risk, the risk of failure. If it turns out that he has not the glue e.g. about health sciences.  #00:39:51-4#
 
HLE: So let me ask a 2nd question, which is the following: The idea is very early, as you are saying on your slide it’s the very early stage  – how much money will you need to reach the state where you can go to the next, which may be Business Angels or Venture Capitalists? So how much time and funding do you need for the Founding Angel to validate the idea?  #00:40:18-0#
 
WM: So I would say about two years.  #00:40:18-9#
 
HLE: Two years; so how much money?  #00:40:20-5#
 
WM: It depends…  #00:40:24-5#
 
HLE: Let’s say half a million right, it’s half a million  – two years, half a million.  #00:40:27-1#
 
WM: Yes, typically this company is founded and the research is still done or further developed by the scientists employed by ETH.  #00:40:47-1#
 
HLE: I am not saying the half million is provided by private money, it could be a CTI contract, but you need money. And of course this guy needs to feed himself, he needs at some point…. or he is rich enough, he does not need to work, or he still needs to have his own money. And if the research is done at the lab, I think you are right, it can be developed and it may work. But you have to think about: How does this guy fund himself?   #00:41:17-0#
 
WM: This is his own problem, there is no salary, he is only shareholder.  #00:41:23-2#
 
HLE: Because many times I have seen people coming to EPFL saying: “I want to help labs and entrepreneurs!” And I am almost asking them: “Do you need to be paid for that or you don’t need??” If you don’t need to be paid, then it’s great because you can do exactly what you are telling me. But if he needs to be paid, then we are in trouble because we don’t know how to pay these people. And most of the time, I tell you, they need to be paid.  #00:41:44-2#
 
WM: No in this model, they are not paid, they feed themselves with former/previous exits, so they are financially independent. As long as…  #00:42:03-4#
 
HLE: So Martin we have such people around EPFL, I can give you the name of people like… – maybe you have seen them also around Zurich. There is one guy called Colin Turner [3], there is another guy called David Brown [4]… (I give you more names in note [5] #00:42:15-9#
 
WM: Yes can you please send me the contacts – just afterwards.  #00:42:21-5#
 
HLE: I will send you the name and then I can try to find the eMail and then I can even make introduction if you wish.  #00:42:34-1#
 
WM: Yes, just send me the the name or the website.  #00:42:34-5#
 
HLE: Well I’m just typing them in an eMail […] [see 3rd eMail] What is interesting is that these guys are precisely doing what you are saying, they are not asking to be paid, but they don’t become the entrepreneurs, they are board members. They are Business Angels and board members and they are most of the time founding Business Angels, but they don’t have a management position, they are on the board.  #00:43:06-7#
 
WM: But this is also a characteristic: The Founding Angel, he is the manager as long as there is no other person. As soon as there is… afterwards when a BA or VC is involved and there is enough financing to hire a full-time CEO, then he goes to the board.  #00:43:29-3#
 
HLE: You will have to check again, if these people who are founding Business Angels, can work with just the professor or if they really want to work with someone in the lab, who has the drive to become a technical founder, the CTO. Because a professor will become the CSO, the chief scientist, but someone who will become full-time… Do they need someone who will become full-time a technical guy in the company. That’s for me the key, one of the key elements… – another key element. OK I will send you the eMail about the 3 names. Anything else.  #00:44:07-8#
 
WM: No that’s it, thank you.  #00:44:14-1#
 
[…] #00:45:14-7#
 
HLE: But you have a good idea and it’s something many universities are trying to work on… – for sure. You can check what Alto is doing in Finland, the technical university in Finland, they have putted in place many things called Alto Ventures and they are all inviting formal entrepreneurs from the Finnish scene to help the people. So you could see there similar concepts.  #00:45:44-6#
 
WM: OK I will take a look at it. Thank you very much for taking the time.
 
[0] Martin gave me more references on Founding Angels:
Founding Angels as an Emerging Investment Model in High-Tech Areas by GUNTER FESTEL AND SVEN H. DE CLEYN,THE FALL 2013 JOURNAL OF PRIVATE EQUITY. (You may remember I had a post in teh past about De Cleyn’s PhD thesis…)
Founding angels as early stage investment model to foster biotechnology start-upsGunter Pestel, 2011, Journal of Commercial Biotechnology Vol. 17, 2, 165–171.
[1] Philippe Renaud, the professor with 13 start-ups and http://people.epfl.ch/philippe.renaud?lang=en
[2] Christoph Westphal
[3] Colin Turner, http://www.linkedin.com/in/colinturnerswitzerland,
[4] David Brown http://www.venturekick.ch/index.cfm?page=129749&profil_id=2365&BackPage=129757,
[5] Francois Stieger, former Oracle executive, http://www.forbes.com/profile/francois-stieger/,. Another idea might be former CTI coach and executive, Jean Marc Wismer http://ch.linkedin.com/pub/jean-marc-wismer/0/a1/2a8 who is now CEO of Sensimed. Finally Jean-Pierre Rosat (http://startuptraining.ch/fr/portfolio-items/jean-pierre-rosat-2/ ) and Jacques Essinger (http://www.linkedin.com/in/jessinger) are quite famous here in the medtech field.