Tag Archives: Universities

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.
Horizons-Debat-Spinoffs-1-en

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.
Horizons-Debat-Spinoffs-2-en

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.”

gap_small5

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.

How much Equity Universities take in Start-ups from IP Licensing?

How much equity universities take in start-ups for a license of intellectual property? It is sometimes not to say often a hot topic and information is not easy to obtain. However there are some standards or common practice. I have already published posts on the topic: University licensing to start-ups in May 2010 followed by a Part 2 in June 2010.

To oversimplify, I used to say that the license was made of 3 components:
– first, universities take about 5% post-series A (a few million $) or similarly about 10% at creation (investors often take half of the company at round A,)
– second, there is also a royalty based on sales of products using the licensed technology, about 2% but the range might be 0.5% to 5%. A minimum yearly amount is usually asked for, like $10k or more.
– third, a small but important detail: start-ups pay for the maintenance of the IP from the date of the license.

I decided to look at data again through the S-1 documents, which start-ups write when they prepare their Initial Public Offering (IPO), usually on Nasdaq. I found about 30 examples of academic spin-offs which gave details about the IP license. Here is the result.

University-licenses-data
(Click on picture to enlarge)

A couple of comments:
This was not an easy exercise and I would not claim it is mistake-free. You should read it as indicative only, hopefully it is mostly accurate! Assuming the data is accurate, universities own about
– 10% at creation or
– 5% post–series A (average: $5M)
– Universities keep a 1-2% equity stake at exit,
– Worth a few $M (Median is $1M)
With an average of $70M VC investment and market value in the $1B range (Median is $300M)
(Median values are as important as Averages).
Royalties are in the 1-4% range.
All this is consistent with information given in my prior posts!

You can also check the following Slideshare document

A great study on European academic spin-offs

While in Antwerpen (Belgium) where I gave a workshop related to my vision of Silicon Valley described in the book Start-up, I had the nice opportunity (thanks Walter 🙂 ) to meet with Sven De Cleyn whose PhD thesis was published as a very interesting book: The early development of academic spin-offs : holistic study on the survival of 185 European product-oriented ventures using a resource-based perspective. The conversation I had with him convinced me I had to read his work. Although I am not sure I would advise anyone to do so (sorry Sven 🙁 but it is also 335 pages of dense content, including tables and statistical analyses), it is a great piece of work.

I had not seen before such work based on European spin-offs. Of course there is the American equivalent with Shane’s work, Academic Entrepreneurship: University Spinoffs And Wealth Creation and also lesser known but probably as good, the multiple papers of Junfu Zhang, including Entrepreneurship among Academics: A Study of University Spin-offs Using Venture Capital Data. But on the European side?

So let me summarize what I learnt. First an academic spin-off (ASO) is defined as “[1] a new legal entity (company) [2] founded by one or more individuals from an academic parent organization [3] to exploit some kind of knowledge [4] gained in the academic parent organization and transferred to the new company”. Then Sven studied two main questions:
– Research question 1
What characterizes the early development process of knowledge-intensive product-oriented academic spin-offs?
– Research question 2
What are the major criteria that determine the outcome of this process?

And he used 4 main theoretical frameworks (remember, it is a PhD thesis). I quote him again:
– the Resource-Based View of the firm (RBV), which posits that firm can only achieve a sustainable competitive advantage if they possess valuable, rare, inimitable and non-substitutable resources
– the Human Capital Theory (HCT), which explains firm survival and performance in terms of the firm’s knowledge, skills and experience, which can be created and accumulated through education, training and other experiences
– the Social Capital Theory. The central tenet suggests that a firm’s survival and performance are dependent upon the network to which it has access. The difference between SCT on one hand and RBV and HCT on the other, is that social capital, unlike other resource types, is not located within a firm but in the relationship with other actors
– the fourth and last theoretical stream relates to Life Cycle Models (LCMs). A firm’s resource needs are different in the first years after foundation when compared to more mature phases. The LCM theory builds upon the biological evolution of a living organism, where firms evolve through a number of distinct and consecutive stages and in the transition between the stages a number of important hurdles or junctures have to be overcome.

The heart of the dissertation is formed by a quantitative part. The first phase concerns the actual data collection, using personal interviews (in person, by telephone or using Skype) with 185 top managers (preferably one of the active founders) in nine European countries.

In addition here are some more figures about these spin-offs. Not surprisingly (for me!) the employment and turnover are not very high:

Some interesting not to say surprising results include:

+ on the Business side:
– The results of this study confirm that having developed a formal, written business does not contribute significantly to ASO survival probability.
– However, the results also indicate that several important constituent sections of a business plan (e.g. market study, production analysis …) contribute positively to survival likelihood.
– If the founders of the ASO have discussed the first drafts of the business plan with other entities (mostly externals), subsequent ASO survival chances might be affected. The analyses reveal that ASOs whose business plan has been screened, challenged and altered by risk capital providers face an increased failure risk.
– The results indicate ASOs using patents to protect their core technology do not necessarily enjoy higher survival probability.
– The results indicate that product development teams with (potential) customers aboard increase ASO survival likelihood substantially.

+ on the team side:
– Prior entrepreneurial experience (whether in a high-tech venture or not) has a significant positive impact, but this effect disappears and becomes negative for serial entrepreneurs. The latter result is ascribed to entrepreneurial euphoria (successful entrepreneurs tend to search less for relevant information in subsequent new initiatives).
Heterogeneous team, which are composed of a mixed background, contribute significantly and in a positive way to ASO success probability.
– In first instance, an ongoing active involvement of at least one of the (key) founders has a significant positive effect on ASO survival probability. However, some additional tests reveal that preferably this involvement does not occur as CEO. Secondly, a long-term and strong representation of the founders in the shareholder structure (meaning a shareholdership of at least 50% for the entire group of founders) appears to significantly enhance ASO survival likelihood.

+ about stakeholders:
– The origin of financial resources has no significant impact on its subsequent success (i.e. risk capital does not increase success likelihood when compared to any other funding source). On the other hand, ASOs able to attract subsidies for the development of their business, technology or product have significantly better survival odds than ASOs who don’t.
Academic continued, long-term support (at least up till the moment of interview) turns out to have a positive and significant impact on ASO success probability.
– In the first place, the results have pointed to the importance of the timing of ASO foundation, as ASOs who developed at least a β-prototype at the time of foundation have significantly higher survival odds.

A couple more quotes that I found striking:
– [page 16] European ASOs are reported to be small-scale ventures (mostly one-man SMEs) with limited growth ambitions and clear visions. Yet, the main contribution of ASO does not lie in a fast organic growth, but rather in its contribution to the transfer of technologies and knowledge throughout their networks and in a reasonable rentability. (This is not a result of De Cleyn, but his own analysis of past research)
– [page 52] Founding teams seem to perform better than individual founders. They tend to experience less failure, more mergers and/or acquisitions and a larger employment growth. This superior performance might be due to a better access to resources and network relationships than solo start-ups have. (Same remark)

Now some personal comments. First the lessons are much richer than this short summary. So if you have an interest in the topic, you should read De Cleyn’s book. But most importantly, for me, it dramatically shows some critical differences between the European and the American scene, at least the scene I know well, Silicon Valley. Sven De Cleyn’s definition of success is basically (I hope I am correct) the opposite of failure, which for example implies that surviving is considered as success. I am not sure it is the vision Americans have (the famous Fail Fast that entrepreneurs use even independently of the objectives of venture capital, which hates nothing more than “living-dead”.) You might be interested in comparing Sven’s data with my own analysis of Stanford related start-ups. A last comment. I asked Sven why he did not cover licensing deals with universities. The answer was twofold. He already had enough material to cover and the topic is more sensitive than others. I agree!

As a short summary, I had not seen such a deep analysis of European start-ups, with so much statistical analysis. And… unfortunately, it seems to confirm the culture gap we have with the USA. It might be that we have a different way of doing things or it might be that we have not really understood what Silicon Valley is really about…

Mind the Gap: the seed funding of university innovation

I recently read Mind the Gap: The University Gap Funding Report published by innovosource.

Disclaimer: I usually do not mention my activities at EPFL on this blog and this report deals exactly with the type of funds I manage there: the Innogrants. I was indeed interviewed for this report as one of the active members of the Gap Funding community and the Innogrants are one of the examples mentioned.

Mind The Gap is a great report because it describes a concept which was born a little before 2005, the seed funding, I should even say the pre-seed funding, by universities of their innovations, including start-ups. The next figure illustrates not only gap funding but all the existing tools enabling academic innovation.

Let me just briefly quote it (but you should know the report is not free, so I cannot summarize it in too much detail. The author allowed me however to give you a 25% discount code: USHAPE). In any case, it is extremely rich in data and information.

“This “gap” extends from where the government funding of basic research ends to where existing companies or investors are willing to accept the risk to commercialize the technology.” [page 9]. The author reminds us that “Failure is commonplace in these sorts of pursuits, but ask where you would find yourself (or where you are going) without GPS and the internet, and most recently a little iPhone “assistant” named Siri that originated from the DARPA funded CALO (Cognitive Agent that Learns and Organizes) program through a university consortium.” [page 20]

As a side element, there are also the emerging accelerators, “Popularized in recent years with the likes of Y Combinator and TechStars, accelerators combine access to talent and support services with “stage-appropriate” capital in return for a stake in the company or other repayment structures.” [page 22] but this is another subject!

There are already some “famous” gap funding tools: “another study by the Kauffman Foundation [1] investigated two well-known proof of concept centers at MIT (Desphande Center) and UC-San Diego (von Lebig Center) and reported general process and impacts.” [page 26]

[1] C. and Audretsch, D. Gulbranson, “Proof of Concept Centers: Accelerating the Commercialization of Univeristy Innovation,” Kauffman Foundation, 2008.

I do not want to quote much more this 100-page deep and very interesting analysis. My final comment is that a critical element is the leverage gap funding enables. You will find a full analysis on pages 88-90. In his Report Summary, the author depicts the value of gap funding through:

High commercialization rates
– 76-81% of funded projects commercialized on average
Attraction of early stage capital
– $2.8B leveraged from public and private investment sources
Business formation and job creation
– 395 new start-up companies
– 188 technology licenses to existing companies
– 7,761 new jobs, at cost of $13,600 gap fund dollars per job
Building a community of innovation
– Thousands of faculty and students engaged in the process
– Incorporate networks of technical and business professionals in the evaluation, mentorships, and leadership of these technologies
Organizational returns
– $75M returned to the organizations through repayments, royalties, and equity sales
– Maximize resource allocation and downstream savings, by permitting early failures through exploratory and evaluation tactics
– Empower universities to continue to take risks that support the type of breakthroughs that define our present, and the type of innovation that will carry us into the future

Let me finish with what I contributed to the report, i.e. a short description the EPFL innogrants:

When I met Jochen Mundinger in October 2006 it did not take me much time to make up my mind. I had previously seen many startup ideas and Jochenʼs Internet project looked to me original and powerful. Prior to any due diligence, I told him that if my analysis was positive, he would get a 12-month grant to work on his start-up. Because of this program, I am lucky enough to be able to make fast decisions and by January 2007, Jochen was working on his project. He did not wait until the end of his grant to found routeRank and by October 2007, with the support of business angels. Today, the service has grown and been recognized by the famous MIT TR35 award in 2010.

And then there was Andre Mercanzini, a Canadian citizen, who certainly has the drive and enthusiasm of many North-Americans. Andre obtained his PhD at EPFL following a few start-up experiences in the US. Andre has developed electrodes for Deep Brain Stimulation. The path was not as fast and easy as for Jochen. Though Aleva Neurotherapeutics was founded in mid-2008, Andreʼs prototypes needed further validation to attract venture capital (a major use of the grants). The Swiss ecosystem is rich with mentors and support so that Andre developed further his project to the point of raising $10M in his series A round in August 2011.

These are just two examples of EPFL innogrants. Initially backed by Swiss bank Lombard Odier, it has since received support from KPMG and Helbling, an engineering firm. The fact that similar initiatives were launched in Switzerland is another illustration that gap funding attracts and seduces. The Innogrants are a bet on young people. Since 2005, 48 projects have been funded out of more than 300 ideas and 24 companies created. We admit at EPFL that failure is part of the process and even if no start-up is ever launched, the grant is a learning experience. We also have the vision that Innogrants become role models and hope that more and more students will be less shy about expressing their dreams.

America and entrepreneurship

Nearly 3 years after my unusual post about Obama, here is a post slightly related. Before digging into the topic, I have to admit I have a huge respect for the American president. Even after watching George Clooney’s The Ides of March and the disappointment expressed by many people, I am intrigued and fascinated by his track record. I should add for the anecdote that I was in Washington in October 2009 when he was award the Nobel Peace Prize and in Silicon Valley in September 2011 when he pronounced his recent speech to the Congress. I also quite liked the Titan Dinner.

The White House recently published TAKING ACTION, BUILDING CONFIDENCE and the second initiative is about entrepreneurship. It is worth reading these dense 6 pages and among other things, it is striking to notice that the USA, “the most entrepreneurial nation on earth” [page 17] is extremely worried about an “increasingly unfavorable environment” and a “fallen optimism”. For these reasons, the report suggests 12 initiatives to “help spur renewed entrepreneurship”. (They are listed at the bottow on this post)

Here is my simplistic vision of the proposals:
– a few are about lowering the barriers, i.e. “changing the Rules”, what I tagged with an “R” below.
– a few more are about enabling more money and investment towards start-ups, tagged with an “M”.
These are classical measures, important and necessary.

What I found very interesting are the other ones:
– three are about Intellectual Property and Technology Transfer, a sign that the patent system might be in trouble
– even more interesting, the last three are about the People, the Talent. They mention the Immigrants and the Mentors.

These are great advice, that we should also look at very seriously in Europe!


Click on the picture to enlarge

Win the Global Battle for Talent
Some of the most iconic American companies were started by immigrant entrepreneurs or the children of immigrant entrepreneurs. Today, however, many of the foreign students completing a STEM degree at a U.S. graduate school return to their home countries and begin competing against American workers. A significant majority of the Jobs Council calls upon Congress to pass reforms aimed directly at allowing the most promising foreign-born entrepreneurs to remain in or relocate to the U.S.

Reduce Regulatory Barriers and Provide Financial Incentives for Firms to Go Public
Lowering the barriers to and cost of IPOs is critical to accessing financing at the later stages of a high growth firms’ expansion. A significant majority of the Jobs Council recommends amending Sarbanes-Oxley and “rightsizing” the effects of the Spitzer Decree and the Fair Disclosure Act to lessen the burdens on high growth entrepreneurial companies.

Enhance Access to Capital for Early Stage Startups as well as Later Stage Growth Companies
The challenging economic environment and skittish investment climate has resulted in investors generally becoming more risk-adverse, and this in turn has deprived many high-growth entrepreneurial companies of the capital they need to expand. The Jobs Council recommends enhancing the economic incentives for investors, so they are more willing to risk their capital in entrepreneurial companies.

Make it Easier for Entrepreneurs to Get Patent-Related Answers Faster
There are concerns among many entrepreneurs that, as written, the recently passed Patent Reform Act advantages large companies, and disadvantages young entrepreneurial companies. The Jobs Council recommends taking specific steps to ensure the ideas from young companies are handled appropriately.

Streamline SBA Financing Access, so More High -Growth Companies Get the Capital they Need to Grow
The SBA has provided early funding for a range of iconic American companies. The Jobs Council recommends that the Administration streamline and shorten application processing with published turnaround times, increase the number of full time employees who perform a training or compliance function, expand the overall list of lending partners, and push Congress to fully authorize SBIR and STTR funding for the long term, rather than for short term re-authorizations.

Expand Seed/Angel Capital
The Jobs Council recommends that the Administration clarify that experienced and active seed and angel investors should not be subject to the regulations that were designed to protect inexperienced investors. We also propose that smaller investors be allowed to use “crowd funding” platforms to invest small amounts in early stage companies.

Make Small Business Administration Funding Easier to Access
The SBA has provided early funding for a range of iconic American companies, including Apple, Costco, and Staples. The Jobs Council recommends that the Administration streamline and shorten application processing with published turnaround times, increase the number of full time employees who perform a training or compliance function, expand the overall list of lending partners, and push Congress to fully authorize SBIR and STTR funding for the long term, rather than for short term re-authorizations.

Enhance Commercialization of Federally Funded Research
The government continues to play a crucial role in investing in the basic research that enables America to be the launchpad for new industries. The Jobs Council recommends that the Administration do more to build bridges between researchers and entrepreneurs, so more breakthrough ideas can move out of the labs and into the commercialization phase.

Address Talent Needs by Reducing Student Loan Burden and Accelerating Immigration Reforms
A large number of recent graduates who aspire to work for a start-up or form a new company decide against it because of the pressing burden to repay their student loans. The Jobs Council recommends that the Administration promote Income-Based Repayment Student Loan Programs for the owners or employees of new, entrepreneurial companies. Additionally, we recommend that the Administration speed up the process for making visa decisions so that talented, foreign-born entrepreneurs can form or join startups in the United States.

Foster Regional Ecosystems of Innovation and Support Growth of Startup Accelerators
There is a significant opportunity to build stronger entrepreneurial ecosystems in regions across the country – and customize each to capitalize on their unique advantages. To that end, the Jobs Council recommends that the private sector support the growth of startup accelerators in at least 30 cities. Private entities should also invest in at least 50 new incubators nationwide, and big corporations should link with startups to advise entrepreneurial companies during their nascent stages.

Expand Programs to Mentor Entrepreneurs
Research consistently shows that a key element of successful enterprises is active mentorship relationships. Yet, if young companies do not have the benefit of being part of an accelerator, they often struggle to find effective mentors to coach them through the challenging, early stages of starting a company. Therefore, the Jobs Council recommends leveraging existing private sector networks to create, expand and strengthen mentorship programs at all levels.

Allow University Faculty to Shop Discoveries to Any Technology Transfer Office
America’s universities have produced many of the great breakthroughs that have led to new industries and jobs. But too often, research that could find market success lingers in university labs. The Jobs Council recommends allowing research that is funded with federal dollars to be presented to any university technology transfer office (not just the one where the research has taken place).

Finland (part 2.5)

Following my 1.5 previous posts about Finland (http://www.startup-book.com/2010/10/28/israel-through-finland and http://www.startup-book.com/2008/04/03/finland) here are some of the interesting lessons I learnt from my Nordic friends. Let me add I visited Aalto University as well as the University of Applied Sciences in Jyväskylä.

The main lesson I got there is that small countries such as Finland, Switzerland or Israel need to be open countries. Nokia is a good example of what a small country can achieve but the company is also worrying Finns at the moment as it is losing some traction to Apple and Android. So Finland needs to look for more fresh air. That’s probably why Finland is so open to new ideas from Israel or the USA. You should just check my post of yesterday to see how both countries have been references for Finland.

At Aalto, I particularly liked a few experiments such as

  • their Venture Garage
  • their Entrepreneurship Society
  • and obviously their trip to SV
  • Will Caldwell is heading a large piece of the effort with his colleagues and I met many passionate people including Pauli, Teemu, Panu, Jari, Paolo, Ramine, Matalie, Juha, Kristo and my apologies to the ones I forget…

    Internationalization does not mean just sending people or businesses out but attracting people in. I was very interested by a recent report, the Silicon Valley Journey, Experiences of Finnish IT Startups from Dot-Com Boom to 2010, on Finns based in Silicon Valley, the experience of which should be used. There is an awareness that we never know enough about how SV is performing and our ecosystems (students, entrepreneurs, investors and support) should always know better about it. And it also means attracting international VCs something Israel (and Switzerland by the way) has been quite good at.

    Things were very similar in Jyväskylä, though it is quite far from the main capital city, Helsinki. Just three examples:

    – the mentors such as Jussi Nukari, also an author of “Launching Your Software Business in America”

    – the Protomo experiment which supports local entrepreneurs

    – the entrepreneurship courses given by Sharon Ballard from Arizona (who also challenged me about the efficiency of the SBIR program in the USA, something I had/have been skeptical about 🙂 but this is another story!). Sharon is bringing a typical American attitude to European students. And what I liked there is that it was not just Finnish students, but a group of international young and enthusiastic people!

    My thanks here to Juha Saukkonen who invited me to JAMK and who may have forgotten he was the 1st person to mention the Victa report to me, and thanks to all his colleagues, Asta, Mari, Heikki, Sharon, Jussi, Kari, Marko, and… Juha, Juha, Juha and Juha again.

    Any negative lesson? I feel a recurrent issue about critical mass in Europe. Any country, any region, any city in Europe is trying to promote innovation and they must do it. But are we taking the risk of diluting the effort by not taking strong decisions on a few hot spots, as we do it by the way for education, research or even sports or arts? I do not have any good answer and we all know we have to try and try again. But the USA have one SV only even if they have other clusters in Boston, Triangle Park, Seattle, or Austin. But we do not have our Silicon Valley in Europe. So how much are all these efforts efficient is a tough question?

    Technology = Salvation

    “Our technocratic elite told us to expect an ever-wealthier future, and science hasn’t. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.”

    So speaks Peter Thiel in an interview to the Wall Street Journal Technology = Salvation that I read while traveling to Helsinki to discover the Finnish high-tech ecosystem (I will come back on my trip when I am back home). I did not know Peter Thiel was German, I mean one more European migrant to Silicon Valley. For those who do not know him, Thiel was the business angel in Paypal and then Facebook.


    Zina Saunders

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.” […] Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing. […] The idea that technology is broken is taboo. Really taboo.

    Peter Thiel is an interesting fellow. A unique character, I am not sure he is a conservative or a libertarian like T. J. Rodgers. You should read the full article (I am not sure the WSJ still offers it for free, but I copied it below) as well as the comments. The reason why I mention this is that it is also a concern of mine I have wrote about in my previous posts on the crisis or about books on the science crisis such as Smolin, or (in French) Zuppiroli or Ségalat

    So here is the full interview but I am not sure the WSJ would like this…

    Technology = Salvation

    An early investor in Facebook and the founder of Clarium Capital on the subprime crisis and why American ingenuity has hit a dead end.

    By HOLMAN W. JENKINS JR.

    The housing bubble blew up so catastrophically because science and technology let us down. It blew up because our technocratic elite told us to expect an ever-wealthier future, and science hasn’t delivered. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.

    Such is the claim of Peter Thiel, who has either blundered into enough money that his crackpot ideas are taken seriously, or who is actually on to something. A cofounder of PayPal and an early investor in Facebook (his stake was recently reported to be around 3%), Mr. Thiel is the unofficial leader of a group known as the “PayPal mafia,” perhaps the most fecund informal network of entrepreneurs in the world, behind companies as diverse as Tesla (electric cars) and YouTube.

    Mr. Thiel, whose family moved from Germany when he was a toddler, studied at Stanford and became a securities lawyer. After PayPal, he imparted a second twist to his career by launching a global macro hedge fund, Clarium Capital. He now matches wits with some of the great macro investors, such as George Soros and Stanley Druckenmiller, by betting on the direction of world markets.

    Those two realms of investing—narrow technology and broad macro—are behind his singular diagnosis of our economic crisis. “All sorts of things are possible in a world where you have massive progress in technology and related gains in productivity,” he says. “In a world where wealth is growing, you can get away with printing money. Doubling the debt over the next 20 years is not a problem.”

    “This is where [today is] very different from the 1930s. In the ’30s, the Keynesian stuff worked at least in the sense that you could print money without inflation because there was all this productivity growth happening. That’s not going to work today.

    “The people who bought subprime houses in Miami were betting on technological progress. They were betting on energy prices coming down and living standards going up.” They were betting, in short, on the productivity gains to make our debts affordable.

    We’ll get back to what all this means. Mr. Thiel wants to meet me at a noisy coffee shop near Union Square in Manhattan. Because a Fortune writer invited to his condo wrote about his butler? “No,” Mr. Thiel tells me. “And I don’t have a “butler.”

    His mundane thoughts these days include whether Facebook should go public. Answer: Not anytime soon.

    As a general principle, he says, “It’s somewhat dangerous to be a public company that’s succeeding in a context where other things aren’t.”

    On the specific question of a Facebook initial public offering, he harks back to the Google IPO in 2004. Many at the time said Google’s debut had reopened the IPO window that had closed with the bursting of the tech bubble, and a flood of new tech companies would come to market. It didn’t happen.

    What Google showed, Mr. Thiel says, is that the “threshold” for going public had ratcheted up in a Sarbanes-Oxley world. Even for a well-established, profitable company—which Google was at the time—the “cost-benefit trade-off” was firmly on the side of staying private for as long as possible.

    Mr. Thiel was early enough in the Facebook story to see himself portrayed in the fictionalized movie about its birth, “The Social Network.” (He’s the stocky venture capitalist who implicitly—very implicitly—sets the ball rolling toward cutting out Facebook’s allegedly victimized cofounder, Eduardo Saverin.)

    Today, Mr. Thiel (the real one) has no remit to discuss the company’s many controversies. Suffice it to say, though, he believes the right company “won” the social media wars—the company that was “about meeting real people at Harvard.”

    Its great rival, MySpace, founded in Los Angeles, “is about being someone fake on the Internet; everyone could be a movie star,” he says. He considers it “very healthy,” he adds, “that the real people have won out over the fake people.”

    Only one thing troubles him: “I think it’s a problem that we don’t have more companies like Facebook. It shouldn’t be the only company that’s doing this well.” Maybe this explains why he recently launched a $2 million fund to support college kids who drop out to pursue entrepreneurial ventures.

    Mr. Thiel is phlegmatic about his own hedge fund, which took a nasty hit last year after being blindsided by the market’s partial recovery from the panic of 2008. Listening between the lines, one senses he faces an uphill battle to convince others of his long-term view, which he insists is “not hopelessly pessimistic.”

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.”

    In true macro sense, he sees that failure as central to our current fiscal fix. Credit is about the future, he says, and a credit crisis is when the future turns out not as expected. Our policy leaders, though, have yet to see this bigger picture. “Bernanke, Geithner, Summers—you may not agree with the them ideologically, but they’re quite good as macroeconomists go,” Mr. Thiel says. “But the big variable that they’re betting on is that there’s all this technological progress happening in the background. And if that’s wrong, it’s just not going to work. You will not get this incredible, self-sustaining recovery.

    And President Obama? “I’m not sure I’d describe him as a socialist. I might even say he has a naive and touching faith in capitalism. He believes you can impose all sorts of burdens on the system and it will still work.”

    The system is telling him otherwise. Mankind, says Mr. Thiel, has no inalienable right to the progress that has characterized the last 200 years. Today’s heightened political acrimony is but a foretaste of the “grim Malthusian” politics ahead, with politicians increasingly trying to redistribute the fruits of a stagnant economy, loosing even more forces of stagnation.

    Question: How can anyone know science and technology are under-performing compared to potential? It’s hard, he admits. Those who know—”university professors, the entrepreneurs, the venture capitalists”—are “biased” in favor of the idea that rapid progress is happening, he says, because they’re raising money. “The other 98%”—he means you and me, who in this age of specialization treat science and technology as akin to magic—”don’t know anything.”

    But look, he says, at the future we once portrayed for ourselves in “The Jetsons.” We don’t have flying cars. Space exploration is stalled. There are no undersea cities. Household robots do not cater to our needs. Nuclear power “we should be building like crazy,” he says, but we’re sitting on our hands. Or look at today’s science fiction compared to the optimistic vision of the original “Star Trek”: Contemporary science fiction has become uniformly “dystopian,” he says. “It’s about technology that doesn’t work or that is bad.”

    The great exception is information technology, whose rapid advance is no fluke: “So far computers and the Internet have been the one sector immune from excessive regulation.”
    Mr. Thiel delivers his views with an extraordinary, almost physical effort to put his thoughts in order and phrase them pithily. Somewhere in his 42 years, he obviously discovered the improbability of getting a bold, unusual argument translated successfully into popular journalism.

    Mr. Thiel sees truth in three different analyses of our dilemma. Liberals, he says, blame our education system, but liberals are the last ones to fix it, just wanting to throw money at what he calls a “higher education bubble.”

    “University administrators are the equivalent of subprime mortgage brokers,” he says, “selling you a story that you should go into debt massively, that it’s not a consumption decision, it’s an investment decision. Actually, no, it’s a bad consumption decision. Most colleges are four-year parties.”

    Libertarians blame too much regulation, a view he also shares (“Get rid of the FDA,” he says), but “libertarians seem incapable of winning elections. . . . There are a lot of people you can’t sell libertarian politics to.”

    A conservative diagnosis would emphasize an unwillingness to sacrifice, necessary for great progress, and once motivated by war. “Technology has made war so catastrophic,” he says, “that it has unraveled the whole desirability of it [as a spur to technology].”

    Mr. Thiel has dabbled in activism to the minor extent of co-hosting in Manhattan last month a fund raiser for gay Republicans, but he has little taste for politics. Still, he considers it a duty to put on the table the idea that technological progress has stalled and why. (To this end, he’s working on a book with Russian chess champion and democracy activist Garry Kasparov.)

    You don’t have to agree with every jot to recognize that his view is essentially undisputable: With faster innovation, it would be easier to dig out of our hole. With enough robots, even Social Security and Medicare become affordable.

    Mr. Thiel has not found any straight line, however, between his macro insight and macro-investing success. “It’s hard to know how to play the macro trend,” he acknowledges. “I don’t think it necessarily means you should be short everything. But it does mean we’re stuck in a period of long-term stagnation.”

    Some companies and countries will do better than others. “In China and India,” he says, “there’s no need for any innovation. Their business model for the next 20 years is copy the West.” The West, he says, needs to do “new things.” Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing.

    “If the universities are dominated by politicians instead of scientists, if there are ways the government is too inefficient to work, and we’re just throwing good money after bad, you end up with a nearly revolutionary situation. That’s why the idea that technology is broken is taboo. Really taboo. You probably have to get rid of the welfare state. You have to throw out Keynesian economics. All these things would not work in a world where technology is broken,” he says.
    Perhaps it really does fall to some dystopian science fiction writer to tell us what such a world will be like—when nations are unraveling even as a cyber-nation called “Facebook” is becoming the most populous on the planet.

    Mr. Jenkins writes the Journal’s Business World column.

    University licensing to start-ups – part 2

    As an addition to the post, dated May 4, 2010, I’d like to add a few slides which describe visually the balance between royalties and equity (with some possible antidilution). If you did not have the previous pdf slides, you should check my previous post first. What these new slides show are linear variations of the equity-royalty (possible) balance.

    It may not be universally accepted, but in a way more royalty induces less equity and more equity induces less royalty. Also there may be an anti-dilution mechanism:
    – many universities state the equity level will stay the same up to a given amount of money invested or up to the 1st round of funding. Given the habit of investors of taking 30-50% of the company after the 1st round, you can compute back how much equity it would have been at incorporation.
    – one university, UNC, and I mentioned that in the comment to my post, asks for antidilution until exit at the 0.75% level. Interesting!

    What is also interesting is that globally, Stanford, Caltech, Carnegie Mellon and UNC are very similar (small royalties) and MIT may appear as similar for equity but higher for royalties. All this should be handled with care but is probably not too far from a good summary…

    So my visuals are not perfect, neither my comments above, but if I am not clear, just contact me! You can download the pdf slides or click on the picture that follows.