By Don DeLoach with contributions by Keith A. Orris
Startups are challenging, but they can also be incredibly rewarding. I have been running small venture-backed companies since the late 90’s. In 2010 we sold our company to Sybase, a large software company in the relational database market. I found myself trying to figure out what my next move would be. A friend of mine was very involved with the University of Illinois and suggested I visit their research offices in Urbana Champaign and take a look at some of the things they had going on there. It sounded interesting, not knowing that this introduction would launch me on a circular path of discovery.
My visit to the university was enlightening. I was hosted by the person who runs the facility, Laura Frerichs, whom I have come to highly respect and consider a friend. This was my first lens into the research and innovation structure of universities. I also learned about the emerging trend of academic innovation centers being sponsored by universities ranging from Stanford and Berkeley to Harvard and MIT, and even my Alma mater, Georgia Tech. Since my visit, these innovation centers appear to have become a requirement for top research universities.
I was really intrigued with academic innovation centers but was soon drawn away from universities to two separate but related subjects for my next business venture. I have learned a lot in the past decade about these areas both of which have become my passion; cyber-physical transformation (or more narrowly “The Internet of Things”), and innovation and entrepreneurship. Of course, at this stage, that sets me apart from almost nobody. That’s beside the point, but OK as well.
Ironically, these personal passions that once drew me away from campus innovation centers have brought me full circle to where I am beginning to engage more closely with universities, particularly regarding IoT and innovation. As I visit more research campuses, two key questions keep coming to mind. First, why do so many universities appear to be dramatically ramping up their innovation efforts, and second, how do they define success for these programs?
The answer to the first question probably is connected to the changing origin of research funding over the past two decades. Generally, funding from the federal government has been flat despite the bump from stimulus dollars connected with the 2008 Great Recession. To satisfy the demands from their research structures and the rise in interest around innovation and entrepreneurialism, universities had to self-fund at higher levels and seek other sources. The business sector stepped in. According to the National Science Board, since 2000, the federal government has supplied 42% of basic research and business funded 85% of experimental and 54% of applied research. However, business has also started to fund more basic research moving from 19% to 29% during this same period which helps to seed the other two research categories. This shift in funding also comes with a shift in emphasis as business is focused on outcomes for new or enhanced products and services which starts to get to my second question.
But I believe the answer to the second question is more interesting and more nuanced. If a research university is founded on the pursuit of discovery and the creation of knowledge for the betterment of society, then the very notion of innovation, the method by which discovery and knowledge are commercialized for society, should be a natural by-product and easily measured. But that assumption may be wrong.
Having re-engaged with universities, it appears to me that academic programs, faculty, campus culture, and institutional support significantly impact the rate and success metrics for innovation and vary greatly between universities. These include, for example, strengths of academic disciplines (i.e., engineering, computing, and basic sciences), level of investment in their research structure, institutional brand, the IP or patent portfolio, number of licenses and faculty startups, and the willingness for engaging successful alumni for philanthropic and technical advice. And their talent for partnering with the private sector to secure sponsored research grants is particularly important with the shift in funding sources. I don’t see these aspects as good or bad, other than to the extent they are either good or bad for a particular institution’s academic program.
However, when a university shows an ability to bring forward innovation through patent filings, licensing or sponsored startups, it seems to attract sponsored research grants which I’ve learned is critically important for today’s research programs to flourish. This, in turn, helps attract talented research faculty, provide modern facilities and equipment and of course, recruit highly talented students. It also increases philanthropic giving to the university and enhances its brand.
Maybe a prominent research and innovation program is the academic version of a successful university football team. It raises stature. It raises awareness. It raises student recruitment. And if it is really done well, it increases financial resources. But the football team gets no points when they get a first down on their 35-yard line. Everyone knows they only win games by getting the ball into the end zone. No offense is intended to any party for this analogy; I happen to like collegiate sports.
Thinking back to my interaction ten years ago with universities, it seemed like a great deal of emphasis was placed on the size, scope and licensing of the institution’s patent or IP portfolio. I always wondered as to what extent the portfolio was really leveraged. To the credit of the University of Illinois, even ten years ago, they had developed EnterpriseWorks, a university-sponsored incubator for startups as a means of increasing innovation for the university. During my visit in 2010, I had a chance to meet with them and was definitely impressed with what they were doing.
Over time, and now more recently, I have learned more and seen more concerning approaches to university innovation. I have visited a number of them, including MIT Media Labs and Tech Square at Ga Tech, home to several incubators and now accelerators. These are impressive programs, and they extend the university research and innovation framework for greater impact and success. Clearly, there are similar examples in other universities around the country, and for that matter, the globe. If a university incubator is like a “dorm for startups,” offering a supportive community, then accelerators are more akin to coursework or “school” to teach skills for startups. They generally work in cohorts and “graduate” together. The goal is to help the startups increase their likelihood of success, which brings me back to the second question. If these types of university-based innovation programs are expanding, what defines their success?
More and more, I believe the answer to this is less about licensing the IP portfolio, and more about the successful startups coming out of the university. Startups run by faculty, students, or external groups using university IP are visible, tangible manifestations of innovation. People get that. While I am certain many people at Illinois felt the creation of Mosaic that became Netscape was an example of the university not getting enough financial reward for the IP making its way into the market, I now see it differently; the payback was huge, just not in hard dollars for the institution. The University of Illinois is regarded as a world-class institution for computer engineering, and stories like Netscape and Marc Andreessen go a long way to re-enforce their brand. I believe universities are now coming to realize that it’s not only about the capital IP brings to the institution through licensing and a few very successful startups. The total number of startups, particularly those with successful exits, are equally as valuable and a good measure of success for an institution as they burnish the brand and lead to all of those other positive benefits.
If this concept is true, then the definition of successful innovation should be directly tied to the successful commercialization of startups. Incubators provide startup lodging and related support. Accelerators provide startup “education”, additional relevant support and some financial capital. But neither model assists the startup beyond housing or guidance. The day to day operation of the startup is left to the startup team. And the fact is, most startups fail. Interestingly, most startups within corporations lead by “Intrapreneurs” also fail, but for a variety of different reasons. Startups fail mostly based on a lack of execution and experience. This happens in the trenches, and for a multitude of reasons. This is not to suggest that universities driving better, and better IP portfolios is an unworthy pursuit. They are not. It is in no way suggesting university-based incubators are bad. They are not, and are (mostly) good. This is not to say that university-based accelerators are bad (or that any accelerators are bad, for that matter). The startup will have a better chance of success for having gone through the accelerator. But many still will go through then fail due to execution risk.
As universities come to grips with the idea that successful commercialization of startups using university IP is a critical part of their innovation success criteria, the concept of a venture studio should become a piece of their formula. A venture studio is a team of experienced entrepreneurs who have “been there and done that.” A venture studio is an integrated team from executives to product people to full-stack developers, hardware engineers, and more. What they have in common is that they are experienced entrepreneurs. A startup that gets admitted into a venture studio has the team become an extension of their startup. That means they help develop code. That means they assist with hardware or industrial design. That means they help with the legal contracts, the beta site planning, and customer implementation. They are not doing any of this for the entrepreneur, but rather with the entrepreneur. They help curate the product. They help get the product into the hands of customers then build customer acquisition. They help curate the team as well. The goal is to get the startup to successful commercialization. This means either an outright sale or fully funded as a Series-A backed company.
In the startup world, an incubator is like a medical school dormitory; it houses students with similar aspirations. An accelerator is like the medical school itself, where students go to classes and labs together in the pursuit of learning the prerequisite skills. But if that were enough, graduates from medical school would go directly into practicing medicine. But that doesn’t happen. And the reason is that the remaining part of the equation is the residency program, where medical school graduates now come face to face with the realities of engaging their craft alongside experienced mentors. This allows for the final chapter of learning; working with experienced professionals who guide them through encounters not experienced in a class or a lab while avoiding the dire ramifications for the patient. That is a venture studio.
As universities embrace the imperative for greater innovation, they will do so with an increasingly keen eye on the creation of successful commercialized startups. It makes sense. But just as the more advanced institutions began long ago to establish incubators and subsequently accelerators, we should see the rise of university-based venture studios as a natural and necessary evolution. For university startups, that is the equivalent of the Innovation Ph.D.
Don DeLoach is the Co-founder and CEO of Rocket Wagon Venture Studios. He has been active in the IoT market for years, co-founding and co-chairing the Midwest IoT Council, participating in several IoT related boards and advisory boards, and co-authoring “The Future of IoT”. Don is based in Chicago, and with the team at Rocket Wagon Venture Studios, focuses on driving IoT-focused startups to successful commercialization using the venture studio model.
Keith A. Orris is the Founder and CEO of The Endurance Group, a provider of real estate, financial and technology adoption solutions for nonprofit institutions. He is known for his passion and unconventional creativity for connecting ideas, talent and capital, and a keen ability for accomplishing bold strategic visions. For over 35 years, Keith has held senior positions in higher education, commercialization, health care, and government, as well as mid-market businesses and early-stage companies. He continues to be active in advising startups and early-stage ventures.