Finding fundable university-based deals won’t happen haphazardly and, generally, won’t be done quickly. But if you’re patient and do it right, you’ll build a company that’s unique, at the cutting edge of technology, and with the potential of fueling truly transformational changes in business.
The key steps for finding and cultivating new university-based start-ups are:
1. Start with a point of view
2. Be committed to a long-term relationship
3. Be prepared to look at a lot of opportunities before you find just the right ones
4. Be willing to work in partnership with the academic entrepreneur
“But wait”, you say, “wasn’t Google a product of university-based research? Isn’t this what you’re talking about?” The answer is no – we’re talking about just the opposite. Google’s founders developed a great idea within the university setting and then went out and recruited their investors. Google, and Sun before it, were examples of great university-based projects proactively taking themselves out to the investment community. For investors this would be like Halle Berry calling us up for a date – we should all be so lucky. The reality is that if you want a date for Friday night you’re better served taking deliberate action yourself rather than waiting around in the hopes of Ms. Berry’s call.
Start with a Point of View: Where do you think the future is heading? Without a viewpoint in mind, you won’t be able to put the huge mass of university research in context and determine which projects are actually meaningful. (Top-tier universities each conduct several hundreds of millions of dollars in annual research.) Of course there are no guarantees about which perspective on the future of technology is correct – only time will tell – but without a focus and sense of direction, it will be very difficult to navigate early-stage investing in the university setting.
Build a long-term relationship with university faculty: “One night stands” in the university investing environment don’t work. If you go in expecting to be able to find exciting deals by attending a mixer or two, you’ll be greatly disappointed. A “singles bar” approach to deal-finding is rarely successful; entrepreneurially-minded faculty members are looking for partners who’re committed to contributing value and long-term relationships. The average length of relationship with the founding teams of university-based companies we have funded is well over a year
Be prepared to look at lots of opportunities: Although there’s be a huge amount of exciting research being done at your favorite university, a very large portion of it will have no direct commercial applicability. We have reviewed scores of university research projects in the past year and have invested in only three.
Partnership and time are key: There are no free rides. For example, we recently funded a company, Amalgamated Insight, which was the result of some revolutionary research done at UC Berkeley. Working with Mike Franklin, the professor who’d developed the technology, to transform his research project into what it is now, a VC-funded company with real, paying customers, required that I roll up my sleeves and be a true partner in his start-up. This entailed almost a year’s worth of effort working with potential customers, positioning the company, building a business plan, recruiting a team, and recruiting co-investors. It was a lot of work prior to Series A, but it yielded a company that got plenty of investment interest and now has an opportunity to effect some genuinely transformational changes in the market.
In the end, working with universities on a long-term basis can really pay off. It also gets to the heart of early stage venture capital: starting with a vision, finding cutting-edge opportunities to bet on, and working long and consistently to build a successful, unique company. And if you can find a university research project that falls neatly into your particular point of view, then you may have found that next great investment.