A New Paradigm to Strengthen the Innovation and External Engagement Potential of Universities
For the 20-year period ending 2015, U.S. universities launched more than 11,000 start-up companies. Currently, fully 70% of university licenses are to start-ups or small companies. Yet universities continue to focus their operations to engage with industry as if these interactions are with large companies. Notwithstanding efforts to engage industry through novel programs to foster collaboration, the underpinnings of university commercialization remain out of step with the activities and partners they engage with most.
Beginning in 2006, University of Utah established several programs to facilitate the creation of start-ups. Reasons for doing this included the early recognition of industry reduction of internal R&D functions as well as being responsive to the increased desire of faculty to participate in commercialization and industry engagement. These programs focused primarily on supporting faculty entrepreneurism. This recognition led to an effort to generate a maximal volume of start-up companies. In the ten-year period from 2006 to 2015, University of Utah launched 189 start-ups.
Following a decade of intense focus on the number of companies formed, the Centre for Technology & Venture Commercialization (TVC) at University of Utah, the organization tasked with managing start-ups and all related commercialization and industry engagement, undertook an 18-month study to evaluate what had been learned, what methods worked and why, as well as where there were opportunities to introduce new paradigms. Inherent within this investigation was the desire to understand KPI’s in use and which KPI’s reflected desired outcomes.
The study focused not only on the programs and practices of TVC, but on whether these programs and practices actually worked in harmony. A hypothesis that developed early in the study was that as programs and practices developed over time, they largely operated independent of each other, which led to creating ineffective start-ups. The theory continued, that if a start-up was ineffective, downstream engagement with industry would similarly be ineffective. The multi-factor investigation included:
• Start-up management team selection
• Corporate structure, licensing terms and expectations
• Effectiveness of, and relationships between, programs provided by TVC
• Success rate of start-ups; long-term survival and revenue generation
• Follow-on investment capital raised by start-ups
• Downstream engagement with industry
• Internal processes for creating a start-up
• Post start-up support services
• Appropriateness of TVC staffing
• Management of equity held in start-ups
• Impact of historical KPIs and consideration of new KPIs
The investigation was conducted by the leadership team of TVC, supported by external consultants. Select elements of the study also included certain advisory board members, entrepreneurs, industry executives, investors and members of University leadership. The results are too numerous to enumerate in this abstract; however, they underscore the need for a paradigm shift in how universities engage industry. This engagement should, at a minimum, be segmented into two specific groups – start-ups and large corporations - with dedicated resources and approach for each.
The study also yielded a clear appreciation that KPIs such as number of start-ups and number of licenses led to behaviours which focused on quantity as opposed to quality as well as short-term approaches that valued the transaction over the relationship. By interviewing key stakeholders, we clearly identified that instances where focus on the relationship took precedent, long-term performance of the company, including revenue back to the University, were superior.
Key findings and results of the study include:
• Management team selection was not prioritized.
• Corporate structures were not effectively managed and corporate directors were not sufficient to guide the company.
• Licensing terms did not mark to market, leading to expectations of frequent amending of terms.
• Start-up programs focused on activities prior to start-up formation.
• Revenue generation, equity value and investment capital raised most directly correlated to the experience of the management team.
• Downstream engagement with industry, both with start-ups and large corporations was minimal.
• Internal processes for start-up formation lacked rigor and post start-up services were limited.
• TVC lacked staff with experience in entrepreneurism, management and venture capital.
• TVC lacked a process for managing its equity portfolio.
• Historical KPIs focused on quantity to the exclusion of quality.
As a result of the study, new programs and resources include:
• Two programs for start-up management team development led by experienced entrepreneurs.
• Functions to manage the start-up formation process and manage the equity portfolio.
• Third-party market-based licensing terms.
• A comprehensive program to provide long-term support for start-ups.
• An organizational structure with one team dedicated to interfacing with start-ups and another with large corporations.
• Staffing comprised of appropriately experienced professionals.
• KPIs focusing on value creation and long-term relationships were implemented and continue to be developed.
Study findings have led to implementation of an integrated, value-based approach to start-ups and university-industry engagement. The organization has been restructured to meet the needs of this new paradigm. KPIs have shifted to include measures of impact and quality. Operations are increasingly profitable and the number and value of industry engagements are growing. New programs include long-term support of start-ups, transparent internal processes and several functions to recruit and retain experienced start-up management teams. New programs have been in operation for just over one year. Early impact on the ecosystem has been positive. Opportunities for long-term study are numerous.