Universities can succeed (inexpensively) by creating entreprenerial culture or fail (expensively) by directly funding startups

May 29, 2011

Question: Should Universities put money into startups to bridge the so-called “valley of death”?  I hear that more and more lately.

Answer: It is a terrible idea.  However, there is a way for the university to spend far less and create more.

Let me explain. Universities are frustrated…there is all of this “research and nobody is commercializing it”  and “if VC’s won’t do it then we should invest”.  Unfortunately, the simple solution, invest in our own startups, is a recipe for financial losses.  Picking startup winners and helping them succeed is just not the core competency of universities (and looking at the numbers, it isn’t the core competency of many VC funds either).  Also, as I have said before, there is a tendency to over estimate how many really commercializable technologies are sitting around at one time.

What a university CAN be good at is creating a culture where there are more opportunities for commercializable research to be generated and to have a shot at commercialization.  In fact, if you look at the success  of the Rice Alliance, it can stimulate much more than the commercialization of university research – it can have a huge impact on the local startup ecosystem at a very low cost.

So, I think that having the university act to select and finance startups is not such a good idea but spending money on mentoring entrepreneurial faculty, helping them refine their story and their target market or technology and connect with the business and investment community is absolutely worthwhile.  Mentoring and connecting the university with the business community go hand in hand. It is not expensive, the university can have a lot of shots on goal and, if there is a strike out on a particular technology, the experience still gets into the university, the business community gets engaged …all for the benefit of the next deal.  This approach is highly leveraged with sustainable benefits versus the rifle shot model where the university spins out a company, puts money into it, hires a CEO and hopes for the best.

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