Professor Jerome Engel, Faculty Director of the UC Berkeley Venture Capital Executive Program, Executive Director Emeritus of the Lester Centre for Entrepreneurship, Investment Committee Member at Future Planet Capital
In the world of technology, it’s always been important to look at universities as a source of innovation.
Conversely, universities have long recognised that it is also in their interest to participate in the research commercialization process. Following examples like Stanford, Berkeley and MIT, academic institutions around the world have reorganized their technology transfer activities, streamlined their procedures and moved toward offering better economic terms in order to encourage entrepreneurial development.
Recent years have seen accelerated and fundamental changes to the ecosystem of university research, commercialization and investment. These have significant implications for current and future investors in this sector. Three of them are explored here: (1) the rise of university venture funds, (2) the changing nature of corporate VC, and (3) the growing number of initiatives by governments to drive innovation in their economies.
A new breed of manager
Universities have done more than simply recharacterize how they license and facilitate commercialization. Some are now going much further, establishing ‘University Venture Funds’ to invest in and support the development of start-ups. Imperial, Michigan, Cambridge, Tsinghua, Berkeley and many others have developed a range of investment vehicles for this purpose.
Although the traditional venture capital community has been active in this sector, there are now an increasing number of venture managers whose sole purpose is to concentrate on university start-ups and spin-outs, often with a very narrowly defined universe – a single university or a small group of universities – in focus.
In the US, where the venture capital manager community is the most developed, this shift has significant implications. The activity is shifting, from the ‘old guard’ firms like Sequoia and Kleiner Perkins, who some would say are distracted by their very success, towards these newer entities.
In addition to the university based funds, there are an increasing array of sources of start-up capital generally. Angel investors, Super Angel syndicates, specialized pre-seed and seed stage venture firms are all serving to increase the availability of funding and competition to access the very best venture opportunities. These new participants both compete with and complement the traditional venture capital community.
Corporate VC change
A second intriguing trend is influencing the technology investment ecosystem. For corporations, it is increasingly difficult to drive innovation from within their businesses. In part, this is a natural feature of large companies: disruption is hard to encourage when its emergence may challenge the firm’s own currently profitable activities. In addition, innovation has become – in a word – faster. Product lifecycles have become shorter. Technologies become outdated more quickly.
The result: firms must increasingly use an “outsourced” innovation model, bringing research and technological advances in from outside rather than trying to grow them at home.
This has produced a new generation of Corporate VC funds. Although this has long been a significant sector, recent years have seen firms like BMW, Walmart and many more opening new venture investing units. These are scouring the ecosystem of start-ups, spin-outs and new research emerging from academic institutions, looking for strategic opportunities relevant to their industries as well as investment gains.
In some cases, we see Corporate VC working very actively with the emerging University Venture Funds. Oxford Sciences Innovation, for example, counts several – including Google Ventures – among their investor base.
Innovation is serious political business. Research advances do not only facilitate much-needed economic growth: in a new world of hashtags and cryptocurrencies, artificial Intelligence and autonomous robots, technological development represents the new arms race of the 21st century.
Today’s governments are pouring millions into trying to ensure that leading researchers in STEM fields are channelling their talents. In the U.S., the Federal government has recently created major technology commercialization endeavour, the NSF I-Corps, that is a nation-wide virtual commercialization accelerator. [“The National Science Foundation (NSF) I-Corps program prepares scientists and engineers to extend their focus beyond the university laboratory, and accelerates the economic and societal benefits of NSF-funded, basic research projects that are ready to move toward commercialization. NSF grantees identify valuable product opportunities that can emerge from academic research and gain skills in entrepreneurship.” www.nsf.gov]
This program, in effect, reaches right into the research lab of the nation’s leading scientists. It actively educates researchers on establishing businesses, rather than relying on outside investors or entrepreneurs to drive the engine of technology commercialization.
This model has captured attention globally and is now being imitated in other regions. For example, England, Singapore and Norway are now adopting models that replicates I-Corps’ essential aspects.
All of these changes represent immense opportunities for investors in early- and growth-stage technology. Yet an open mind is essential. With the evolving landscape, the successful strategies of today won’t simply copy the successful strategies of ten or twenty years ago. With Future Planet, we are hoping to take advantage of some of these fundamental shifts in the ecosystem.