University innovation tools become more strategic necessities

Two, related discussion items dominated the conversation at the World Incubation Summit hosted by the DMZ incubator at Ryerson University in Toronto, Canada, and organised by the data provider UBI Global.

First, whether or how university-managed and -affiliated incubators could become the primary development tools for entrepreneurs.

Second, how the support tools for these student and faculty startups and spinouts could become more strategic for their education institutions.

Ali Amin, CEO of UBI Global, said he had founded the company five years earlier out of his own masters degree research in order to “speak on your [university incubators’] behalf” and so corporations did not have to whitelabel Techstars or other independent incubators and accelerators but instead work with universities.

Discussions at the summit by university incubators indicated many still felt their mixed strategic and/or financial goals put them at a disadvantage to these independent platforms, such as Techstars, RocketSpace, which raised $336m from China-based NHA two years ago, and Plug and Play.

Holger Meyer, head of research at UBI, in an opening panel of the summit ran through the main data points why this insecurity was often misplaced. With $4.7bn invested in clients of 259 benchmarked university-linked business incubators, they have had a 59% success rate – surviving at least five years - and 72,000 employees among them. This is good news for the more than 15,000 startups being incubated at 700 universities and contrasts with the 75% failure rate for venture-backed startups, according to a Harvard Business School study by Shikhar Ghosh.

And the message is being heard by leading corporations. In a series of discussions at the summit, Diego De Biasio, CEO at Technoport, and Warrick Cramer, CEO of Tomorrow Street, founded by phone operator Vodafone, explored the later-stage opportunities between corporations and incubators, while Shaheel Hooda, entrepreneur-in-residence at Telus-TEC Accelerator, and Amir Sayegh, strategic partnerships lead at phone operator Telus, chatted on early-stage support and shifting metrics in judging the success to the Canadian telco.

Sven De Cleyn, professor in entrepreneurship at University of Antwerp and promgram manager at Imec.istart, and Zane Smilga, innovation lab coordinator at Verhaert, then discussed the corporate-incubator relationship and the power of the community joining together to develop the entrepreneurial ecosystem.

In a presentation by "competent tyrant" Howard Tullman, former CEO at 1871 incubator (named after a fire that year), described how its work has helped the entrepreneurs (both those who make it through and those who don't by reducing their opportunity cost) and Chicago.

Initiated by JB Pritzker, 1871 in 2012 had started incubating 50 startups in its 50,000 square feet of space using 125 mentors. Now, it has 500 startups in 150,000 feet of space and requiring about 900 mentors, of which half are women.

Tullman, whose successor as CEO has been recently named as Betsy Ziegler, chief innovation officer at Northwestern University’s Kellogg School of Management, admitted to a 70% to 80% failure rate said its model required critical mass and so could not be replicated everywhere in order to “manage the collisions”. 1871 is affiliated with eight universities, most of which have dedicated spaces at the facility for students and faculty to develop businesses.

The power of such incubators for regional development is shown in 1871’s case by its member companies and alumni having raised more than $280m and created more than 8,000 jobs.

Michael Benarroch, provost and vice-president at Ryerson University, had earlier attributed part of Ryerson’s renaissance to the DMZ, which UBI had ranked number one along with UK-based SetSquared, and its other incubator areas. He said: “In eight years, DMZ has risen to be Canada’s largest commercial startup incubator with more 300 clients and $400m in funding. The DMZ has pioneered student/faculty zone learning.”

Brandon Paschal from incubation manager at Launchlabs, based in South Africa, then moderated a panel including Jairo Orozco, associate professor on entrepreneurship at Ean University, Martin Croteau, director of academic entrepreneurship at Ontario Centres of Excellence, and PKB Menon at Ginserve – Global Incubation Services in India.

Orozco explained the three out of the top five city applications to the UBI awards coming from Latin America as a result of public policies developed over the past 20 years to focus on reducing poverty through entrepreneurship.

Incubators had been one path for university students to find jobs but developing an entrepreneurial culture required everyone’s support, he added.

Menon said the shift in culture could happen relatively quickly. He said Bangalore in India had been regarded as a retirement city but now had 2,500 startups to use the knowledge capital developed from locals working at the 400 or so corporate research and development centres set up in the region. The Indian government has tried to encourage incubators as a source of these startups through allowing corporations to back them, too. The government mandates that 2%of corporate profits has to be used for socially- and environmentally-responsible measures and incubators are included within this bracket.

UBI’s Meyer had earlier talked about the importance of diversifying funding for university-affiliated incubators to survive longer-term and Croteau and Paschal touched on their approaches. In Ontario, Canada’s most important economic province, its Centres of Excellence had state funding but this had challenges given changes in political governance, while in South Africa, Paschal said its Launchlabs out of Stellenbosch University had been set up to be self-funding within three years.

Pashcal said this focus on being a startup itself and efficiency had in turn helped it serve startups. Similarly, whether incubators took equity stakes in startups impacted their mindset and who they chose to serve. UBI estimated the average incubator received five applications for every client taken on.

As to measuring this success, the following panel of Flavio Wagner, director of the Zenit Science and Technology Park at the Federal University of Rio Grande do Sul (UFRGS) in Brazil, Chris Lumb, CEO at TEC Edmonton incubator in Canada, Kjell H?kan N?rfelt, chief strategy officer at Vinnova in Sweden, Irene Fialka, CEO of Austria’s Inits incubator, and Agnès Flemal, general manager of the WSL incubator in Wallonia, Belgium, said context was the most important consideration.

The UBI metrics classify absolute and relative efficiency and effectiveness but Lumb said Canada had set up a working group to develop a framework for Canada over the next year.

Similarly, N?rfelt said performance indicators were useful if context applied. Its measurements looked at how incubators changed behaviour by using interviews to see the kinds of companies selected and how they had performed over three years. Given the heterogeneity of startups and that entrepreneurship results are influenced by outliers rather than normal distribution curves it can also take a long time, seven to 10 years, to see the fruits of the policies.

Fialka and Flemal then talked through their similar approaches of trying to match the technology readiness of a startup with the market readiness for the product or service. Flemal said: “The maturity of a project is key.”

However, most incubators in UBI’s rankings were still effectively regarded as pilots. Monash University, Australia’s largest with more than 70,000 students, set up its incubator last year to initially take on five clients. But demand for places proved so large the cohort was more than doubled. Elsewhere in Australia have seen interesting partnerships between corporations and universities. Scott Gunther, director of commercial development at IAG Firemark Ventures, the corporate venturing unit of the local insurer, referenced its “unique partnership” with Deakin University.

Simon Bond, innovation director at SetSquared, a multi-university incubator in the UK, laid out the lessons in running a successful incubator. The goals have changed since its foundation in 2002 but the key is feeding the machine, ie finding out what works for its five backing universities.

As UK government policy has pushed academic institutions to consider the impact of their teaching and research on the wider economy and changed funding to encourage these policies even if their funding of universities has often fallen in absolute or relative terms.

The European Universities Association (EUA) Public Funding Observatory said funding to universities has been decreasing in 15 out of 28 higher education systems since 2008 to 2017 and the European Commission estimated that an additional €62.4bn would have been necessary to fund all high-quality research proposals for 2014-2016 alone.

In the US, the Association of University Technology Managers (AUTM) found federal sources of academia fell from 70% in 1990s to 58% in 2016.

And Japan has since 2004’s incorporation of national and public universities seen a fall in government expenditure.

While it has been more than 70 years since Myles Mace created the first entrepreneurship course at a university, Harvard Business School, in 1947, student pressure for teaching and education has increased particularly since the global financial crisis a decade ago.

In 2009, an Organisation for Economic Cooperation and Development (OECD) survey showed 43% of students within five years of graduating were expected to be self-employed. Development of proof-of-concept funding, startup clubs, accelerators and incubators, alumni and university-managed and affiliated venture funds* and deeper connections between business schools and arts and science courses have deepened since then.

Gregg Bayes-Brown, marketing and communications manager at Oxford University Innovation, in a LinkedIn discussion thread said: “In Ox[ford], there's all the many, varied reasons we've discussed ad infinitum in the past - getting students, building an ecosystem, developing another route for impact for research and studies, etc. “But, something we didn't discuss on GUV: what having a thriving innovation ecosystem says to the outside world.

"While comms isn't the one and only reason Oxford built the Foundry [incubator], stereotypes of a city dipped in heritage, that Oxford is elitist and unassailable, that all the university does is pump out PPE grads and humanities research - all of this can be challenged by what we do on innovation. 45% of our spinouts are started by foreign founders, while 78% of startups in our incubator have international innovators at their core.

"Having the infrastructure to support those founders says we're open to people from all walks of life to come and start something here, and positions Oxford not as the University of the past, but one of the future.”

Although in the same thread, Chris Donegan, co-founder of Invention Capital Associates, warned: “Universities view these things as strategic priorities because they are deluded into trying to emulate Stanford. Bolt on incubators and venture hubs are largely economically pointless vanity projects or PR stunts. It is a benefit in kind for academic staff encouraged by government quango funding.”

Nevertheless, the examples of Oxford, Stanford, MIT and Tsinghua have shown the potential for focusing on complementing research and teaching funding with entrepreneurship as a strategic priority.

Stanford alumni/ae have started more than 40,000 companies since engineering department head Fred Terman encouraged two students, Bill Hewlett and Dave Packard, to set up a company in their garage in the 1930s.

These 40,000-plus Stanford-educated startups now have annual revenues of more than $2.7 trillion and while Stanford initially tried to avoid direct funding of entrepreneurs due to risks to its now-$26bn+ endowment, which instead indirectly funded them by committing to venture capital funds on Sand Hill Road, this policy has changed and the university balance sheet is used to support independent-but-affiliated StartX, which has effectively an open chequebook. The university still benefits from philanthropy and its Office for Technology Licensing (OTL).

And as a later Stanford's school of engineering head, John Hennessy, has said: "There's two kinds of technologies in the world: stuff that is patentable and broadly applicable and the right thing to do is to give it to OTL.

“Then there's stuff that is more a preliminary proof of a concept. It's not patentable, and the real value is in the people and their understanding of that technology and how it can develop into a useful product.

"OTL's role there is not to get in the way. That's when the right thing to do is to say, 'Godspeed, go do it’.”

Hennessy correctly realised the value for the institution was often more to be found in its relationship with its intangible asset, the people passing through the institution, than in trying to capture the shorter-term economics from them.

In this light, a strategic threat to universities comes less from online courses, so-called moocs, given the power of universities to deliver accreditation but in organisations that can convene and educate groups of people and deliver long-term network effects to them.

In this light, VC or other service providers offering portfolio companies their own entrepreneurship knowledge and networking tools, whether formalised in the way True Ventures’ True University or Tim Draper’s Draper University, have started to do or others have less formally reach the core competence that universities have offered society, faculty and students.

As Toronto mayor John Tory at the World Incubation Summit said, his city’s policies were focused on how investing in people to become smarter and expediting immigration to boost a region's overall brain power can act as a rising tide to lift all boats through collaboration. Universities might ask with an emergent strategic threat being unveiled whether they have invested enough in their own tactical asset of entrepreneurship incubation and venture funding tools and people.

* Global University Venturing will be updating its review of university venture funds  ahead of its GUV:Fusion conference held as part of the GCV Symposium in London on 22-23 May, so please help us improve our knowledge of the community so there is better understanding of its importance to the entrepreneurs, coinvestors and society. 

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