Venture Capital: Good as a Funder. Better as a Partner for University Technology and Start-ups

The often referenced model of early stage technology and business funding — prevalent in business books, policy reports, and financial media — over simplifies the realities of technology and start-up development. This model suggests a systematized (and rather smooth) transition of idea > bootstrapping > Four Fs > angel investors > venture capital > exit. This view is clean, teachable, and displays the more traditional forms of early stage capital, but it also shifts focus downstream— away from the complexity and resource constraints faced by those that shepherd developmentally-rigorous technologies, like advanced materials, biotechnology, energy, medical devices, and nanotechnology, through its early applied development and commercialization. The effect is that the most crucial period in developing nascent technologies is overlooked and under resourced because it is literally not even in the picture.

Therefore, to support those that live this reality that are charged with transitioning private/public research funding into the technologies and start-ups demanded by and disruptive to the marketplace, it is vital
to construct a real view of the early-stage capital continuum— one that positions gap funding and also includes the current status of other forms of traditional, emerging, and disruptive sources of early stage capital and support — to demonstrate the reality to not only practitioners, but other stakeholders or partners with interest in this space.

Venture Capital

Venture capital firms initiate, manage, and support investments in early- stage opportunities for institutional investment funds and high net worth individuals. Their goal is to a rate of return that is multiples above more traditional investment options. But, contrary to many public perceptions of venture capitalists as high-risk mavericks, most of their historical investment is in the scaling of established, growing businesses, not in the seed stage of technology and business investment, where research institution technology and start-ups reside.

Based on analysis from the PwC MoneyTree report data from 2005- 2014, the United States venture capital industry has pumped $293B into 38,807 businesses, but just $13B was invested into 3,677 seed stage deals. This represents just 4.7% of the total investment dollars and 10% of the total deals in the past decade . During this same period, research institutions reported venture capital investments in 534 spin-outs1.

While just a small percentage of the total venture activity, the
role that seed-stage venture capital has and should play in the
early development of research institution start-ups should not be discounted. More than the capital itself, venture firms bring a wealth
of market knowledge and networks of management talent and business connections. Research institutions can take advantage of this resource by strategically integrating seed stage venture firms into their operation, especially in evaluatory and advisory functions. Active relationship-building between research institutions and the venture capital community supports operations, orders start-up priorities, and strategically directs limited development capital in the near-term, while setting up the possibility for later investment.

We have found that to encourage engagement and to realize lasting benefits, both parties should undergo a highly targeted and segmented approach to selecting partners. The initial focus that makes most
sense between research institutions or venture capital firms seeking this partnership should begin at first-sequence/“first money”, seed stage investments, or those deals receiving venture capital for the first time and with it those firms willing to be first-money in these early start-ups. This is also the investment area most influenced by and brokered through the support of the research institution and its tech commercialization operations. From here, these research institution operations can and should continue to play a support role as the company seeks follow-on and later round investment.

Sub-analysis of first-money seed venture investments

According to the MoneyTree data, the companies receiving seed venture capital for the first time represents just 3% of total VC dollars invested and 7% of the deals from 2005-2014. From 1995 to 2014, venture capital has a historical median/average investment of $1M/$3.4M per first-sequence seed stage deal

And these are the firms that play here....

And this is WHERE they play....

(California and Massachusetts removed from Amount Invested shading to allow us to see what everyone else is getting:))

Access the Full Report

The Mind the Gap Report 2015, now in its third, expanded iteration, is  an all-in-one program development guide for current and aspiring gap fund managers that investigates 82 active translational research, proof of concept, and seed investment funds at 51 universities and affiliated organizations.

We have put our decade worth of active monitoring of the evolution of these university-affiliated gap funds to save you time and resources, and to support you in pitching new or expanding existing gap funding programs.

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