Houston Voices

The Valley of Death: How universities can help startups survive

Universities and startups have different goals, but that doesn't mean that educational institutions can't help new companies through the valley of death that is entering the marketplace. Miguel Tovar/University of Houston

When looking out over the commercialization landscape, the vast space a product has to travel from discovery to the marketplace appears to be growing. For many startup companies, this so-called "valley of death" means the end of the road. Without support, resources and, most importantly, cash, many startups will shut down.

Universities are becoming epicenters for startup activity. In many ways, they are perfectly positioned to support commercialization, with a pro-research environment, lab facilities, faculty expertise, human resources, and tech transfer operations.

But there's one problem.

"Universities and industry are like two icebergs moving in different directions," says Montgomery Alger, professor of chemical engineering and director of the Institute for Natural Gas Research at Pennsylvania State University. "Companies need to make quarterly profits quickly through new products and services, and the academic business model is not set up to support that need."

The question then becomes: how can universities shift their approach to bridge the gap from idea to market?

Spark innovation on campus

Universities may need to rethink a few things when it comes to their innovation ecosystems.

"Universities must play a key role in the commercialization process because so many ideas start there," says Walter Ulrich, longtime technology management consultant and former chief executive officer of the Houston Technology Center, previously one of Houston's most prominent accelerators and incubators. "Investors and inventors go to where there's a critical mass of opportunity, so universities need to step up their game."

Supporting commercialization gives universities a chance to be even more relevant when it comes to local economic development. Changing the institutional culture, however, may be necessary if universities want to become a true bridge across the valley of death.

Alger, who spent part of his early career working for GE Global Research before transitioning to academia, argues that this can be done by creating multidisciplinary teams of researchers across the university to help industry bring ideas to the market — a foundational part of the bridge.

Another way to spark innovation is to boost technology transfer or industry alliance offices, according to Susan Jenkins, managing director of the Innovative Genomics Institute at the University of California, Berkeley. Hiring an intellectual property manager to work specifically with academic research institutes can go a long way in supporting an innovation environment.

"When it comes to innovation, universities need to be open to new ideas," says Jenkins. "They need to be able to shift quickly to the next best thing, whatever is hot at the moment. That's how the market works."

Disrupt the academic business model

Universities are designed to support educational throughput. Most are not set up to support commercialization activities.

"Universities are stuck in a rut," says Alger. "There has to be a conscious decision to make the university function like a business to support business."

That means putting the right resources in place to fix the many pain points companies may experience. Long response times, extensive paperwork processes and the lack of system wide policies governing university-corporate relationships can often lead startups and industry partners to look elsewhere for solutions.

"Just like scientists need to be innovative, the administration needs to be innovative," says Jenkins. "If you want to be in the race, you have to be ready to be flexible and adapt."

Another way to disrupt the academic business model is to consider commercialization as part of the promotion and tenure process.

"If universities are serious about advancing technology entrepreneurship, they must recognize faculty who drive commercialization," says Ulrich.

Alger agrees. "There has to be some kind of incentive structure established for the research program when it comes to technology transfer."

Six ways to get serious about startups

According to Ulrich, who has launched hundreds of successful startups throughout his career, startups need cash — and lots of it. Early licensing fees, short-term payouts, competitive prices for rent, and other services charged by the universities could end up keeping startups from success.

Ulrich says "Cash is king," noting that an increased demand for early-stage capital has widened the valley of death.

There are a few things universities can do to support early-stage startups:

1. Invest in long-term payouts.
Most venture firms expect returns in 7 to 10 years. By establishing longer-term payouts, more cash will stay in the hands of the entrepreneur.

2. Consider equity for returns.
Universities can negotiate equity, possibly even in the leasing of space.

3. License more broadly.
Diversifying provides more pathways for inventors to find the right fit for licensing their product.

4. Provide resources as investment.
Explore resources such as coursework credits for startups looking to expand their knowledge base.

5. Establish seed funding.
Entrepreneurs can use even the smallest amounts of cash. Not having to give it back is even better.

6. Create a university-focused angel network.
With broad alumni and donor bases, universities can more readily tap into its business community to build a network of investors.

Incorporating different streams of funding could be very important, says Jenkins, who worked with a foundation to establish entrepreneurial fellowship program at UC-Berkeley.

It's a dimension, however, that some campuses may not be set up to deal with yet.

"Product development within the academic research environment will take a focused investment," says Alger. "Universities just need to give the right attention and priority to it."

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This article originally appeared on the University of Houston's The Big Idea.

Lindsay Lewis is the director of strategic research communications at UH.

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Building Houston

 
 

A new report finds Houston a top city for business friendliness and connectivity. Photo via Getty Images

Houston, the future looks bright.

A new study from the fDi Intelligence division of the Financial Times places Houston at No. 7 among the top major cities of the future for 2021-22 across North, South, and Central America. Among major cities in the Americas, Houston appears at No. 3 for business friendliness and No. 4 for connectivity.

"Houston is known as one of the youngest, fastest-growing, and most diverse cities anywhere in the world. I am thrilled that we continue to be recognized for our thriving innovation ecosystem," Houston Mayor Sylvester Turner is quoted as saying in the fDi study.

Toronto leads the 2021-22 list of the top major cities in the Americas, followed by San Francisco, Montreal, Chicago, and Boston.

The rankings are based on data in five categories:

  • Economic potential
  • Business friendliness
  • Human capital and lifestyle
  • Cost effectiveness
  • Connectivity

Houston's no stranger to the list. Last year, the city ranked No. 3 on the same study, and in 2019, claimed the No. 5 spot.

"The fact that Houston consistently ranks among the top markets for foreign direct investment speaks to our region's connectivity and business-friendly environment," says Susan Davenport, chief economic development officer at the Greater Houston Partnership. "Many of the industry sectors we target for expansion and relocation in Houston are global in nature — from energy 2.0 and life sciences to aerospace and digital tech. The infrastructure and diverse workforce that make these prime growth sectors for us among domestic players are equally attractive to international companies looking to establish or strengthen ties in the Americas."

International trade is a cornerstone of the Houston area's economy. In 2020, the region recorded $129.5 billion in exports, according to the Greater Houston Partnership. China ranked as the region's top trading partner last year, followed by Mexico, Brazil, Korea, Germany, the Netherlands, India, Japan, the United Kingdom, and Italy.

Houston's role as a hub for foreign trade and international business "is likely to support the region's economic recovery in the months and years ahead," the partnership noted in May.

"We talk often of Houston as a great global city — one that competes with the likes of London, Tokyo, São Paulo, and Beijing. But that's only possible because of our infrastructure — namely our port — and our connections around the world," Bob Harvey, president and CEO of the partnership, said last month. "Houston's ties abroad remain strong."

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