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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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Auburn University's SwiftSku took first place in this year's virtually held Rice Business Plan Competition, but it was the second place company that went home with over half a million in cash and investment prizes. Photo via rice.edu

In its 21st year, the Rice Business Plan Competition hosted 54 student-founded startups from all over the world — its largest batch of companies to date — and doled out over $1.4 million in cash and investment prizes at the week-long virtual competition.

RBPC, which is put on by the Rice Alliance for Technology and Entrepreneurship, took place Tuesday, April 6, to Friday, April 9 this year. Just like 2020, RBPC was virtually held. The competition announced the 54 participating startups last month, and coordinated the annual elevator pitches, a semi-finals round, wildcard round and live final pitches. The contestants also received virtual networking and mentoring.

Earlier this week, Rice Alliance announced the seven student-led startups that then competed in the finals. From this pack, the judges awarded the top prizes. Here's how the finalists placed and what won:

  • SwiftSku from Auburn University, point of sales technology for convenience stores that allows for real time analytics, won first place and claimed the $350,000 grand prize from Goose Capital. The company also won the $50,000 Business Angel Minority Association Prize, the $500 Best Digital Elevator Pitch Prize from Mercury Fund, and the $500 Third Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $401,000. The company also won the CFO Consulting Prize, a $25,000 in-kind award.
  • AgZen from the Massachusetts Institute of Technology, a pesticide alternative spray and formulation technology company, won the second place $100,000 investment prize (awarded by Finger Interests, Anderson Family Fund, Greg Novak, and Tracy Druce). The startup also won a $300,000 Owl Investment Prize, the $100,000 Houston Angel Network Prize, the $500 Best Energy Elevator Pitch Prize from Mercury Fund, and the $1,500 Third Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $502,000. The company also won the $30,000 in-kind Polsinelli Energy Prize.
  • FibreCoat GmbH from RWTH Aachen University, a startup with patented spinning technology for the production of inexpensive high-performance composite fibers, won the third place $50,000 investment prize (also awarded by Finger Interests, Anderson Family Fund, Greg Novak, and Tracy Druce). The company also won the $100,000 TiE Houston Angels Prize and the $500 Best Hard Tech Elevator Pitch Prize from Mercury Fund, bringing the company's grand total in cash and investment prizes to $150,500.
  • Candelytics from Harvard University, a startup building the digital infrastructure for 3-D data, won the fourth place $5,000 prize.
  • OYA FEMTECH Apparel from UCLA, an athletic wear company that designs feminine health-focused clothing, won the fifth place $5,000 prize. The company also won the $5,000 Eagle Investors Prize, the $25,000 Urban Capital Network Prize, and the $1,000 Second Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $36,000.
  • LFAnt Medical from McGill University , an innovative and tech-backed STI testing company, won the sixth place $5,000 prize and the $20,000 Johnson and Johnson Innovation Prize, bringing the company's grand total in cash and investment prizes to $25,000.
  • SimpL from the University of Pittsburgh, an AI-backed fitness software company, won the seventh place $5,000 prize. The company also won the $25,000 Spirit of Entrepreneurship Prize from the Pearland Economic Development Corp., bringing the company's grand total in cash and investment prizes to $30,000.

Some of the competition's participating startups outside of the seven finalists won monetary and in-kind prizes. Here's a list of those.

  • Mercury Fund's Elevator Pitch Prizes also included:
    • Best Life Science $500 Prize to Blue Comet Medical Solutions from Northwestern University
    • Best Consumer $500 Prize to EasyFlo from the University of New Mexico
    • Best Overall $1,000 prize to Anthro Energy from Stanford University
  • The Palo Alto Software Outstanding LivePlan Pitch $3,000 Prize went to LiRA Inc. from the University of North Carolina at Chapel Hill
  • The OFW Law FDA Regulatory Strategy Prize, a $20,000 in-kind award went to Paldara Inc. from Oklahoma State University.
  • The Silver Fox Mentoring Prize, which included $20,000 in kind prizes to three winners selected Ai-Ris from Texas A&M University, BruxAway from the University of Texas, and Karkinex from Rice University as recipients.
  • The first, second, and third place winners also each received the legal service prize from Baker Botts for a total of $20,000 in-kind award.
  • The Courageous Women Entrepreneurship Prize from nCourage — a $50,000 investment prize — went to Shelly Xu Design from Harvard University.
  • The SWPDC Pediatric Device Prize — usually a $50,000 investment divided its prize to two winners to receive $25,000 each
    • Blue Comet Medical Solutions from Northwestern University
    • Neurava from Purdue University
  • TMC Innovation Healthcare Prize awarded a $100,000 investment prize and admission into its accelerator to ArchGuard from Duke University
  • The Artemis Fund awarded its $100,000 investment prize to Kit Switch from Stanford University
The awards program concluded with a plan to host the 22nd annual awards in 2022 in person.

If you missed the virtual programming, each event was hosted live on YouTube and the videos are now available on the Rice Alliance's page.

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