Garold Breit of UMTTO

In University Technology Transfer: Smart Managers Do Creative Deals, we visited two technology transfer models; learned how technology transfer deals were managed in the past; reported why startup companies are a powerful launching vehicle for new discoveries; and inspected some of the newer ways forward-thinking technology transfer managers are using to construct creative deals.

According to Garold Breit, executive director at the University of Manitoba Technology Transfer Office, university technology transfer managers are now taking dilution prevention into account. They’re structuring deals in such a way that the university’s final percentage ownership may increase or decrease, depending on

• the company’s financial realities,
• commercialization efforts,
• technology development progress, and
• the technology’s attribution to the company’s success and ability to raise risk capital.

Technology Doesn’t Create Company

But if you think that the technology being transferred is the key to successful commercialization, think again.

One experienced angel stresses that the technology is never worth more than 10 percent of the equity of the venture. The key to success is always the management team, not the technology. It’s all about the team’s ability to execute.

Breit also avows that “a single patent or a single technology is not going to be adequate to build a successful company.”

A vast majority of VCs and angels invest in people rather than technology; even promising technologies will be abandoned if the company and management team aren’t already in place.

Investors fund growth and customer acquisition, not product development.

Private Investors Ignore Public Sector Technology

An angel also points out that most private sector investors, i.e. angel investors and VCs, ignore public sector technology.

Lawrence M. Murphy of National Renewable Energy Lab (NRWL) and Peter L. Edwards of Altira Group explain why in their report, “Bridging the Valley of Death: Transitioning from Public to Private Sector Financing”:

The public sector makes early stage, high risk investments in promising innovative technologies that can address public good needs of energy diversity, national and energy security, environmental quality, and economic sustainability.

Private sector investors, on the other hand, focus their resources and efforts on market focused businesses with good profit potential – not technologies.

Hence, once these technologies have been created, many challenges in attracting private sector investors remain, since a technology does not [make] a product, business, markets, and profits.

Requirements for Successful Commercialization

To enhance the probability of successful commercialization, and to help the startup withstand the rigors of the marketplace and the demands of the regulatory agencies, a collaboration between investors, companies, entrepreneurs, and research organizations etc. is required, states Breit.

He further suggests that flexibility in deal structures is a must in attracting new commercialization partners. Ownership (final equity positions) should be determined only when the process is moving towards real commercialization.

If you’re interested in technology transfer, take a read of “Bridging the Valley of Death: Transitioning from Public to Private Sector Financing” [PDF]. It does a good job in helping investors, entrepreneurs, and technology transfer managers understand the challenges in transferring and commercializing technology, and proposes possible solutions to close the gap and improve commercialization efforts.

University of Manitoba Technology Transfer Office

Meet Garold Breit at Biofit

• Technologies available for licensing

Image by: Seth1492

There are two models in the field of technology transfer, says one veteran angel investor.

Innovations from research labs are either transferred to established corporations or startup ventures. The goal is to transform innovative technologies into marketable products and applications to promote economic growth and/or create money-making opportunities.

About 80 percent of lab technologies are suitable for established companies and 20 percent for startups, the angel continues.

University Technology Transfer: Traditional Model

In the past, university technology transfer managers predominantly used traditional licensing model as a technology transfer mechanism to generate revenues. Exclusive, rather than non-exclusive licenses, with upfront initiation fees, milestone payments and running royalties were pretty much the only way things were done, Garold Breit, executive director at the University of Manitoba Technology Transfer Office tells Venture Hype.

Universities were reluctant to license their technologies to cash-strapped startups because most can’t cough up the cash required by the traditional licensing model. In occasions where lab technologies were licensed to startups, equity was accepted only as a last resort method of payment.

Startups as Effective University Technology Transfer Vehicles

Garold Breit of UMTTO

Today, forward-thinking technology transfer managers recognize that startups are a powerful launching vehicle for new discoveries. And they realize the force young companies can bring to fortify local economic development initiatives, says Breit.

It’s startup firms, rather than their bigger corporate counterparts, that are the most effective when it comes to translating university inventions into commercial products or processes.

A licensed startup would focus entirely on commercializing the technology. A mainstream company, however, would be distracted by other undertakings. Commercializing technologies that are licensed to established corporations is “fragile at best due to competing projects, possible loss of the champion, change of management, change of company direction, etc.” Caltech opines opines on its website.

Enterprising University Technology Transfer Managers Do Creative Deals

Enterprising technology transfer managers who favor startups aren’t afraid of experimenting different structures to achieve flexibility. They’re receptive in granting co-exclusive and limited-time exclusive licenses. And they’re much more open to taking equity deals and reducing or waiving royalty rates.

Caltech comments: “This is very important to VCs or angels because high royalty rates together with the perennial problem of royalty stacking results in a lower valuation for a company at the time when an acquisition or IPO is being considered.”

According to “Equity and the Technology Transfer Strategies of American Research Universities,” [PDF] accepting equity in place of hard cash helps relieve a startup’s cash flow burden and benefits the licensing university by making the university a part owner of the startup.

Among other benefits, it reduces the time required to generate revenue compared to a traditional license, and aligns the interests of the university and the firm (towards the common goal of commercializing the technology).

These managers aren’t just accepting plain-vanilla equity. They’re making deals with creative configurations of equity, royalties, royalty holidays, and success fees (either in cash or equity), shares Breit.

For example, to prevent dilution, university technology transfer managers are structuring deals in which the university’s final equity stake may increase or decrease, depending on the company’s financial realities; commercialization efforts; technology development progress; and the technology’s attribution to the company’s success and ability to raise risk capital, according to Breit.

But if you think the technology being transferred is the key to successful commercialization, think again.

Next, we’ll reveal what really make or break a commercialization effort; why it’s difficult to commercialize public sector technologies; and the requirements for successful commercialization.

* Special thanks to Didier Leconte of MSBiV for recommending Garold.

In Mind to Market: Commercializing University Technologies (Part 1), we learned that technologies and inventions, when successfully translated into marketable products and applications, can have significant impact on the economy and create money-making opportunities.

But with opportunities come risks. It’s a given. Technology transfer is far from easy. Those who are interested in backing or helping to commercialize university inventions should understand the risks involved and ways to manage risks.

Few ideas as discussed in Part 1:

• Collaborate with specialist firms that help commercialize university innovations.
• Recognize the type of companies that’s most effective in transferring university technologies for good and for profits.
• Understand the differing values held by universities and investors/commercialization partners, and ways to protect the intellectual property.

Left: Didier Leconte of MSBiV

Here, Didier Leconte of MSBiV shares his thoughts on accessing university technologies and offer advice to those who want to help commercialize them.

Didier Leconte and MSBi Valorisation

With a total of 19 years of experience in the innovation sector, Didier Leconte has left his footprints in every stage of the innovation pipeline. He began to specialize in university tech transfer in 2004, where he’d managed a portfolio of technologies for 5 years. In 2009, he joined MSBi Valorisation (MSBiV) as president and general manager of the firm.

Based in Québec, Canada, MSBiV is the investment and commercialization partner for McGill University, Université de Sherbrooke, and Bishop’s University, as well as their affiliated hospitals and research institutes. The firm invests in and commercializes inventions and tech advancements in the energy, life sciences, physical sciences, and information technology sectors. Its goal is to turn marketable emerging technologies into successful business ventures.

* Edited interview

Since only a small percentage of inventions will make it to the market, what are your criteria in accessing university technologies?

The must-haves are market size, competitive advantage (killer app), and strong IP (issued in 50+ countries).

Personally, I see 3 important criteria:

• Real customer traction. Are customers willing to pay for it? If the customer traction is real, it may not have to be in tens of billions.
• Play the game. Are the inventors willing to play the game, which is long, difficult and painful? Granting a commercial license on a patent is an interesting milestone, but transferring the know-how and creating the innovation/development spirit that will transform the patent into a product is another story.
• Vision. Is there a vision? This criterion requires the ability to foresee something that no one else does, and the ability to achieve that vision.

What advice would you give to those who want to help commercialize university technologies?

• Partner with inventors. If the inventors are instrumental, make sure to partner with them. Remember that most licensing deals are IP made of patent and source code, but not the know-how.
• Understand the eco-system. Technology transfer organizations aren’t run the same way. Some look for shares, others royalties; some want both! Most of them publicize their processes on their website so you can learn more about how they work before initiating contacts.
• Give feedback. A technology transferred to the market is the results of trial and errors. Feedbacks help improve the technology and help discover new features and applications.
• Share the value. Negotiation isn’t a zero-sum game. It isn’t an “I win – you lose” discussion. The goal is to fairly share the value created by the technology.

Anything else you’d like to add?

Québec offers world-class laboratories, highly-qualified professionals, and a supportive eco-system that helps entrepreneurs and corporations manage the risks of transferring the technology to the market.

I appreciate MSBiV’s model of investing time, capital, and expertise to help fuel opportunities. I’d like to attract more companies, investors, and co-investors into such model.

To enhance the effectiveness in the transfer of technology, one ought to understand that technology transfer goes beyond the licensing aspect. It’s a process of mutual sharing. I feel more knowledgeable today because of all the interactions I’ve had with researchers, inventors, managers, and investors over the last 20 years.

Just for Fun – If you could have any superpower, what’d it be?

I’d read books and learn new things at a subsonic pace like Neo in The Matrix, and then share that vast knowledge of our world with my kids!

University breakthroughs can have broad commercial applications and substantial impact on the economy – provided they’re successfully transferred to the market.

Visionary individuals and businesses of all sizes have been transforming, or trying to transform, innovative university technologies into merchantable products and applications to promote economic growth and/or create money-making opportunities.

Specialist Commercialization Firms

To help bridge the gap between university research discoveries and the commercial marketplace, emerged are firms that specialized in the commercialization of university inventions.

These firms often collaborate with industry players to bring together the right technology, the right entrepreneur, and the right investor to move a new technology rapidly from lab to market.

For instance, they might create strategic partnerships with angel investors and investor networks to promote investments in startups that exploit university innovations. In return, investors can gain access to a large pool of intellectual property (IP) portfolios.

Startups Effectively Transfer Technologies

Interestingly, these startups companies, rather than their big corporate counterparts, are the most effective when it comes to translating university inventions into commercial products or processes.

According to “Technology Trends: Technology Transfer,” startups founded with the sole purpose to commercialize and gain profit from new inventions are also “fairly successful in generating income because of their strong desire to make the technology a success and, sometimes, because of entrepreneurial inventors’ involvement in all stages of product development and licensing process.”

Didier Leconte, President of MSBi Valorisation, a firm that invests in and commercializes seed-stage innovations, tells Venture Hype:

Early-stage firms are effective in transferring university technology for public benefits and for profits because they fill the gap left by large corporations.

Theoretically, large corporations are most capable to do technology transfer. They have cash, expertise, distribution channel, and worldwide consumer voice. But most, if not all, of them are risk averse in respect to external tech opportunities.

Smaller companies (SMEs) are quick decision makers; they have the freedom to think out-of-the-box. They’re poised to deliver what they’ve been financed to do. So, startups are a favored tech transfer model.

University vs. Investor Interests

Lab coats aren’t business suits. Universities’ mission is to educate and research, not to create inventions that are ready for the marketplace. Technology transfer isn’t easy. As a tech transfer enthusiast or commercialization partner, you need to understand the risks of unsuccessful transfer (failure to commercialize the technology), and recognize the academics’ requirements to publish their work, thus disclosing all the information, the secret sauce, related to the technology to the public.

Therefore, if you intend to invest in, or help commercialize the technology of, a spinout company, you may want to ensure that the IP is adequately protected, such as in the form of a patent, before the academics publish anything. Once the invention is protected by a patent, those who copy it would infringe its IP. More on this in the next section.

Prefer to keep it as a trade secret rather than protecting it with a patent? Leconte comments, “Depending on the domain, it might be difficult to sustain a trade secret in the long term, as one could find out the secret sauce in many ways, such as reverse engineering, data mining, and etc.”

Protect the IP: Patent vs. Trade Secret

What exactly are the differences between these 2 forms of IP protection?

According to this interesting article, “Iron Man’s Suit Isn’t Patented, It’s A Trade Secret (Seriously),” if the invention is protected by a patent, one can get superior monetary relief if someone else copies it.

But if it’s kept as a trade secret, one could only hope that criminal law would dissuade people from stealing it, not to mention considerably less monetary relief.

Here’s a quick summary:

Patents

With a patent, the inventor publicly discloses the invention by filing a patent. If the patent is granted, the inventor is granted exclusive legal domain over the use of the patent for a limited amount of time.

If someone wants to build the same device, they can do so by simply reviewing the patent, but they will have to pay the inventor for the use or sale of that device.

As a reward for making the instructions public, the inventor is granted a plethora of legal protections, such as the ability to file for injunctions against infringement, and to recover attorney’s fees and treble damages in a lawsuit.

Trade Secret

With a trade secret, the inventor is required to “take reasonable measures to keep the information secret.”

If they do that, and “the information derives independent economic value… from not being generally known to, and not being readily ascertainable through proper means by, the public,” then federal law makes it a crime to misappropriate that information.

…state common law allows compensatory relief, [though] typically not attorney’s fees or treble damages.

Similarly, it’s harder to get an injunction for misuse of a trade secret than for infringement of a patent.

Coming Up

Next, innovation veteran Didier Leconte will list some of the critical criteria in accessing university technologies and offer advice to those who want to invest in or help commercialize them.

The Force Behind The Start

Apart from Felser, the other forces behind The Start Project are Polaris Venture Partners and the founders of 83 Degrees.

Josh Felser: An angel investor and a founding partner in Freestyle Capital, an early stage venture fund focused on the Internet and technology sectors. Felser also co-founded Crackle, the Internet video community that was acquired by Sony in 2006 for US$65 million. Felser is on the board of directors of The Start Project and his role is to help with overall strategy and recruiting.

Polaris Venture Partners: A partnership of investors and technology executives, which invests in seed, first round and early stage technology and life science businesses. Polaris is offering The Start Project office space and it will have a first look option to invest in the new firms supported by the business incubator.

TechCrunch reports, “Cofounder Narendra Rocherolle says that his team loves identifying trends and building applications, but they need a way to turn those ideas and products into companies. This new partnership (The Start Project), which he says is still a work in progress, will give them the platform they need to build companies around those products.”

83 Degrees: A team that has built several successful companies, including Webshots, a photo sharing site that was ultimately sold for US$150 million. 83 Degrees has also founded 30 Boxes and Power Twitter.

GigaOM writes:

At The Start Project, Rocherolle is going to be drumming up ideas. And unlike incubators in the past, the company isn’t going to be taking in outside ideas to incubate.

Instead, the Mill Valley, California-based company plans to drum up a half-dozen new ideas every year, of which two or more will be spun out as independent companies and raise venture capital, Rocherolle said. Polaris Ventures will have first dibs on these independent companies for investment.

The article comments, “That’s eventually going to be the key challenge for The Start Project. It’s hard enough to come up with a big, venture-backed idea every three years – coming up with two or more such companies each year is going to be as challenging as repeating back-to-back Super Bowls.”

What remains to be seen is how nimble The Start Project can be. Its success would depend to a large extent on how quickly and effectively it can react and adjust to the changing market and economic conditions.

Continuing last week’s conversation on tech-led economic development and research park startup companies, Brian Darmody talks about tech transfer models, the role startups play in facilitating tech transfer, favorite company success story and more.

Darmody was a staff member in the U.S. House of Representatives; the Maryland General Assembly in Annapolis, Maryland; and the Office of the Attorney-Advisor, U.S. Health Care Financing Administration. He currently leads the Association of University Research Parks (AURP), sits on several local and national economic- and technology-related boards, as well as serves as the associate vice president for research and economic development, and special assistant vice chancellor for technology development with the University System of Maryland.

* Edited interview

VH: What are some common technology transfer models?

BD: Based on the Bayh-Dole Act, the classic model was to develop a license to transfer university-owned technology to an existing company. Most university technology, however, isn’t mature enough to interest large companies (biotechnology is one notable exception to this rule). Therefore, universities have been developing new models of technology partnering and commercialization in the last 20 years. These models include:

• developing partnerships in teaming on procurements;
• creating startup companies to localize innovation in their region; and
• building relationships with corporations to get R&D supported at the front end, not just trying to get R&D licensed at the back end

The biotech trade group BIO just released an excellent report on the impact of startup creation and university licensing over the past 20 years, and it’s shown that the tech transfer model is radically evolving from its licensing roots.

VH: How’s tech transfer evaluated?

BD: We used to measure only license income and number of licenses, etc. Those aren’t enough. We need to develop better measures on how to evaluate technology transfer. The Association of University Technology Managers (AUTM) is looking at new metrics, such as job creation and knowledge generation, which MIT did a few years ago.

VH: In what way do startup companies facilitate technology transfer?

Brian Darmody of AURP

BD: Existing companies usually aren’t interested in technologies offered by universities. Oftentimes the only way to get a technology developed further is to help create a startup that’s willing to take on the commercialization risks of an early-stage technology. At University of Maryland (UM) we created a program called Venture Accelerator to take on this task.

VH: Share with us a specific company success story that’s made the most impression on you. How did this company win your hearts?

BD: Under Armour is a good, non-traditional example. The founder, Kevin Plank, was a football player and a very entrepreneurial business student at the UM. He sold roses on Valentine’s Day out of his Maryland dorm, much like Michael Dell sold computers from the University of Texas dorm.

Anyway, Plank didn’t like the weight and feel of his cotton football shirts so he began experimenting with different fabrics that weighted less and that wicked away moisture. After graduation he started selling shirts to football teams, including the team at UM, and propelled his business, Under Armour, to become one of the fastest growing consumer sporting goods companies in the U.S. that are still based in Maryland.

He hired many UM graduates and helped build the Maryland economy. Plank also donated funds to run Cupid’s Cup, a student entrepreneur competition in the Smith Business School at UM. Though UM never owned any IP from Under Armour, I’d like to think of it as a UM related company, just like Stanford never owned any IP from Hewlett-Packard, but it’s very much a Stanford spinout.

Just for Fun

VH: South Park or The Simpsons?

BD: Actually I haven’t seen any episode all the way through so I can’t really pick on the basis of content. But I know that Matt Groening, the creator of The Simpsons, is from Oregon, where my wife’s family is from as well, so I have to support the Pacific Northwest guy.

I view nuclear energy as one of the solutions for a lower carbon energy future so I hope Matt upgrades that old nuc power plant in Simpsons’ Springfield with one of the next generation nuclear energy plants. Go Ducks!

Link:

• Association of University Research Parks (AURP)

According to Wikipedia

A Research park is a research facility which is often linked with a major research university. Throughout North America, there are more than 170 research parks. They exist to create linkages between the university, industry and the community.

Combining the knowledge assets of a community with local business expertise in order to create high-paying jobs is the raison d’etre of research parks. Today, there are major research parks in many countries.

“AURP published a report indicating that about 750,000 jobs are supported by research parks in North America,” says Brian Darmody, president of Association of University Research Parks (AURP).

Not only that, parks around the world often cooperate and collaborate to help companies within the parks launch their international expansion. In essence, research parks play an important role in helping emerging companies grow and go global.

In part 1 of the interview, Darmody talks about tech-led economic development and research parks. Part 2 will center around technology transfer.

Brian Darmody

Darmody was a staff member in the U.S. House of Representatives; the Maryland General Assembly in Annapolis, Maryland; and the Office of the Attorney-Advisor, U.S. Health Care Financing Administration. He currently leads AURP, sits on several local and national economic- and technology-related boards, as well as serves as the associate vice president for research and economic development, and special assistant vice chancellor for technology development with the University System of Maryland.

Among other achievements and economic contributions, Darmody has developed legislation to create the Maryland Technology Development Corporation (TEDCO); authored reforms to the State’s ethics legislation for entrepreneurial startups; organized University of Maryland’s first technology transfer office; and initiated Research Parks Maryland (RPM), the nation’s first statewide research park organization.

* Edited interview

Tech-Led Economic Development

VH: What sparked your interests in the complex tech-led economic development? How did you get started?

BD: I used to work for a state delegate and for a member of Congress 20 years ago. And as the government affairs representative for the law school I was attending that time, I got involved with bringing elected officials to the campus. One thing I noticed was that the elected officials loved visiting our technology incubator and talking with entrepreneurs.

Around the same time, the Bayh-Dole Act had just passed on the federal level, giving universities the right to own IP from federal contracts and grants. People were interested in seeing how research universities could be the innovation assets to stimulate the economy.

Back then, the interface among universities, public entities, and private companies was a growing arena that not many people were working on. I could see that tech-led economic development was going to be a new mission for research universities.

VH: For someone who’s interested in getting involved with tech-led economic development, what qualities must this individual possess?

BD: Curiosity, persistence, and not taking ‘no’ for an answer.

I just read a Harvard Business Review study on qualities that make good entrepreneurs. The research showed 5 common attributes:

1. Associating — connecting unrelated ideas to different fields
2. Questioning — asking “why not?”
3. Observing — thinking like a customer or stakeholder
4. Experimenting — trying out prototypes and methods
5. Networking — key traits of entrepreneurs and leaders

I couldn’t agree more. I think this is true for an entrepreneur as well as for someone working in tech-led econ development arena. You need to think of yourself as an entrepreneurial bureaucrat, as oxymoronic as that might seem.

Research and Technology Parks

VH: Elements that are beneficial to a startup would help smoothen its path to success, which could be financially rewarding to the startup’s investors. So for startups, what are the benefits of being in a research park?

BD: The real benefits are

• being proximate to other technology companies;
• having access to a highly educated work force at the university (grad students make great part-time employees for many research park companies); and
• developing networks of like-minded companies into a Community of Innovation

Although startups can find cheaper real estate options elsewhere, the companies would be fairly isolated. At AURP, we issued a paper called the Power of Place [pdf], which discusses some of the better science and connections that can be developed from being in a research park.

VH: How can investors and angel groups collaborate with research parks to commercialize R&D and fund university startups?

BD: Angels look for the best investment deals in their region. These deals can often be found in incubators or university research parks. Most universities have connections to, and programs to work with, angel or other investor groups. Investors can invest in incubator or research park companies through this type of program.
For example, University of Maryland administers a regional angel investor network called CAN (Capital Access Network).

Stay tuned for part 2 of the interview next week as Darmody carries on the conversation on technology transfer models, the role startups play in tech transfer, favorite company success story and more.

* VH: Special thanks to Mark Long for recommending Brian.

Link:

• One Stop Shop at University of Maryland

Through Cochrane, we got in touch with Mark Long “The King,” a very likable incubation veteran with 3 decades of experience under his belt. In this interview, Long imparts his expertise in founding an incubation facility and talks about what it takes to start an incubation program, the investment required, and some common mistakes would-be incubators make.

Long is the former president and CEO of Indiana University Research and Technology Corporation (IURTC) and Indiana University Emerging Technologies Center (IUETC), a life sciences incubator. Now, he’s the chief of Long Performance Advisors, a consulting firm specialized in business incubation, technology transfer, and business and economic development.

He’s also an accomplished ballroom dancer and an animated Elvis impersonation expert. Beat that.

* Edited interview

VH: If an angel investor wants to start an incubator, how does she know whether she has what it takes to be a founder of a successful business incubator?

ML: Wow, tough question, and tough answer. Starting an incubator is no easy process. I’d definitely recommend the “Incubator Manager Certification Program” offered by the National Business Incubation Association (NBIA). Completing the program should tell you if you “have what it takes” to start a facility.

Also, it’s often best to have a qualified professional or organization to perform a feasibility study on the area where you wish to start an incubator. There are many, many factors that determine the success rate of an incubation facility, not the least of which is the pipeline of entrepreneurial ventures in your area, which are possible candidates for acceptance into your facility, plus your own ability to operate the facility.

VH: Say the investor has what it takes to found a successful incubator; what are the next steps and investment required, etc.?

ML: There are some critical steps to be taken to determine the pipeline, the processes, and the product model for your proposed facility. For example, is this a good location for a biotech facility or a mixed use facility? Do you have a good source for intellectual property for different types of entrepreneurial ventures, or one specific type, or ANY type?

As far as investment required, the typical successful incubator is around 40,000 square feet and, depending on the location and type (hi-tech, mixed use, kitchen), could cost anywhere from – take a guess.

It’s a broad range of cost, but it’s not inexpensive. The facility I operated was primarily a life sciences model, and cost just over US$10 million to re-habilitate an existing building. Annual operating expenses were approximately US$250,000.

There are many sources of revenue for a typical incubator, which include –

• rent
• fees for services
• personal consulting
• service contracts or grants
• program (seminars, speakers, training, etc.)
• subsidies from state, local, and federal government

VH: In terms of for-profit incubation programs, which incubation model, in your opinion, is most profitable?

ML: I’d say the Plug and Play Tech Center, founded by Saeed Amidi, out in Silicon Valley. Saeed has put together all the necessary elements for success, and has included links with universities, private funding, networking events, corporate partners, and a host of services for his client companies to ensure success for all residents of Plug and Play. It’s an outstanding example of a well-run, well-planned program in the private sector, and frankly, this model would succeed outside of Silicon Valley, if planned in the proper format for the location of choice. If I had to name another one, Idealab is good, too.

VH: What common mistakes do would-be incubators make when forming incubation programs?

ML: Finally, an easy question. NOT PLANNING AHEAD and not doing the “groundwork” in advance. Too many people think incubation is simple – let’s just get a building, put an “Incubator” sign up front, and “if we build it, they will come”.

Guess what – they don’t! It takes careful study of the entrepreneurial environment to pre-determine your needs:

• Will you need “wet” labs?
• Will you need basic management training seminars?
• Where’s the capital going to come from for your clients?
• Will you need significant organization of a local angel network, or does it already exist?
• After the initial group of clients, where will you “fill your pipeline” continuously over the years?
• Where will your clients graduate to for future space requirements?

All these factors need to be determined up front, not after you built a building.

Want to invest in incubator companies instead of starting a facility? Check out part 1 of the interview, Investing in Incubator Companies: The How and The Why.

Link:

• Long Performance Advisors
  

He’s helped Washington University rank first nationally in the number of licensed technologies.

He’s greased the wheels for tech collaborations and business incubation development throughout the state of Indiana.

And he’s acted on behalf of the National Business Incubation Association (NBIA) and presented an intensive training program to incubation professionals in China and Malaysia.

He’s Mark Long, former president and CEO of both Indiana University Research and Technology Corporation (IURTC) and Indiana University Emerging Technologies Center (IUETC), a life sciences incubator.

With over 3 decades of experience under his belt, Long is now the man behind Long Performance Advisors (LPA), a consulting firm specialized in business incubation, technology transfer, and business and economic development.

If you’re interested in founding an incubation facility or are keen on investing in incubator companies as part of your angel investing strategy, you’ll want to hear what Long has to say.

* Edited interview

Long’s Story

VH: How did you get into the incubation field? What’s your story?

ML: I’ve been in the medical diagnostics/device business quite a while, in a private company and in a division of a larger company. So, I’ve seen the “technical side” of business and have observed new technologies being taken to market.

As the former Director of Technology Transfer at Washington University in St. Louis, I worked closely with the incubators there (the Center for Emerging Technologies and the Nidus Center) and saw the positive economic impact incubators could have on a community/state.

At Indiana University, I had the chance to build an incubator from the ground up and build new startups to put in that incubator – the best of both worlds. It was a great experience, and I learned even more about how incubators positively affect the local economy.

VH: Throughout the years of operating and helping others in the incubation industry, which favorite anecdote can you recall?

ML: Well, we’ve all had the “chickens” story – which really did happen. When the news release went out about the start of our facility, we received a phone call asking if we wanted to purchase heaters for our eggs…

Mark Long "The King"!

But my favorite story happened on one Halloween night. The fire/burglar alarm at our building kept going off for “no good reason.” (It turned out that there was a short in the wires.) I had to drive back to the building to enter the code number, shut it off, and check the building for safety.

Remember, it was Halloween, and I was in “full costume.” It was about 8pm, and some of the scientists were still there in their labs. You can imagine the confusion on their faces when “Elvis Presley” suddenly popped up in the building, walking around, checking all the stations for fire and glass breakage while asking if everyone was okay. Good thing the police didn’t show up!

Working with Incubators / Investing in Incubator Companies

VH: Both angel investors and incubators invest at the earliest stages of a company. Can you give some examples as to how angels can benefit from working closely with an incubator?

ML: The true benefit of working with an incubator for angels is “pre-screening.” When an angel investor works with an incubator, that investor has the advantage of knowing the candidates in that facility have been “pre-screened” for selection into that incubator.

Most facilities have a rigorous entrance qualification. The company’s financials, management team, and business plan have all been carefully examined before the company is approved for admission into the facility. This spares the angel investor some due diligence and gives some assurance that the company is legitimate or it’d not have been admitted in the first place.

This may not be true everywhere, but a quick review of the facility’s admissions criteria will help the angel investor determine the degree of diligence that’s already been performed.

VH: Are there any criteria that angels must satisfy before the incubator would partner with them? Or is money the only concern?

ML: Money can never be the only concern. Investors must be “qualified” investors. They must have an interest in the true mission of the incubator and its clients, and they must understand the process of incubation.

My favorite quote about incubation is “It’s an incubator, not a microwave.” In other words, it takes time. Investors who don’t understand the incubator’s mission and how an incubator works won’t be satisfied with investing in incubator companies.

VH: How should an angel evaluate an incubator to determine whether it’s worthwhile?

ML: Typical metrics include the incubator’s –

• mission
• pipeline
• graduation rates
• management team
• history or track record
• focus or types of companies it services, e.g. mixed use, biotech, hi-tech, kitchen, cleantech, information tech

VH: What’s the process of working with an incubator? What should the angel expect?

ML: Many incubators don’t have a formal, structured process or agreement for working with angels. Rather, they serve as a “conduit” or type of “marriage broker” who connects the angels with suitable companies that need funding.

The primary mission of most incubators is to “do what it takes” to ensure the success of their clients. In most cases, that typically includes assisting clients to find proper funding. Therefore, terms, process, investment structure, etc. will vary from deal-to-deal.

Join Venture Hype next week as the rock star imparts his expertise in founding an incubation facility — an interview not to be missed for those who are serious about this option.

* VH: Special thanks to Sandra Cochrane for recommending Mark “Elvis” Long.

Link:

• Long Performance Advisors
  

So you’ve heard about Y Combinator, LaunchBox, and TechStars. And you’re excited about the possibility of founding a famous incubation program. Before you go about starting one, check out these tips from Sandra Cochrane, an expert in the incubation industry.

Cochrane is on the board of directors of both National Business Incubator Association (NBIA) and Michigan Business Incubator Association (MBIA). She’s also a technology business consultant at MI Small Business & Technology Development Center (MI-SBTDC). Check out Part 1 of the interview to tap her insights in commercialization strategies for tech startups.

* Edited interview

VH: Are all incubation programs non-profit? How do they generate revenues?

SC: No, not all incubation programs are non-profit. There are several for-profit incubators in the United States and around the world. Typically, a for-profit incubator will take an equity stake in the client companies it accepts. The equity is in exchange for the value of the incubator’s subsidized real estate and mentoring/coaching services. In some cases, however, the incubator is actually charging market rates for its physical space and services, and companies are willing to pay because they recognize the value of what they get for the price.

In the non-profit incubation world, most programs generate about 50%-75% of their revenues from rent and client fees (see stats in comment area below). The remaining revenue is usually subsidized by a partner entity, such as a university, an economic development group, or a local government/municipality. Some incubators actually run capital campaigns every few years to raise money for operations, and some sell sponsorships and naming rights to generate cash.

VH: What are the key elements in forming a successful business incubator program/facility?

SC: Many people think business incubation is all about providing cheap space to new businesses. However, business incubation is less about the facility and more about the services and programs established to support entrepreneurs.

One key element in forming a successful incubator involves knowing what kinds of clients the incubator will serve (and thus also knowing what clients it’ll refer to other community resources). Intake applications, quarterly meeting agendas, and graduation parameters are all developed based upon the profile of the intended clients.

Another key element is providing suitable entrepreneurial support in the form of business education, leadership training, and mentoring. Most entrepreneurs find tremendous value in surrounding themselves with other people who can teach them tips and methods for success.

Shared resources are also important to incubator programs. Office equipment, like photocopiers and fax machines, are typical, but expensive specialized equipment for life science companies, artists, food/kitchen enterprises, and/or manufacturing endeavors, are also common.

Sandra Cochrane

VH: You also help local leaders and entrepreneurs determine if a business incubator would be an economic asset for their communities. Under what circumstances are incubators not beneficial or not desirable to a community?

SC: There needs to be a sustainable pipeline of entrepreneurs in order for an incubator to thrive. Remember, the point of an incubator is to help companies leave and move into their own places of business via standard real estate models. If there’s no sustainable deal flow of companies, then the incubator will fail or it’ll simply become a real estate deal in which no companies ever leave.

Also, most successful incubators have a relationship with a college or university. Thus, communities without a college or university may not be able to generate enough new companies and/or enough entrepreneurial support in the form of faculty participation.

Probably the worst reason I often hear for a community to start an incubator is because they have a white elephant building in a blighted area of town and they think turning it into an incubator will utilize the building, generate revenue, and foster entrepreneurship. In my 8 years working in and with the business incubation process, I’ve never seen that happen successfully.

VH: How can angel investors get involved with incubation programs?

SC: Angel investors can easily get involved with incubation programs by volunteering to serve as mentors. Most incubator programs welcome the assistance of experienced investors who can help educate new company leaders about the ins and outs of the investment world. Helping companies prepare pitches and presentations and providing feedback on business plans are valuable services that investors can provide. And, obviously, they can invest in the incubator’s client companies!

Just for Fun

VH: Would you rather hatch chicken eggs or duck eggs?

SC: I actually raise chickens and sell organic free-range eggs to my friends, so I’ll opt for hatching the chicken eggs!

Link:

• National Business Incubation Association (NBIA)