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Ikove Venture Partners

From Lab To Market: Why Universities Need Venture Development

Universities have a big problem. Colleges across the country are receiving millions of dollars to support valuable research, leading to the development of meaningful technology. However, while $70 billion is invested annually in university-backed research, only one percent is invested in commercialisation. This has led to 95% of university patented research innovations going unfunded, never making it to market -- which includes ideas from big entrepreneurial schools like Harvard, MIT and Stanford. There’s a gap in intellectual capital resources impacting commercialisation.

This commercialisation problem is leaving life-changing, and sometimes life-saving, technology in research labs. In order to get these innovations out of the lab and into our daily lives, universities need to partner with venture developers.

Before we dive into how venture developers can help university innovations see the light of day, let’s break down who they are and what they do.

What are venture developers?

Venture developers are a group of investors that focus on turning early-stage inventions into companies. They provide inventors access to dollars, talent and business acumen. By focusing on university-backed inventions, their portfolio companies typically have smaller funding needs and a higher chance of significant returns without the need for large rounds. Venture developers have four core focus areas:

  1. Strong Research: Venture developers seek out companies and technologies that have been vetted by leading research institutions and are reinforced with significant R&D. Since the technologies are developed through universities, their shareholders can expect less dilution as operating the business costs less. This allows the venture developer to focus on key business development opportunities outside of solely raising capital.
     
  2. Active Management: This group of investors is heavily involved in the launch and operations of the business. They don’t just write a check and hope for the best. Venture developers become personally involved in ensuring that the inventor, and ultimately the business, will succeed. They serve as a guide to the founding team, provide mentorship, and tap into their influential networks.
     
  3. Location Evaluation: Operating a business is expensive. And, sometimes it’s all about location, location, location. In fact, running a business costs roughly 50% more in Silicon Valley than it does in comparison to other areas in the US. Venture developers look for locations that have both a business and a cost benefit. Knowing that the Midwest harbours trailblazing technology, access to top talent and other resources at the fraction of the cost of the coasts, early-stage businesses are positioned to grow here with less funding -- and venture developers are taking note.
  1. A Look to Sell: Given the current state of exits, venture developers keep in mind a clear “build to sell” focus, which positions their portfolio companies to become acquisition targets. Their companies are fast growing, which is attractive to a potential buyer.

Why do universities need venture developers?

While there is important innovation and discovery being uncovered at university labs, the truth is that most of them don’t produce significant ROI. On average, 84% of university tech labs don’t generate enough money to cover operating costs. Why? Universities don’t have the right resources to turn a patented invention into a functioning company. Often, after a university patents an invention the product is either too young to be marketable to the everyday consumer or there isn’t enough research done to find the right buyer for the technology.

This is where venture developers step in. They undergo a stringent vetting process that assesses the potential of the technology and whether it will be well-received by its respective market. From here, venture developers work with the inventors to help them build a viable business plan. This typically includes a strategy to help them access dollars, talent (inventors aren’t CEOs) and deep business understanding. Essentially, this partnership lets the inventor do what he or she does best: invent and expand their product’s capabilities.

By partnering with venture developers, universities can increase their reputation as a startup hub. Ninety percent of students put value in entrepreneurship education, meaning a strong presence in the startup community helps colleges attract top talent, more students and eventually, more research dollars.

When universities can take more innovative technologies to market, everybody benefits. Take Gatorade, flu shots, seat belts and Google for example. If we didn't invest in commercialising these products that were born out of university labs, where would we be today?

Venture developers provide a strong solution to a huge problem in our universities. They help identify and get prominent breakthrough technologies at universities out of the lab and into the market.

Flavio Lobato is Principal and Cofounder of Ikove Capital Partners. Previously, he was an Executive Director at Liongate Capital Management, a $7 billion alternative investment manager based in London and New York. He was also a founder and CIO of Swiss Capital Asset Management in Lugano, managing over $1.5 billion in hedge fund investments for institutional clients. Prior to that, he was a VP at Goldman Sachs & Co. and a Director at Credit Suisse First Boston. He is a student advisor to the Harvard Innovation Lab (I-Lab) and Co-Head of Fintech for Harvard Angels of NYC. You can find him on Twitter at @flaviolobato.

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