What Science Entrepreneurs Need to Know

Science-based entrepreneurs can find the help they need to succeed from “behind the scenes” intermediary organizations (Clayton, Feldman & Lowe, 2018). For instance, the authors said intermediaries can help science entrepreneurs with:

• intellectual property protection
• navigation of clinical trials
• negotiation of technical standards for information, Internet, and equipment technologies
• refining ideas and business plans, reducing the transaction costs of commercialization
• financing, either directly through subsidies, or indirectly by making introductions to other sources
• coordinating networks and partnerships
• providing introductions to more established and influential business leaders, mentors, or partners

“A successful theater performance requires a large support cast working behind the scenes, without which the show would not go on. Just as the audience focuses their attention on the dramatic action happening on stage, the commercialization of science tends to orient its gaze toward the innovative technology and its enabling star, the entrepreneur” (Clayton et al., 2018). “But as with theater, diverse entities work behind the scenes to support the necessary processes of founding, managing, and scaling a new scientific venture. In the commercialization of science, the least visible players are intermediary organizations—entities that operate in the void between the scientific discovery and the ultimate realization of value from commercialization, providing specialized services and access to equipment and resources beyond the reach of startup firms.”

Paige Clayton, Maryann Feldman and Nichola Lowe, all of University of North Carolina, in their paper “Behind the scenes: Intermediary organisations that facilitate science commercialisation through entrepreneurship,” describe the five intermediary types in three broad categories as follows:

Services

1. University technology transfer offices 2. Professional service firms, including legal, accounting, and real estate 3. Networking, connecting, and assisting organizations

Physical space

4. Incubators, accelerators, and coworking spaces

Financing

5. Venture capital firms, angel investors, public funding programs, and crowdfunding platforms

Intermediaries “are critical for launching entrepreneurial firms,” Feldman said. Intermediaries are available around the world, but usually work in specific regions. “As people become more interested in entrepreneurship, we’ve seen these intermediary organizations proliferate.”

“It’s important for entrepreneurs who are commercializing science to consider the full menu of their options. There is no correct recipe. It’s a matter of being creative with local ingredients,” she added.

Here are the basics:

University technology transfer offices (TTOs)

• Engage faculty in the development process
• Work with businesses to license technology
• Provide incentives for invention disclosure

“Private universities tend to be more efficient in licensing than public universities, while universities with a medical school are less efficient in licensing,” the authors noted.

Professional service firms (PSFs)

• Give advice about intellectual property and business formation strategy
• Act as dealmakers
• Reduce transaction costs

PSFs vet proposals for new companies and connect founders to resources and networks in entrepreneurial communities, which can help cut transaction and search costs. PSFs, according to Clayton and Colleagues (2018), “are especially important to academic entrepreneurs as they provide information related to law and accounting, as well as services such as product testing that might not be accessible to them through their established academic networks,” The authors further said that “Local attorneys provide initial advice on patent protections and scope affecting the decision to start a company. Accountants and investment bankers provide a similar function reducing the impact of information market failures on startups. … Real estate brokers and managers familiar with equity investing also reduce transaction costs of obtaining finance. Accountants and investment bankers provide a similar function reducing the impact of market failures on startups.”

Networking, connecting, and assisting organizations

• Facilitate networking and mentoring
• Influence policy through agenda setting

These organizations “serve networking support roles for entrepreneurs, coordinating local organizations and programs by bringing together public and private entities, and serve agenda-setting roles for policy and practice. Motivated to serve a public purpose, these organizations exist to address network failures.”

“One example of such an organization is the North Carolina Biotechnology Center, established by the North Carolina legislature in 1981 as a nonprofit 501c3. … Another example of a successful quasi-public, coordinating, and networking program is the San Diego CONNECT program. This intermediary was founded in 1985 as a bottom-up effort of entrepreneurs, supported by economic development officials, to connect industry to academia and advance local entrepreneurship and the commercialization of academic science. … Not-for-profit organizations with more limited government involvement also offer a portfolio of topical programs to respond to local needs and contribute to the commercialization of science through entrepreneurship. One example is the nonprofit Council for Entrepreneurial Development (CED), one of the nation’s first membership organizations dedicated to new firm support by providing networking assistance, mentorship, entrepreneurial education and training, and identification of capital sources.

“Both nonprofit and quasi-public programs can operate at multiple scales. Nonprofits, such as SCORE and America’s Small Business Development Centers (SBDC), have a national reach and receive federal funding from the Small Business Administration (SBA),Clayton and his colleagues noted. Both SCORE and SBDC offer training and mentoring.

Incubators, accelerators and coworking spaces

“Commercialization of science requires physical workspace, laboratory space, clean rooms, and advanced equipment. Incubators, accelerators, and coworking spaces provide entrepreneurs access to physical facilities at below market rates, and with preferential terms,” according to Clayton and Colleagues (2018). “The co-location of physical facilities allows for the circulation of ideas. Incubators, accelerators, and coworking spaces may be affiliated with universities or alternatively operate as public, for-profit, or nonprofit entities.”

Incubators

• Offer affordable space
• Provide support services
• Generate revenue for incumbent firms

“First-generation incubators focused only on offering affordable space, while second-generation incubators added knowledge-based business support services. Third-generation incubators began to add networking support and serve earlier-stage companies, focusing more on selection and quicker tenant turnover, in an effort to make profits,” the authors noted. “While the earliest incubators were publicly financed, for-profit and corporate incubators emerged.”

Accelerators

• Offer intensive programming
• Accelerate milestones
• Invest in exchange for equity

“Although accelerators have been described as a ‘new generation incubator model,’ they differ from incubators on a number of variables including duration, business model, selection, and mentorship,” said the authors. “Firms are typically provided with a small investment in return for an equity share. Selection into accelerators is highly competitive, which sends a quality signal to outside investors. Accelerators make extensive use of seminars for education about entrepreneurship. Furthermore, mentorship is intense in accelerators and a multitude of relationships can exist between the accelerator and the startup, including direct investment, help with finding additional investment, and partnering in pilot production and distribution. Accelerators also stress finding the value proposition for the customer, which can be especially beneficial for scientists-turned-entrepreneurs, who tend to focus on the scientific aspects of their firm.

“Accelerator funders are more like venture capitalists in that they invest in a group of firms, while only expecting to receive large returns on just a few ventures. Therefore, they will accept earlier investments overall, which is important for commercializing science.”

Coworking spaces

• Provide flexible, less-structured programming
• Offer space for social interaction
• Facilitate networking and peer mentoring

“Coworking spaces—a low-rent, alternative workspace purported to offer a fun and informal atmosphere—are another new phenomenon in the workspace intermediary field. Coworking spaces are distinguished from earlier shared office facilities by their emphasis on social interactions, aesthetic design and management by cashed out entrepreneurs and potential investors. They are found in hotspots of activity and range from small operations to national organizations such as WeWork, and large firms, such as Microsoft and Google,” the authors observed. “There are three types of coworking space users: freelancers, microbusinesses, and people working for themselves or for companies external to the space. Knowledge exchange through collaborative relationships only occurs when the coworking organization encourages such collaboration—co-location alone does not foster collaborative relationships.”

Venture capital (VC) firms

• Provide multistage, benchmarked financing
• Are motivated to increase firm performance

VCs “operate as partnerships that raise money from institutional and individual investors. They may be corporate, bank-owned, private, or government-sponsored. Private-sponsored VC is less common in European countries than in the U.S. In Asian countries, however, VCs do not have the same relationships with universities as in the U.S., and VCs often invest in earlier stages in Asia than in the U.S.”

“Venture capitalists use a multistage financing approach that provides funding in [stages]. This allows VC to stop funding if specific benchmarks are not met, or if it becomes apparent that the firm is not going to succeed,” Clayton and colleagues (2018) noted. Venture capitalists and angel investors with expert technological skills may act as intermediaries that provide access to both customers and suppliers.

Angel investors

• Provide early stage funding
• Offer business advice and mentoring

Angel investors “are individual investors who invest in smaller amounts and at an earlier, riskier stage of startup development, which helps to provide proof of concept for scientific discoveries. The total amount of startup financing provided by angels is greater than the amount provided by VCs,” the authors explained. “Angels are often experienced entrepreneurs with technology expertise, and offer advice and mentoring for an indefinite amount of time. Beneficial for commercializing science, angels also have much longer time horizons than VC as they do not have to exit at some point on behalf of other investors, yet like VC they prefer to be located close to startups in which they invest.”

Public funding programs

• Offer long-term support
• Signal quality for private financing

Government has taken an active role in supporting science and innovation for over half a century, though direct public support for entrepreneurship is more recent (Clayton et al.,2018). Public funding programs, “such as the U.S. Small Business Innovation Research (SBIR) program, which provides highly competitive grants to develop technology for federal agencies, have operated since the 1980s. Such programs operate outside the U.S., as well.”

Crowdfunding platforms

• Are recession-proof
• Enable inventors to gain immediate product feedback
• Support idea-sharing

Crowdfunding platforms are “the newest – and least understood – practice in entrepreneurial finance,” the authors noted. Crowdfunding emerged after the 2008 recession, when bank finance became less available and has become more structured with time, though equity crowdfunding standards are slow to develop in many countries.

“Crowdfunding platforms allow individual or pooled investments in firms or projects, usually called campaigns. The use of web-based platforms offers an opportunity to describe the science underlying a project and to reach a larger set of potential investors than possible through the angel-funding model. Crowdfunding models also differ in how funders receive compensation. Donation models do not provide compensation for investors and usually benefit nonprofits or charities. Reward models offer gifts in return for investment. Pre-purchase models provide investors with the product in which they invested. In lending models, investors receive returns following typical borrow-lender relationships. Finally, equity models offer shares in profit, or ownership.”