How private investors can contribute to successful technology transfer
In a study conducted with Worms University of Applied Sciences*, it was shown that technology transfer institutions clearly prefer spin-offs to licensing, but that the number of spin-offs falls far short of expectations. The oft-lamented, lacking “entrepreneurial spirit” is a long-term challenge, which can only be improved with the dismantling of the provider state, something that the politicians and the media demanding it in Germany cannot yet seem to manage. Those that have the guts to enter into the risk of a start-up, however, should be able to find conditions that help them stand on their own two feet quickly, even in an environment that is hostile to entrepreneurs. Ultimately, spin-offs are the most successful type of technology transfer even though, in contrast to licensing, many requirements must be met in the process. What are the “best conditions” in this context, and how can VCs be particularly helpful?
Don’t just bank on government programs!
The conditions are optimal whenever the learner’s learning curve is particularly steep or is determined only by the learner. It is expensive if the learning speed is held back by environmental conditions, because development is slower, and some mistakes are costly both in time and cold, hard cash. Why is this relevant to the entrepreneur? Because the success of the spin-off depends on a long chain of decisions, many of which are irreversible. And the clock is ticking. That is why it makes sense at least to create a solid foundation of information upon which to base these decisions. In reality, the spin-off process looks much different. Very few tech transfer centers maintain regular contact with VCs and actively involve them in spin-offs. Instead of choosing venture capital, commonly known as the best financing alternative for the “high potentials” among the spin-offs, governmental financing programs are recommended across the board. But how can the high-potential spin-offs be identified? Together with venture capital companies as experts, it is best to identify them early, for example, by staging technology showcases or idea competitions. The earlier potential entrepreneurs receive feedback on possible marketing and implementation opportunities, the more creatively they can respond, and keep themselves out of the traditional divide where the top technologies are developed in Germany, but the Americans have the successful marketing ideas. But what is it that venture capital investors in particular can contribute in an early encounter?
“I have a technology – but what is the product?”
Out there in the globalized economy, customer needs lie more or less dormant, just waiting for money to be paid for a new technological approach to meeting them. To meet them, an understanding of the macro- and microeconomic drivers and the rules of the game for the specific segment is required. Because venture capital companies typically review around 1,000 new projects a year, and usually have their own research teams, they are practically predestined to plumbing marketing possibilities by brainstorming with tech transfer facilities and researchers.
“I have an idea – but no team”
The decisive success factor for entrepreneurial success is execution – good people doing what they do best to be effective and efficient. Therefore, for a successful spin-off, a team needs to be put together comprising more than technology specialists. In response to recurrent requests to build teams, VCs generally have access to a large pool of internationally focused entrepreneurs that would fit nicely into start-up teams – candidates that usually cannot be found by headhunters.
Finally: “The entrepreneurial environment”
Being an entrepreneur changes one’s life – does everyone want that? Does everyone have the right personality for it? How does it feel when things come to the crunch, or really take off? In an environment in which most of one’s personal contacts are employees, it is most likely difficult to get a clear picture of how things will be. There is probably no one who can give you as much in-depth information about that than venture capitalists, who are constantly working with start-up entrepreneurs with varied backgrounds, levels of development and economic success.
A better starting point
Of course, not every VC firm will jump in and invest at the level of “functional model from the university”, but the most attractive spin-offs can obtain this professional financing right from the start, and develop optimally. The potential spin-offs that do not receive VC financing can nonetheless still benefit from early interaction with venture capital by achieving a much better starting point from which to better utilize state financial assistance or spin off with the help of “family, friends and fools.”
The greatest challenges for a spin-off are to identify the best product strategy for commercializing the technology in the right target markets, and to put together a team made up not only of scientists but also experts with industry experience. Government programs that administrate founders’ “self-discovery phases” are usually less helpful. The key is to banter about the ideas with venture capital investors that are marked by entrepreneurship, to do so early in the conception phase, and to develop the best projects into spin-offs together.