Making Innovation Flourish

Building effective university-industry links

Yesterday, NESTA hosted a series of events with Silicon Valley Connect that involved venture capitalists, entrepreneurs and academics from California.  The underlying topic was, inevitably, how to replicate (whatever that means) Silicon Valley’s success in the UK.

More specifically, however, the panel I chaired focused on how to stimulate university-industry collaboration.  It featured speakers from Stanford’s Media X programme, Turner Broadcasting, Google, a Stanford engineer and two representatives from the UK – from Cambridge Enterprises and UCL Advances.  A few clear themes emerged.

The most important question an entrepreneur has to answer

Sherry Coutu (in her article in the 'what I wish I'd known'  series) explains that “solving someone’s problem” is at the heart of a business.

On the face of it, it appears an obvious consideration, however, a large proportion of the companies we see can not satisfactory articulate the problem they are solving. I put it down to a reluctance of some early stage entrepreneurs to really get to know their potential customers early on in a business’s life. This hesitancy to speak to a real customer can lead to outrageous assumptions on the depth of the so called ‘problem’ that they are solving.

Answering the question ‘what problem are you solving’ is fundamental to getting to the heart of the value of your business…if that is not enough reason to reconsider this concept then consider that every sensible investor I know asks a version of this question at some point in their first meeting with a company that is looking for investment. In short it is essential that you and everyone in your business can give a clear, articulate answer.

Failure is acceptable

For the guy who founded SurfControl (which recently sold for just over $400million) it may seem surprising that Steve Purdham should say ‘Failure is acceptable’ in his ‘what I wished I knew’ article.

As it happens I would go a step further and say not only is failure acceptable but it should be seen as inevitable.

For early stage companies to be genuinely innovative, break in to new markets, beat off the competition and make great returns for investors they have to take risks and ‘swing for home runs’. The reality is that if you are running an early stage company you are taking numerous (managed) risks every day and are not always going to be successful. You can fail to raise all the money you hoped to, fail to get the technology to work just the way you wanted, fail to get a break with a significant customer and so on.

Failure at some scale will constantly plague early stage businesses. Investors often try and put pressure on companies to avoid failure but with it often goes the entrepreneurial, risk taking spirit that is essential to an early stage company’s success. I don’t celebrate failure but it should be seen it as inevitable in a risk taking business.

'I wish I had raised more money....'

Professor Jeremy Stone writes a great article in the 'what I wish I'd known series' and I want to comment particularly on this sentence: “I wish I had raised more money than I needed and worried less about dilution”.

Let me hijack his point and build on it: If you’ve got the choice –don’t do it on the cheap.

Why? Well, firstly – time. It takes a shocking amount of the senior management's time to close a funding deal (be prepared for at least 6 months of road shows and negotiations). Instead of building your company you are forced to be out pitching for more investment.

Secondly – The right level of funding can get you to a really good milestone. Too many companies just don’t give themselves enough runway to get to a really worthwhile milestone…so the next round investors don’t give you (or your first round investors) the valuation you were expecting.

Thirdly – IT NEVER GOES TO PLAN. Revenues are usually slightly further out than you expected. Scientific milestones take longer to meet than you anticipated. Key management people unexpectedly leave or fail to deliver…in short, something happens and you put your self at great risk of ending up with cap in hand trying to get more money when you are in a really bad negotiating position.

Even if it takes more dilution it is still worth making sure you are funded to a significant milestone AND you have some money put aside for contingency.

Does anyone have any rules of thumb for how much contingency costs you should budget in for an investment / funding round?