Three secrets to a successful university-corporate partnership

University laboratories can be a secret weapon for corporate investors looking for unique technologies.

University partnerships are ideal “when a corporate is looking for a breakthrough, when a big change comes in an industry, when you need technology that can overcome a challenge,” Sung Sik Byun, head of EMEA investments at Samsung Venture Investment, told GCV’s recent webinar session on how CVCs can unlock the potential of university spinouts.    

Samsung Venture Investment has collaborated with a number of universities in search of cutting edge technologies, for example, when the semiconductor industry was adopting the use of extreme ultraviolet lithography for manufacturing chips. Last year, Samsung acquired Oxford Semantic Technologies, a University of Oxford spinout that Samsung Venture Investment had backed from an early stage. The spinout’s technology, semantic reasoning software supporting AI applications, was used when Samsung added AI functions to its mobile devices.

“That’s one of the few cases that a venture could enter the big ecosystem of mobile software, especially AI, which is driven by mostly the big players,” said Byun.

Lina Arbelaez, former head of Anglo-American’s Decarbonisation Ventures, agreed that universities were the place to look when she was seeking an “operational advantage” for a corporation. Often when she had failed to find a technology in the market, she would look to university developments as a way to “push the frontiers of innovation.”

While heading Anglo-American’s Decarbonisation Ventures corporate investment unit, for example, she looked for technologies to develop green steel.

“There were a handful out there, [but] not enough in terms of reducing green steel at cost parity,” she said.

Anglo American ended up collaborating with the University of Birmingham in the UK and venture builder Cambridge Future Tech to launch PeroCycle, a venture developing carbon recycling technology for steelmaking. The spinout built on the university’s research in in-process carbon recycling using perovskite materials.

Emmanuel Raptakis, deputy head of licensing and ventures for physical sciences at Oxford University Innovation, the university’s technology transfer office, said: “Some of the most exciting opportunities in technology are coming from university spinouts. The [university technology transfer offices] are in a privileged position to have an early warning of important technologies. That’s why we’re trying to cultivate the relationship with CVCs, so that they can know the strategic, important stuff coming for their corporations at the early stage.”

But collaborations between universities and corporations can be tricky to manage.

Not every corporate investor is set up to invest at such an early stage, when the university spinout needs a lot of handholding.

“One of the issues we have is that when we launch new companies, they tend to be very early stage. The teams are not completely formed yet,” said Raptakis. “It’s difficult for some of the CVCs to invest at that point in time.”

But even for teams ready to invest early, the language and bureaucracy of universities can be hard to initially work through, said Keong Chan, founder and CEO of Out The Back Ventures, which invests in early-stage university research. Take, for instance, the term “technology readiness level” or TRL, a method that universities use to evaluate the maturity of a technology. The TRL scale goes from one, (basic research) to a nine, or full-scale deployment.  

“When I hear TRL I know exactly what people mean, but I think, in retrospect, that took me a year to figure out what the TRL was on this scale,” Chan said.

Then there was the various different areas of bureaucracy and paperwork that Chan needed to get to grips with.

“Things like licensing, royalties, exclusivity, all types of different contracts. It took me at least a couple of years to be able to even have the discussion.”

On the GCV Next Wave webinar From lab to market – how CVCs can unlock the potential of university spinouts, Chan, Arbelaez, Raptakis and Byun shared some points that both sides should know when considering a partnership. Here is what they told us:

1. Corporates usually want exclusive rights — but there is wiggle room

“Corporates tend to ask for exclusivity,” said Byun. If a technology is a true breakthrough, the corporation wants to have unique rights to it. That can be a problem for spinouts that may not want to limit their options to just one partner this early in their development.

But, said Byun, university spinout founders should know that there is room to negotiate. Experienced corporate investors will know that exclusivity has two sides, he said, with too much control sometimes killing a young company. This means they may be happy to compromise.

“Exclusivity doesn’t mean exclusivity for everything. You can define that to certain applications so it is not as binding. How you structure the term is quite important,” he said. “Be aware that you can do lots of negotiation and avoid the practical exclusivity term.”

2. High university equity stakes don’t necessarily bother CVCs

The high stakes that universities sometimes take in the companies spinning out from their research labs has been an issue raised by many venture capital investors as a problem, leading to a push in places like the UK for these to be lowered.

The University of Oxford generally takes a 20% stake in spinouts and can go as low as 10% in the case of some software-related spinouts. That is not unreasonable, said Raptakis. “The technology has been built with many years and huge investment from the public purse, and the university sees fit that some of the success of a spinout should flow back down to the university, to fund further research, further innovation and teaching,” he said.

Happily for universities, corporate investors are often less concerned about the size of university stakes than financial VCs. Samsung Venture Investment, in fact, sometimes wants the university to remain a big shareholder.

“We like to have the university as a brand and to give the impression that they will keep supporting the company,” he said. Byun says he likes the university to keep a stake of at least 10% in the startup, and to act as a balance to financial VCs, which, he says, can sometimes demand extreme changes at spinout companies too quickly.

“What we fear is financial VCs playing around too much, firing the management. We like to have someone who can help control from a neutral position,” he said.

Keeping a university as a big investor can also mean the spinout can keep a strong relationship with the institution and have access to university lab equipment which might otherwise be too expensive to access, he added.

3. University research long shots are substantially derisked by government money

Chan says corporates looking to invest in early university research should factor in how government funding helps amplify every dollar invested. Out The Back Ventures tends to invest in very early-stage university research, usually at the point when it is moving from a breakthrough experiment to a first pilot project. Chan estimates that taking a company through this inflection point can mean an investment of around $500,000.  

“What really makes this work is the non-dilutive funding available from government. So in UK it is UKRI [UK Research and Innovation], in the US it is SBIR [Small Business Innovation Research] grants. In Australia, we’ve got AEA [Australia’s Economic Accelerator] grants and other things,” he said.  

“As a pre-seed specialist investor, working with researchers right in the lab, we need to understand the structuring so that it’s worth rolling the dice. Normally, for every dollar that we invest or raise, we expect about two times that in non-diluted funding, so that half a million gets close to between $1m to $1.5m.”  

Although many governments are increasingly stretched financially, Chan says this kind of support is likely to continue or even increase at a time when geopolitical instability is requiring countries to shore up defence capabilities and increase self-sufficiency in critical areas.

“As governments start figuring out how to do this domestically, I’m almost certain that they’re going to start looking at universities for more technology and the translation of that out of the lab, because they can’t be as dependent on overseas allies,” he said.

Watch the full webinar below:

This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar every month, alternating between advice for CVC practitioners and deep dives into specific investment areas. Our next webinar will be in May.