2013: a year of change

As we come to the end of 2013, Global University Venturing completes its first full year in operation. Even in this short time period, we have seen changes in several areas having an impact on technology transfer and universityfocused venture investing round the world.

Over the past year, universities became more daring in supporting their start-ups through greater financial support and an increase in the number of business incubators.

There have been greater attempts at collaboration between universities and industry, and factors, such as massive open online courses (Moocs), have taken a more prominent role in higher education.

In this annual review, we take a look at some of the biggest stories emerging in these sectors over the past 12 months.

Moocs

The march of Moocs has continued unabated throughout 2013 as more universities seek to capitalise on mass-education platforms.

Still the largest provider of online classes is Stanford start-up Coursera, which raised $63m in venture capital over the course of the year while extending its reach to 5.5 million students and 107 institutions worldwide.

As with other platforms, while Coursera appears to have no problem attracting large volumes of users, it nonetheless performs badly when it comes to shepherding students to the end of the course, and the revenue-generating certification that awaits them. To this end, the platform made two new hires when it extended its series B round to $63m, bringing in online streaming platform Netflix alumni John Ciancutti and Tom Willerer. Whether the two can bring the same know-how that keeps Netflix subscribers glued to their sofas for hours on end will be a question answered in 2014, but it is certainly a move the UK’s FutureLearn Mooc platform can relate to.

Announced a year ago this month, Open Universityowned FutureLearn went online in September with its beta website. At the helm of the venture is Simon Nelson, the man behind the BBC’s wildly successful streaming service iPlayer, who wants to see a similar functionality of incorporated into the FutureLearn offering as well as incorporating elements of social media.

How successful it will be is uncertain, as the company has been considerably more tight-lipped about student numbers – currently capped at 10,000 per course in FutureLearn’s trial period running until the start of 2014 – as well as keeping a lid on exactly how much money is backing the development and marketing of the platform.

Also this year, one of the leaders of the Moocs’ march fell out of step and went off in an entirely different direction.

Google fellow and Udacity founder Sebastian Thrun – who made several bold predictions about the impact of Moocs following the original experiments at Stanford which led to both the establishment of Udacity and Coursera, such as online learning shutting down all but 10 universities worldwide by 2050 – has fallen out of love with the concept following poor data.

Announcing a pivot shift for the company away from open courses towards corporate training, Thrun said: “We were on the front pages of newspapers and magazines, and at the same time I was realising we do not educate people as others wished, or as I wished. We have a lousy product.”

Thrun’s change of heart on Moocs, a term he also revealed he dislikes, represents a major body-blow to the more die-hard fans of online courses. The former champion and renowned scientist – other Thrun projects include Google Glass and company’s self-driving car – turning his back on the idea of educating the masses for free, will undoubtedly rattle confidence as Moocs go into 2014.

That said, Thrun’s shifting opinion does not seem to have dampened the appetite for EdX on the part of Massachusetts Institute of Technology (MIT) and Harvard.

The non-profit model of Moocs may not have pulled in the numbers Coursera has managed, but its opensource approach has brought the company much closer to achieving the Mooc mission of free and open higher education. Outside what is available on EdX itself, the platform’s underlying technology and content has been utilized by three new Mooc providers – France’s Université Numérique, China’s XuetangX, and Jordan-based Arabic platform Edraak.

In the case of XuetangX, using the EdX platform over developing its own platform has allowed the Chinese language offering to go from announcement to launching courses within seven days, eclipsing FutureLearn’s yearlong development. Université Numérique worked on a similar timeline, with the company going from announcement to registration over the month of October with courses starting in January.

EdX’s technology is also being combined with Google’s to produce Mooc.org, which the internet giant is billing as the YouTube of education. Due to launch in the first half of 2014, the platform is looking to open up Moocs by allowing institutions, independent instructors and corporates to offer their own courses, worldwide and free.

The online course movement continues to move onwards, albeit with the big three – Coursera, EdX and Udacity – reduced to two. As for FutureLearn, the platform is finally online after a year of development, but is still a long way from being out of the gate.

Conversely, Coursera is way ahead in terms of students, partners and funding, while EdX is rapidly reproducing into separate cells and locking up potential territories, and looks to blow away all the competition with its Google partnership.

Underfunded and still in beta heading into 2014 with no sign of reinforcements from the Golden Triangle universities in sight, will the UK offering ever catch up? 

Collaboration

Another theme we have seen on the rise throughout the year and expect to become ever more prominent is the subject of collaboration among universities, and how this can lend critical mass to small institutions, thus facilitating stronger technology transfer.

Nowhere in the world has this been more prevalent on a national scale than with the emergence of France’s Sociétés d’Accélération du Transfert de Technologies (Satts) programme over the past couple of years.

Seeing a fragmented model with universities and research institutions clashing over intellectual property (IP) scraps, the French have drastically altered their approach to tech transfer with the establishment of 14 regional tech transfer centres, known as Satts. As opposed to one tech transfer office (TTO) per university, the Satts now represent a number of universities and research institutions in any given area of France, as well as representing national institutions.

This collaboration brings numerous benefits to tech transfer through the funnelling of efforts behind one banner per region, creating critical mass for each Satt.

Each Satt has considerably more bargaining power and clout than the former mass of TTOs, giving companies in the region a one-stop shop for research IP. This reduces inter-university competition and squabbling over patents, to the benefit of all the institutions backing a Satt, while also giving more prominence to university partners by promoting and managing IP in an area as a whole.

For example, university A may have the better brand, but university B the better technology. Previously, university A’s gravity would pull potential investors away from less known B, but under Satt, those seeking to license and invest in university IP can now find the technology they need on a level playingfield.

This also allows tech transfer resources to be concentrated.

Many of the lower-ranking research universities will see tech transfer licensing actually costing more than they receive in return, and much of this is due to the two-men-and-a-dog-in-a-shed approach to TTOs
employed by some universities. Using this formula, there is an urge to get whatever looks like the best technology sold at the highest price to make ends meet, but that means there will inevitably be tech that is passed over and, for all the academic’s hard work in producing an idea, it will simply be shelved.

Satts can approach this differently. By combining forces, Satts have greater, better trained manpower with a larger reach than the TTO sheds. They can make working with them appetising for businesses and investors, while also having the resources to provide stronger grounding for any potential spin-outs.

This applies to the financial aspect of Satts as well. Just over $1bn has gone into the establishment of the Satt system, backed by the French government’s $4.6bn Future Investment Programme, of which 95% is reserved for investments in IP and proof-of-concept projects, with an average of €250,000 ($340,000) per project.

Across the English Channel, collaboration continues to take root. SetSquared, a commercialisation alliance involving the universities of Bath, Bristol, Exeter, Southampton and Surrey, continues to grow in strength and capacity.

The partnership now represents 10% of the UK’s higher education research budget and 11% of all UK university patents.

This collaborative effort has allowed the organisation to support 650 companies over the past five years, which has raised nearly £750m ($1.22bn) in external funding collectively.

By way of comparison, Cambridge celebrated its spin-outs raising over £1bn in external funding earlier in the year, but it took two decades to achieve.

This is not to say the Golden Triangle is immune to the appeal of working together. Since 2011, Cambridge, Oxford and University College London (UCL) have started collaborating with Imperial College London’s technology transfer unit Imperial Innovations on getting new technologies from all four out of the front door.

While Imperial Innovations does not have exclusive deals with the universities on managing their IP – each university continues to maintains its own TTO – nine investments have come from the collaboration so far, and the allance seems likely to extend into the future.

Also in the UK, Fusion IP, a subsidiary of commercialization firm IP Group, is now working with four universities to manage and assist with technology transfer. Already operating as Sheffield’s TTO with support to Cardiff, Fusion signed up Nottingham and Swansea this year in agreements that are set to generate fruit early next year. And, in a more recent development, IP Group is now taking the spirit of collaboration across the Atlantic, signing two pilot deals with Ivy League universities Pennsylvania and Columbia.

That international flavour of collaboration has been reflected by work through MIT. While MIT maintains several overseas partnerships in order to drive innovation in other countries, perhaps the most ambitious is that of the Skolkovo project in Russia. Positioned as Russia’s attempt at Silicon Valley, MIT is establishing a university campus at the site, known as Skoltech, which has embedded in its syllabus understanding of the technology transfer process.

The partnership will have to rise to stiff challenges in order, most notably Russia’s blasé attitude to catching up with the west in terms of innovation, yet it represents the seeds of what could be a major step forward for Russia’s invention-led entrepreneurialism.

MIT’s expansion is not alone, with similar international partnerships on the rise throughout 2013 as institutions seek to expand their tech transfer knowledge through working with foreign organisations and countries to promote technology transfer. Further alliances seem like a sure bet in the future, especially if the work of the Satts, SetSquared and MIT continue to return positive results. 

Incubators

Although not a topic isolated to 2013, the number of university incubators and the support they can offer fresh companies have been increasing steadily over the year, along with proof-of-concept funds and ways to help the ideas gain commercialisation.

We perceive this to be a switch in attitudes on how to make technology transfer work. Licensing technology to pre-existing entities is not a one-size-fits-all blueprint for commercialisation, and in the case of smaller institutions it may not be working at all. This is seemingly where the appeal for incubators comes

into play, particularly for universities looking both to generate an entrepreneurial spirit around campus while expanding the surrounding network and contributing to the local ecosystem.

While some of the biggest tech companies in the world may have started in garages with notes scribbled on the back of a napkin, the success of Bill Gates and others does not necessarily mean that every group of students who flog their cars to make space for an array of tools and printed circuit boards are going to cut it in the world today.

However, it is that same spirit of creativity that incubators try to capture, essentially taking the garages of the 1980s and modifying them to give the start-ups within a better chance of success.

Incubators provide a breeding ground for small businesses by ensuring ideas currently on a drawing board have the resources and links to mentoring in order to expand original concepts into something that might well be commercially viable. When those that can succeed do, incubators can open the door to additional funding, further mentoring through board of director placements, and giving access to nearby science or business parks for further expansion.

This is where the critical and most appealing element for a university operating an incubator comes in – retention.

Rather than students completing their degrees and escaping to the nearest tech hub to launch their idea, incubators help keep successful students in the area, contributing to the university’s network, with a similar story to be told for faculty-led spin-outs.

Over the past year, we have seen more universities

switch on to the idea of further support for incubators. One of the ways this additional backing is coming through is in the form of entrepreneur-in-residence (EIR) hires. Traditionally a tool of venture capitalists scouting for the next big deal, EIRs are increasingly finding homes at universities where they provide direct support and mentoring to faculty and students alike.

Another is the increased support universities are giving incubators, such as Stanford’s StartX Fund. Plenty of incubators have access to a proof-of-concept fund, but Stanford’s fund does much more for the aspirations of those currently in or aspiring to be part of the programme, as well as offering the university another way to capitalise on its student’s ideas that is beneficial for all concerned without getting bogged down in licensing agreements.

There is also more formalised data coming through on the success of university incubators, appearing this year in the form of the University Business Incubator Index. Rice University took the top spot in the inaugural rankings, while a heavily contested joint-fourth spot included SetSquared, Ireland’s multi-university incubator the National Digital Research Centre, and two Australian incubators, Innovation Centre Sunshine Coast and ATP Innovations, where the incubator market is both new and booming.

Given this influx of support, we expect 2014 will be a big year for university incubators, as more universities move to expand their communities through the incubator method.

Next month, we will be analysing data we have accumulated over the past year, as well as sharing our predictions on what we see as major topics and challenges for technology transfer in the year ahead.

Fundraising

More than 30 venture capital and grant-focused funds were launched this year
targeting student and faculty spinouts from universities, according to research by Global University Venturing.

The funds have ranged in size from the $2.5m YEI Innovation Fund, targeting entrepreneurs from US-based Yale University, to the $1bn for Invoke Capital, targeting startups primarily out of UK-based Cambridge University – winner of the Global University Venturing 2013 Fundraising of the Year Award in October.

The top 10 largest are targeting a total of more than $1.8bn (see table, overleaf) , led by Invoke.

The US has nearly half of all global launches by number of funds launched, while the UK is second by volume and first by aggregate amount targeting universities, according to Global University Venturing.

By comparison with the broader venture capital market, data provider Preqin in October said that by the end of the third quarter, 85 predominantly US-focused venture capital funds had reached a final close, collectively raising $15bn in capital commitments at an average of $190m each. Preqin added that with 194 similar-strategy vehicles in the market currently targeting an aggregate $20bn, “the figures for 2013 have sure potential to surpass or at least match the US venture capital fundraising levels seen in the previous two years”.

In the whole of 2011, 84 predominantly US-focused venture capital funds reached a final close, raising a total $15bn, and by the end of 2012, 101 funds reached a final close, collectively garnering just under $20bn.

While there has been an increase in the number of venture capital funds targeting later-stage deals, Preqin said early-stage funds had remained fairly consistent in terms of their share of the annual capital raised, with the proportion ranging from 26% to 36% across the previous eight years.

But state and national governments are providing plenty of impetus for universities to encourage start-ups and, where necessary, providing taxpayer money to help venture funds invest in proof-of-concept and early-stage initiatives.

The Japanese government’s is supporting its university spin-outs with $1bn to be split among the top four universities (see feature) , while the European Commission is preparing for the start of its seven-year innovation programme, Horizon 2020, from next year, and regions, such as Connecticut, US, through to Bavaria, Germany, are developing co-ordinated innovation budgets to include university venturing.

The backers of many of these funds managed by venture capital firms, albeit often closely affiliated to one or more academic institutions, have come from a variety of sources, including corporations such as semiconductor designer ARM, electronics group Samsung and healthcare companies Boehringer Ingelheim and Daiichi Sankyo, plus financial institutions, such as Sumitomo Mitsui and Mitsubishi UFJ Capital, university endowments and operating budgets, including Stanford’s and Cambridge’s, and public markets, through specialist managers such as Invesco, Lansdowne and IP Group.

These investors have a mix of financial goals to maximize returns, as well as strategic aims by invest in start-ups that might disrupt the business of providing higher education or provide local and regional jobs.

However, worries remain about how universities and research laboratories will prioritise potential beneficiaries when they decide how to fund and support entrepreneurs using technology developed and perhaps patented by the institution.

An article in the Washington Post last month said: “The reality is that some universities do, in fact, behave like patent trolls. And now they are lobbying like them too.”

This latter point was a reference to a group of universities plus the Association of American Universities and the American Council on Education that opposed legislation designed to inhibit so-called patent trolls for fear of “unintended problems”, while the legislation was trying to “reduce abusive patent litigation and the corrosive impact it has on the US patent system”. 

Table: Top 10 university-focused venture fundraisings in 2013

Fundraiser Fund type Size Location Focus

1 Invoke Capital Venture $1bn UK tech

2 Connecticut Innovations Venture $200m US bioscience

3 Semiconductor Industry Assn Grant $194m US semiconductors

4 UTEC Fund III Venture $130m Japan life sciences, energy, materials, tech

5= Samsung Venture $100m US electronics

5= Allied Minds Venture $100m US tech

7 Venture Investors Venture $80m US life sciences, tech

8 Rock Spring Ventures Venture $79m UK life sciences

9= Silverton Partners Venture $75m US Texas university spin-outs

9= Cambridge Innovation Capital Venture $75m UK tech

Source: Global University Venturing