Tuesday, June 26, 2012

Defending Matt Welsh’s 'Startup University' Post

A week ago, Matt Welsh released a blog post on attaching a startup incubator to a university in order to create a funding model for some of the research that is performed at the university. Unfortunately, the beginning part of the blog post talked about the “inefficiency” of universities in terms of “producing real products” and the (perhaps overly dramatic) assertion that “nothing of practical value came out of [Matt’s] entire research career”. Although Matt has clarified that it was not his intention to indicate that the goal of academic research was to “produce real, shipping products that people could use”, many people interpreted the opening part of Matt’s post in that way, and reacted negatively (including, notably, Michael Mitzenmacher who responded in a comment and Joe Hellerstein who responded in his own blog post).

If we ignore the problems with the first part of Matt’s post, the rest of the post raises some important points and interesting ideas. As an academic who has spent large chunks of time spinning off a research project into a startup (HadoopDB was commercialized by Hadapt, which by most available metrics has been an example of a research lab-to-startup success story), many parts of Matt’s article rung true:
  1. Matt’s statement: “Most universities make starting a company painfully difficult when it comes to questions of IP ownership [and] licensing” was certainly true for Hadapt. It took way too long, and way too much effort to get an agreement in place. Part of the problem was discussed in the comment thread of Matt’s post --- licensing patents are much better aligned with the core mission of a university than accepting equity in start-ups.
  2.  Matt’s statement: “Most universities also make starting a company painfully difficult when it comes to […] forcing the academic's research to be dissociated with their commercial activities.” This was also true for me. I do not mean to criticize the university --- I absolutely understand the need for the conflict of interest safeguards because of the way that universities (and the assumptions of incoming students) are structured today. However, restructuring some of these assumptions in the way that Matt talks about may reduce the legal liabilities, and allow for fewer safeguards to have to be put in place. I also think that the students are hurt more than helped by some of these safeguards. For example, one of the PhD students involved in HadoopDB wanted to work part time for Hadapt while finishing his PhD. However, due to the COI legal complexities, he was forbidden from doing this and was forced to choose between Hadapt and the PhD program (he, of course, chose to take a leave of absence and join Hadapt).
  3.  Matt’s statement that academics starting companies “involves a high degree of risk (potentially career-ending for pre-tenure faculty)” obviously resonates with me. Whether or not Hadapt is successful, it has certainly taken my time away from publishing papers (though obviously, I'm still trying to publish as much as I can --- see, for example, my last post on the Calvin project). Since publication quantity and quality remain key statistics for academic success, any conscious reduction of them comes with a clear risk.
The bottom line is that I absolutely agree with Matt’s assertion that there are a lot of extremely intelligent faculty in academic institutions across the world that have made the mental calculation and decided that the benefits do not outweigh the risks in spinning off a startup from an ongoing research project. Whether or not this is a bad thing is up for debate --- it is certainly not the core mission of a university to spin off companies or produce real-world products. However most universities do have some number of applied fields, and measuring impact in applied fields is often initiated by looking at real-world deployments of the research ideas. Starting companies is clearly the most direct mechanism for translating research ideas to real-world impact. Hence, it’s probably not a controversial statement to assert that reducing some of the barriers to starting companies would allow faculty in applied fields to increase their impact, the primary goal of research.

Therefore, allowing for explicit relationships between research groups and university-sponsored start-up incubators, where the university invests in a start-up, with proceeds from such investments being used to sponsor additional research in the department, is an idea worth considering. I would, however, change a few things about Matt’s proposal:
  1.  I would not simply replace venture capital money with university money. Although it is easy to get into the trap of assuming that the venture capitalist simply trades investment dollars for equity in the company, it turns out that venture capitalists provide a lot of value in addition to their money. Seeing firsthand the difference at Hadapt before and after we got big-name venture capitalists behind us really drove this point home for me.  Therefore, I would recommend that the university partner with venture capitalists, or otherwise hire successful venture capitalists to work in-house (and continue to compensate them using the standard venture capital compensation schemes). Although the Kauffman report has recently shed some light into how poorly venture capital has performed over the last decade, the top venture capitalists have still done very well, and it is important to remember that the goal for the university is not to turn a profit on the investment, but rather to increase the number of startups coming out of the university, in order to increase the research impact. Break-even performance or even small amounts of losses are totally acceptable.
  2.  The model will not work for any university. The location of the university is critical. Trying to get an incubator going for universities located in the middle of nowhere is a recipe for disaster. Technologists like to think that the technology that the company is commercializing is the most important factor in the company’s success. In fact, it falls way behind ‘market’ and ‘people’ as a determining factor. The company needs competent and experienced people throughout the organization --- the engineering team, marketing, sales, support, etc. Recruiting a competent team in a location where there have been small numbers of comparable companies is likely to be futile. Students from the university can only get you so far --- you need a mix of experienced people as well.
  3.  There needs to be explicit mechanisms in place to reduce the risk for the faculty member. This means that the faculty member should get credit for certain company metrics at promotion or yearly evaluation time in addition to standard paper citation metrics. Company financial data is probably not a great metric, but customer counts of people actually using the technology, or even customer counts at “me-too” competitors could be used. Three years after publishing the original HadoopDB paper, there are real people using this technology to solve real problems. It’s pretty rare to see such an immediate impact, and it ought to count for something.
Obviously my own experiences have made me predisposed to liking Matt’s ideas, but I do encourage people to read the second half of his post independently of the first half.