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Optimism and Disillusionment in Silicon Valley. Part 2 : Steve Jobs in Playboy

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It is the third time I can relate Playboy magazine to technology startups. Strange.

In 1971, Intel went public the same day as Playboy and its co-founder, Gordon Moore, funnily recounts in Something Ventured: And a few years later one of the analysts: “The market has spoken. It’s chips over chicks, 10-to-1.” He did not exactly say that but something similar. I will let you search if you wish…

In 2004, the playboy interview of the Google founders, The Google Guys, America’s newest billionaires, was very controversial. Not because of the publisher, but of the timing. You can read
Google says Playboy article could be costly.

Finally I recently discovered that in 1984 was published a lengthy 13-page interview of Silicon Valley’s newest star: Steven Jobs, a candid conversation about making computers, making mistakes and making millions with the young entrepreneur who sparked a business revolution. Here are some extracts.

About computers

We’re living in the wake of the petrochemical evolution of 100 years ago. The petrochemical revolution gave us free energy – free mechanical energy, in this case. It changed the textures of society in most ways. This revolution, the information revolution, is a revolution of free energy as well, but another kind: free intellectual energy. It’s very crude today, yet our Mackintosh computer takes less power than a 100-watt light bulb to run and it can save you hours a day. What will it be able to do ten or 20 years form now, or 50 years from now? This revolution will dwarf the petrochemical revolution. We’re on the forefront.

Computers will be essential in most homes. The most compelling reason to buy a computer for the home will be to link it into a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people – a remarkable as the telephone.

It’s often the same with any new revolutionary thing. People get stuck as they get older. Our minds are sort of electrochemical computers. Your thoughts construct patterns like scaffolding in your mind. You are really etching chemical patterns. In most cases, people get stuck un those patterns, just like grooves in a record, and they never out of them. It’s a rare person who etches grooves that are other than a specific way of looking at things, a specific way of questioning things. It’s rare that you see an artist in his 30s or 40s to really contribute something amazing. Of course, there are some people who are innately curious, forever little kids in their awe of life, but they’re rare.

About innovation

What happens in most companies is that you don’t keep great people under working environments where individual accomplishment is discouraged rather than encouraged. The great people leave and you end up with mediocrity. I know, because that’s how Apple was built. Apple is an Ellis island company. Apple is built on refugees from other companies. These are the extremely bright individual contributors who were troublemakers at other companies.

Polaroid did that for some years, but eventually Dr Land, one of these brilliant troublemakers, was asked to leave his own company – which is one f the dumbest things I’ve ever heard of.

About growing

Anyway, one of our biggest challenges and the one I think John Sculley and I should be judged on in five to ten years is making Apple an incredibly great ten- or 20-billion-dollar company. Will it still have the spirit it does today? We’re charting new territory. There are no models we can look to for our high growth, for some of the new management concepts we have. So we’ve to find our own way.

The way it’s going to work is that in our business, in order to continue to be one of the major contributors, we’re going to have to a ten-billion-dollar company. That growth is required for us to keep up with the competition. Our concern is how to become that, rather than the dollar goal, which is meaningless to us.

There may be some imitators left in the $100,000,000-to-$200-000-000 range, but being a -$200-000-000 company is going to mean you are struggling for your life, and that’s not a really a position from which to innovate. Not only do I think IBM will do away with its imitators by providing software they can’t provide, I think eventually it will come up with a new standard that won’t even be compatible with what it’s making now – because it is too limiting.

[Jobs was visionary but could be always right. Look at Dell, Compaq, Lenovo, HP and Intel/Microsoft…]

I used to think about selling 1,000,000 computers a year, but it was just a thought. When it actually happens, it’s a totally different thing. So it was. “Holy shit, it’s actually coming true!” But what’s hard to explain is that this does not feel like overnight. Next year will be my tenth year. I had never done anything longer than a year in my life. Six months for me, was a long time when we started Apple. So that has been my life since I’ve been sort of a free-willed adult. Each year has been so robust with problems and successes and learning experiences and human experiences that a year is a lifetime at Apple. So this has been ten lifetimes.

There’s an old Hindi saying that comes into my mind occasionally: “For the first 30 years of your life, you make your habits. For the last 30 years of your life, your habits make you.” As I’m going to be 30 in February, the thought has crossed my mind. And I’m not sure. I’ll always stay connected with Apple. I hope that throughout my life, I’ll sort of have the thread of my life and the thread of Apple weave in and out of each other, like a tapestry. There may be a few years when I am not there, but I’ll always come back.

About artificial intelligence

The original video games captured the principles of gravity. And what computer programming can do is to capture the underlying principles, the underlying essence, and then facilitate thousands of experiences based on that perception of the underlying principles. Now if we could capture Aristotle’s world view – the underlying principles of his world view? Then you could ask Aristotle a question. Ok you might say it would not be exactly what Aristotle was. It could all be wrong. But maybe not.

Part of the challenge, I think, is to get these tools to millions and tens of millions of people and to start to refine these tools so that someday we can crudely, and then in a more refined sense, capture an Aristotle or an Einstein or a Land while he’s alive.

That’s for someone else. It’s for the next generation. I think an interesting challenge in this area of intellectual inquiry is to grow obsolete gracefully, in the sense that things are changing so fast that certainly by the end of the Eighties, we really want to turn over the reins to the next generation, so that they can go on, stand on our shoulders and go much further. It’s a very interesting challenge, isn’t it? How to grow obsolete with grace.

Post-Scriptum: It is difficult to add anything to this beautiful conclusion and yet I wish to create a (quite artificial) link between these first two parts. I just discovered it while finishing this article and the coincidence is quite beautiful. I didn’t know about this Steve Jobs interview. Much better known, even famous, is the speech he gave in 2005 at Stanford University, for the graduation of students (the “commencement speech” – my first article in this blog)

Coincidentally, Michael Gibson ends his book, Paper Belt of Fire, by analyzing another commencement speech given in 2005 and considered by some to be one of the most beautiful with that of Jobs. This is “This is water” by David Foster Wallace, the entirety of which you will find in This Is Water: Some Thoughts, Delivered on a Significant Occasion, about Living a Compassionate Life.

Here is its conclusion:

The capital-T Truth is about life BEFORE death.

It is about the real value of a real education, which has almost nothing to do with knowledge, and everything to do with simple awareness; awareness of what is so real and essential, so hidden in plain sight all around us, all the time, that we have to keep reminding ourselves over and over:

“This is water.”

“This is water.”

It is unimaginably hard to do this, to stay conscious and alive in the adult world day in and day out. Which means yet another grand cliché turns out to be true: your education really IS the job of a lifetime. And it commences: now.

Optimism and Disillusionment in Silicon Valley. Part 1 : Paper Belt on Fire

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So I asked Gates: “What do you think of the idea that we’re not seeing as much innovation and scientific progress as we should? That the rate of progress has stalled?”
“Oh you guys are full of shit. Total shit…”

This is how Bill Gates reacts on page XI of Paper Belt on Fire, How Renegade Investors Sparked a Revolt against the University to author Michael Gibson’s ideas that he describes in detail in his recent book.

The book is both exciting and frustrating, convincing sometimes and unnerving at others. But let me mention what was questioning [to me].

The central thesis of the book has four parts. The first is that science, know-how, and wisdom are the source of almost all that is good: higher living standards; longer, healthier lives; thriving communities; dazzling cities; blue skies; profound philosophies; the flourishing of the arts; and all the rest of it.
The second is that the rate of progress in science, know-how, and wisdom, has flattened for far too long. We have not been making scientific, technological, or philosophical progress at anything close to the rate we’ve needed to since about 1971. (Computers and smart phones notwithstanding.)
The third claim is that the complete and utter failure of our education, from K-12 up through Harvard, is a case in point of this stagnation. We are not very good at educating people, and we have not improved student learning all that much in more than a generation, despite spending three to four times as much per student at any grade. Our lack of progress in knowing how to improve student outcomes has greatly contributed to the decline in creativity in just about every field.
The last, chief point is that the fate of our civilization depends upon replacing or reforming our unreliable and corrupted institutions, which include both the local public school and the entire Ivy League. My colleagues and I are trying to trailblaze one path in the field of education. We might be misguided in our methods, but our diagnosis is correct. [Pages XIX-XX]

What are the traits of great founders? [Pages 89-96]

Edge control, crawl-walk-run, hyperfluency, emotional depth & resilience, a sustaining motivation, the alpha-gamma tensive brilliance, egoless ambition, and Friday-night-Dyson-sphere.

Edge control: a willingness day after day, to defy the boundary between the known and the unknown, order and disorder, vision and hubris.

Crawl-walk-run: a founding team needs to have the smarts to build what they are going to build. […] The best way to screen for these traits is to see them at play in the wild. It takes some time to see their evolution.

Hyperfluency: the best founders have the charm of a huckster and the rigor of a physicist. […] They speak with fluent competence.

Emotional depth & resilience: the founders of a company have to have the social and emotional intelligence to make hires, work with customers, raise money from investors, and gel with co-founders. The complexity of this total effort is incredibly demanding and emotionally exhausting.

Tensive brilliance: what we’ve noticed is that creative people tend to have a unity born of variety. That unity may have a strong tension to it, as it tries to reconcile opposites. Insider yet outsider, familiar yet foreign, strange, but not a stranger, young in age but older in mind, a member of an institution but a social outcast – all kind of polarities lend themselves to dynamism. This is in part, I believe, why immigrants and first-generation citizens show a strong productivity for entrepreneurship. They are the same, but different.

Egoless ambition: on the one side there is an intense commitment to do great things. But on the other side is an element of detachment, a footloose, untroubled attitude that treats triumph and disaster just the same.

Friday-night-Dyson-sphere: the physicist Freeman Dyson once imagined a sphere of light-absorbing material surrounding our entire solar system on its periphery. One of the most electrifying moments for us is when a team convinces us, through a series of plausible steps backed by evidence, that they are capable of growing a lemonade stand into a company that builds Dyson Spheres. What’s more, it’s clear this is the thing they’d rather be tinkering on during a Friday night when all the cool kids are out partying.

The 1517 fund [1]

“We’re named after the year Martin Luther nailed his ninety-five theses to a church door in a tiny German town. That began a revolution, the Protestant Reformation. But it all started because he was protesting against the sale of a piece of paper called an indulgence. In 1517, the church was saying this expensive piece of paper could save your soul. In 2015, universities are selling another expensive piece of paper, the diploma, saying it’s the only way to save your soul. Well, it was bullshit then. And it’s bullshit now.” [Page 144]

For one thing, most venture capital funds fail. Blind folded monkeys throwing darts to pick stocks would perform better than the investor who picked the average venture capital fund. The median VC returns about 1.6 percent less than if someone just put their money in an index-tracking mutual fund. [Page 147]

To accelerate progress, we need young people working at the frontiers of knowledge sooner than they have in the past. They also need greater freedom. What that means is institutions that trust them to take risks and demonstrate some edge control with their research. We must hold it as a fairly predictable law of creativity that the unknown must always pass through the stranger before we can understand it.
Universities have served this research function in the past and will continue to do so. But they are plagued by four realities. The first is the slow speed of a formal, credential-based education. It takes four years to earn a bachelor’s degree and then another seven or eight to earn a PhD. Second, universities have become hives of groupthink. Third, grant-giving is driven by prestige, credibility, and a cover-your-ass mentality. Fourth, the incentives of academic institutions reward shrewd political calculation, incrementalism, short-term horizons, and a status hierarchy in which demonstrating loyalty earns more reward than advancing knowledge. [Page 261-2]

About education

The good news is that two cheap, relatively easy to use methods stand out as the most effective at boosting student performance: practice testing and distributed practice. Distributed practice is when students establish and stick to a consistent schedule of practice over time. (Its antithesis is cramming.) Practice is not mere repetition, but a deliberate effort to improve performance in the Goldilocks zone where success is neither too easily gained, nor the challenge too hard. Self-resting as a technique should not be confused with high stakes standardized testing but instead as a way of frequently probing the edge of knowledge in a field. […] Consistent self-testing and distributed practice are the most effective learning techniques, but they are also the most painful, as both of these strategies require discipline, energy, and individual effort.
Then there are the more intangible questions that require our attention. How can we encourage students to pursue the truth, independent of other people’s approval? How do we teach civil disobedience, training our young to fight for what’s right? Or how to practice delayed gratification for worthy long-term goals? Are these even possible to teach? No one has bothered to ask. [Pages 301-302]

If you are not unnerved and still intrigued, then you may read his final chapter around James Stockdale and David Foster Wallace.

Now what I found unnerving is the huge difference between exceptions, anecdotes in a system and a social statistical problem. I will only quote a great and rather unknown novel: Les Thibault by Roger Martin du Gard: « Je vous avoue que je ne sais plus très bien ce que je lui ai conseillé. J’ai dû – naturellement – l’engager à ne pas abandonner l’école. Pour des êtres de sa trempe, notre enseignement est, somme toute, inoffensif : ils savent choisir, d’instinct ; ils ont – comment dirais-je – une désinvolture de bonne race, qui ne se laisse pas mettre en lisière. L’Ecole n’est fatale qu’aux timides et aux scrupuleux. Au reste, il m’a paru qu’il venait me consulter pour la forme et que sa résolution était prise. C’est justement l’indice d’une vocation, qu’elle soit impérieuse. C’est bon signe qu’un adolescent soit en révolte, par nature, contre tout. Ceux de mes élèves, qui sont arrivés à quelque chose étaient tous de ces indociles. » [Page 754 of volume 1, collection folio and this gives in English “I confess to you that I no longer really know what I advised him. I had to – naturally – urge him not to drop out of the School. For beings of his caliber, our teaching is, after all, harmless: they know how to choose, instinctively; they have – how shall I put it – a good-natured casualness, which does not allow itself to be put on the edge. The School is fatal only to the timid and the scrupulous. Besides, it seemed to me that he came to consult me for the form and that his resolution was taken. It is precisely the sign of a vocation, that it be imperious. It is a good sign that a teenager is in revolt, by nature, against everything. Those of my students who achieved something were all of these rebellious ones.”]

[1] I did not mention until now and will in this footnote that Gibson, in a way, belongs to the PayPal mafia of anarcho-libertarians that include Peter Thiel and Elon Musk. Gibson co-managed the Thiel Fellowship and now the 1517 fund. There are notable Fellows as shown on Wikipedia. Now quoting Peter Thiel did the recipients did better than what he dreamed of: “We wanted flying cars, we got 140 characters instead” or did they really answer his famous question “What’s something you believe to be true that the rest of the world thinks is false?” [Page 60]

New data about academic technology transfer to startups

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Nathan Benaich is very unhappy with technology transfer in the UK and he is probably right to be. For many years I had noticed that British academic institutions often took more than a 25% ownership in a startup in exchange for a license of intellectual property, whereas the standard figure in the USA and continental Europe is more in the 5-10% range. He had published a very interesting article in May 2021, Rewriting the European spinout playbook where he was complaining about a lack of transparency and very frustrating processes.

He is now working on a new set of data provided by founders that he makes freely available on spinout.fyi. He is asking for help and any interested founder should provide a little if she can. I downloaded his data and provide here my own analysis although Nathan has his own here. You should read it. Here is a first set of tables:

If you do not like tables and even if you do, here are more figures:

And because I had done a similar research some years ago, posted here as How much Equity Universities take in Start-ups from IP Licensing?, I did the exercise of combining his and my data. This is a set of 190+ companies! You will see the equity ownership per domain and per region.

So what are the lessons? The UK is a clear outlier, but what is more striking is the volatility in the numbers. And why is that? Some professional claim each startup is different. I disagree. Strongly! The lack of transparency in the policies is the reason of the volatility. Founders seldom know how they will be treated. This is why I was so happy with EPFL publishing its policy. See my recent post Technology Transfer according to EPFL and Rules for Startups.

I really hope that Nathan Benaich’s effort will help in bringing a much needed transparency in these numbers!

Exclusive license vs. ownership of Intellectual Property

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Intellectual Property (IP) is a sensitive and often cleaving topic. I have already addressed the topic here, check the hashstag #intellectual-preperty (or also #licensing). But even once the general value of IP is addressed, there are tons of secondary issues.

One is the specific question of how ownership of IP by a startup vs. an exclusive license granted by an academic institution is considered, in particular by investors. On January 27, 2022, I send an short email to 300+ investors and I got about a 10% response rate. In parallel, I mentioned the topic on my LinkedIn account and I got additional comments. Although, there is a rich argumentation about pros and cons of both situations, so that the reader may want to have a careful look at the full answers, here is my synthetic understanding:

There is no fundamental difference between license and transfer from the point of view of the startup’s strategy, except what happens in the event of bankruptcy or liquidation. The license is not an asset and therefore the intellectual property is no longer usable. With this nuance, admittedly significant, there are two additional points:
– Some investors think that the owner pays for the maintenance of the IP and suits the possible “infringers” to defend this property. I don’t think that’s the case because in my experience it’s the licensee who does that.
– In case of a trade sale, it is important that the license can be transmitted and this is a major item, that is to be guaranteed. There maybe political or strategic issues though.
Finally, a price for the transfer may be added when or if possible.
There is no doubt that the reputation of the institution and the stability of these acts are essential. (There would be more to add like equity vs. (capped or not) royalties in the license terms, milestones and many details… I tried to be as short as possible).

You can download here pdf file Survey on license vs ownership of IP.

Survey on license vs ownership of IP – Lebret – 1Feb2022

Google is not Stanford largest license revenue anymore

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Until early this morning, I thought that the Google license (i.e. the rights Stanford University had granted the startup on the PageRank patent) was the largest generator of licensing revenue for the Californian university. I was wrong! If you read the annual reports of OTL, its Office of Technology Licensing, for example the pdf of the 2016 Annual Report, you may notice that the largest royalty revenue generator had another source: intellectual property/patents about functional monoclonal antibodies. Here are what these reports say of the largest amount of revenue in a given year from a single invention:
2016: $64M
2015: $62.77M
2014: $60.53M
2013: $55M
2012: $51M
2011: $44M
2010: $45M
2009: $38M
2008: $37M
2007: $33.5M
2006: $29M
These numbers give a total of $363M and another book mentions $125M cumulatively before 2006. But a more recent powerpoint document shows that the total cumulative revenue is … $613M!!

As a side note, in 2005, the Google patent gave proceeds of $336M following the company IPO. The 2004 and 2003 reports do not say the amount of the largest source of income whereas in 2002, it was “an unexpected $5.8M in one-time royalties” and in 2001, “for the first time in over 20 years, a physical science invention – an optical fiber amplifier – generated the most income”.

As Lita Nelsen from MIT said (see my previous post), “Even nationwide, you can show that tech transfer is, at best, a lottery if you want to make an ability to influence [a university’s financial position]. The primary winners—not 100 percent of them, but damn close—are single pharmaceuticals. Because if a pharmaceutical hits the market, it’s going to be in the multi-billon dollar [range]. The equity is seldom worth a lot, unless of course you can follow up with preferred investments. But that’s not what we’re in the business of doing. Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble.” Google was a big exception with the equity proceeeds whereas the patent around monoclonal antibodies or the Cohen Boyer patent are about pharma. Have a look at the next figure from the same powerpoint document.

Interestingly enough I am reading a very interesting book (more when I am finished) which describes the early days of Silicon Valley and in particular the creation of the office of Technology Licensing by Niels Rimers.

In Troublemakers, author Leslie Berlin extensively describes the Cohen Boyer patent. In note 32 (page 450), she describes the terms of the Cohen-Boyer license. You can also find them in Lessons from the Commercialization of the Cohen-Boyer Patents: The Stanford University Licensing Program.

73 companies has signed for the initial $10k upfront payment, but “ten companies alone provided 77% (US$197 million) of the total licensing income” and 3 (Amgen, Genentech and Lily) provided close to 50% of the total. All this is well-known but I thought it would be interesting to blog about it today.

MIT’s Lita Nelsen Perspective on Academic Technology Transfer

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I just read an excellent interview of Lita Nelsen who has recently retired as head of MIT’s Technology Licensing Office. You should read the full Exit Interview: Lita Nelsen on MIT Tech Transfer, Startups & Culture. I was used to say that MIT was more conservative than Stanford just like the Boston Area has been known to be more conservtaive than California, but things change. So let me just mention a few extracts.


Lita Nelsen (Formerly head of MIT Technology Licensing Office)

About patents:

Patents are needed because the whole idea is if you’re going to get somebody to invest a lot of time and a lot of money, if you succeed you don’t want the other guy, the bigger guy, saying, “Well, thank you very much. Now that you’ve shown the way, get out of the way.” We are primarily using patents as an incentive for investment.

About universities having an investment fund:

[The Technology Licensing Office helps] start about 25 or 30 companies a year. God knows how many [other companies started on campus] go out the back door. No one fund could put that amount of sweat equity into all of them. Now imagine we have MIT’s fund, and I invest in company A, but don’t have the resources to do B, or maybe not C. Then I go with C to [an outside venture capital firm] and say, “How would you like my leftovers?” There’s a negative selection bias there for what we don’t invest in. So, better to let a level playing field for anybody who wants to play.

But one thing any institution doing it has to decide is, are we primarily in it for return on investment? Or are we primarily in it for getting companies started that wouldn’t otherwise get started? You usually get a mixed message if you ask people which it is. And as everybody knows, when you get mixed missions, things get very hard to manage.

About equity in licensing:

How much equity does the Technology Licensing Office usually take when it spins out a company? Usually in the lower single digits, maybe a little higher if you have a software spinout. And it’s common shares.

If it’s research-intensive stuff—biotech, things that take multiple rounds of funding—[our stake] usually gets demoted down to [tiny] portions. You make a little money; you don’t make a lot. Except in cases when the Wall Street bubble is totally irrational. Even nationwide, you can show that tech transfer is, at best, a lottery if you want to make an ability to influence [a university’s financial position]. The primary winners—not 100 percent of them, but damn close—are single pharmaceuticals. Because if a pharmaceutical hits the market, it’s going to be in the multi-billon dollar [range]. The equity is seldom worth a lot, unless of course you can follow up with preferred investments. But that’s not what we’re in the business of doing. Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble.

About accelerators:

“Does MIT have an incubator?” And my classic answer has been, “Yes, it’s called the city of Cambridge.”

The problem with accelerators is the definition has become as broad and varied as incubators, which range from science parks to little projects within universities, so you don’t know what the word means until you dig in. But some of them are putting money into product development. Some of them are venture funds expecting ROI. Some of them are [funded] through donations, as we did with Deshpande and Harvard did with their accelerator.
It’s going to be interesting to look at the mechanisms that people are trying. Because the problem is there: How do we get from the stage of which the university has done its research and maybe even gotten on the cover of Science magazine, to where somebody is going to invest in that ripening process before it actually turns into true product development, short-term product development? How do you get from the petri dish to full-scale clinical trials? You’ve got to get pretty far along before pharma’s going to do that for you. So people are looking both within universities and outside of universities as to how you fill the gap.

About teaching entrepreneurship:

now MIT, with its emphasis on innovation, is investing officially in training students in innovation and entrepreneurship, along with, not separate from, their intense technical educations. It’s not “you go and learn how to be an entrepreneur,” it’s you learn biology or chemistry or electrical engineering or computer science, but you also learn how entrepreneurship and innovation and moving technology out into the marketplace works—rather than having to learn that after you graduate.

Research Exploitation according to Jacques Lewiner

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The excellent Paris Innovation Review (formerly known as the ParisTech review) just published an interview of Jacques Lewiner (for the ones not knowing him, you may want to have a look at Jacques Lewiner about Innovation. This new article is entitled Research exploitation: catching up at a quick pace!

It begins with:“Academic research is not only a driver of scientific progress. It is a means to change the world. Many discoveries, including in areas related to basic research, can lead to new processes, products or services.”

Lewiner then explains the complexity of a successful exploitation and biases related to it. “The first [bias] is that, when we think about exploitation, we stick to patents. […] But sticking to patents means ignoring the essential, i.e. the entrepreneurial aspect of exploitation. […] Hence the importance of the entrepreneurial aspect: encouraging researchers to found startups and develop by themselves the economic potential of their discovery. The second bias comes [with …] a strong reluctance to admit that a researcher can make money, or even a fortune. […] A researcher’s brain is government property!”

Then Lewiner adresses the topic of licensing – More about it in How much Equity Universities take in Start-ups from IP Licensing? So here is what he says: “Nothing prevents the institution from taking shares in the company. 5% of shares, for example, is a reasonable figure, close to what most dynamic ecosystems offer. […] Holding golden shares would be equally counterproductive. […] In short, we need a whole new culture of investment.”

Lewiner indeed insists on an adequate culture: “Speed is a real challenge and on this sense, a well-equipped institution with some experience and good contacts […] can offer a real added value. Role models can also play an incentive role for researchers. […] All these ingredients of the “startup culture” require transmission.”

In the end, I only disagree with his final comment: “I dream of the day when French doctoral students will answer to the question of what they will do after their thesis with the same mindset as their counterparts in Stanford or Harvard: ‘I’m still trying to figure out in which of my thesis supervisor’s startups I want to work with.’ ” I think Lewiner is wrong. Ideally, they should do their own start-ups, just like they do at Stanford…

PS: thanks a lot to the colleague who mentioned this interview to me 🙂

Two Challenges of Technology Transfer – Part 2, Get to Know Your TTO.

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My second post about Technology Transfer (following the one about National Systems) is about the micro-economics of the activity. This is motivated by the very good Keys to the kingdom – subtitled What you need to know about your technology transfer office.

Before summarizing its content, let me remind you about the posts which already cover the topic so you will agree it’s not a new topic for me and I consider it as important:
– University licensing to start-ups in May 2010 (www.startup-book.com/2010/05/04/university-licensing-to-start-ups) followed by
– University licensing to start-ups (Part 2) in June 2010 (www.startup-book.com/2010/06/15/university-licensing-to-start-ups-part-2)
– How much Equity Universities take in Start-ups from IP Licensing? in November 2013 (www.startup-book.com/2013/11/05/how-much-equity-universities-take-in-start-ups-from-ip-licensing)
– Should universities get rich with their spin-offs? in June 205 (www.startup-book.com/2015/06/09/should-universities-get-rich-with-their-spin-offs)

bioe2015

Co-authored by 18 people from Stanford, Oxford, Harvard, the University of California in San Francisco and the University College London, the article describes what should know people interested in getting a license on intellectual property to create a start-up. The paper begins with “As an academic […]entrepreneur, you will face many challenges” and the second paragraph follows with “In addition, you will most likely have to negotiate with your university’s technology transfer office (TTO) to license the intellectual property (IP) related to your research”.

What are these challenges related to TTO? they are written in the article in bold fonts as follows: Overcoming information asymmetries – Long negotiations – Inexperience – Lack of funding – Conflict of interest rules – Experienced legal counsel. This means that as a future entrepreneur, you should be prepared and ideally be knowledgeable about these.

The challenges

The main challenge seems to be the administrative complexity and opacity (page 1), including confidentiality of contracts, which makes it difficult for outside observers to understand fair market terms (page 1 again). In the end, they nearly conclude with: “Indeed, even for the universities for whom we have data regarding equity policies, it was often hidden deep within a jumble of legalese. To that end we encourage universities and research institutes receiving public monies to be fully transparent in their equity and royalty policies, and not use these information asymmetries as a bargaining advantage against fledgling […]entrepreneurs.”

On page 2, I note:
– A negotiation may be long (6-12 months, even 18 months) and one way to make it short is to take the proposed terms.
– A way to mitigate inexperience is by “preparing an adequate business plan or strategy for your IP before approaching your TTO” or by “bringing aboard team members with prior experience in […] commercialization to improve your team’s credibility”.
– Lack of funding can be partially solved by signing “license option agreements”.
– Conflict of interest rules “exist to prevent academics from playing both sides of a technology licensing deal or devoting too much time to nonacademic obligations”. Furthermore, “TTOs represent the interests of the university (not the academic), yet the academic is technically an employee of the university. “Our policy is to never negotiate directly with the faculty,” says a US-based TTO representative”.
– Experienced legal counsel is advised for assessing the quality of the IP but also because “[…]entrepreneurs often fail to appreciate the opportunity cost to the TTO in outlicensing. If a technology is licensed to an ineffective team (particularly with an exclusive license), the university forgoes any success or revenue it may have received from licensing the technology to a better organized industry partner. Moreover, universities have limited resources and manpower to protect IP, and, for this reason, prefer to license technology to teams they believe are well prepared to commercialize it.”

The equity deal terms

“Perhaps the most striking difference between the United States and United Kingdom is seen with equity deal terms. In the United Kingdom, a typical licensing deal is a rarely negotiable 50:50 split between the university and the academic […]entrepreneur, whereas US interviewees often reported universities taking a 5–10% negotiable equity share.”

You now understand why I said I was not convinced in my previous post about taking the UK as a reference. The US practice shows space for debate. You may check again my article from November 2013, where you will see that a typical deal is either 10% at creation or 5% after significant funding. Very rarely more.

Again the authors mention “US founders often do not realize that some deal terms are negotiable, including upfront fees, option payments, equity, royalty payments, milestone payments, territories covered, field of use and exclusivity versus nonexclusivity” and “In the UK, licensing deal equity terms are often perceived as being non-negotiable, though this is not always the case. In fact, many institute policies explicitly state that equity terms are negotiable.” This may however make the process lengthier.

On page 4, the authors add: “It is difficult to understand the justification of UK TTOs, such as Oxford’s Isis Innovation, taking 50% of a company’s equity at formation — which after investment can leave the academic entrepreneur with an extremely low stake from the get-go, for what was likely years of work, and will require many years and millions more to develop.” and indeed “The data would suggest that TTOs taking less upfront and leaving more to the academic and investors who will actually carry the idea forward pays off in the long term. Simply put: holding a smaller piece of something is still more valuable than a large piece of nothing.”

The mystery of royalties

“It is also worth noting that while a discussion on royalties was outside the scope of this study, it was clear from our research that many university TTOs “double dip” and take significant equity and royalty.” but again “Perhaps more disquieting than the out-sized equity and royalty stakes that universities are claiming is the lack of transparency from many universities on this critical issue.”

My conclusion: any wannabe entrepreneur should read this short 5-page paper and be prepared to negotiate. I would love as much as the authors that universities and research institutes be fully transparent in their equity and royalty policies, though I am also aware of the possibly weakened position of universities which would do so.

Two Challenges of Technology Transfer – Part 1, the National Systems.

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Two documents have led me to describe two types of challenges facing the technology transfer of academic institutions.
– First, at a macro-economic level, the challenge comes from the various possible administrative structures, but also the complexity of the operations. The report Transfert et Valorisation dans le PIA (in French) by Bruno Rostand compares the national policies of Germany and the United Kingdom to that of France.
– Secondly, at the micro-economic level, the journal Nature published the article Keys to the kingdom with the subtitle, What you should know about your technology transfer office. I will come back to this in my next post.

Mise en page 1

The report of Bruno Rostand addresses the challenges that France meets after having established regional structures for technology transfer, the “SATT”. He notes that Germany has built a similar system with its “PVA” in the Länder. In both cases, there is a goal of financial independence which seems difficult to achieve if not unrealistic, despite the existence of public subsidies. In Germany, two of these companies have even filed for bankruptcy in Lower Saxony in 2006 and Berlin in 2013.

Why such difficulties? Because the returns on investment have not been up to the expectations. For example, approximately €10M euros have been invested each year in the form of public funds in Germany, but revenues remained much lower. In addition the regional structure has its limitations, as it is difficult to gain expertise in all areas of technology.

The United Kingdom has a different situation. The state has been a marginal actor and technology transfer was organized either by universities (Cambridge, Oxford, Imperial College) or by private structures close to venture capital (IP group) which organically helped in structuring technology transfer. Through externalization, these organizations have become private organizations, which have become rich in financial and human resources. At Oxford, ISIS employs 80 people for £14.5m in revenue in 2014. Imperial innovation has been publicly traded since 2006, employs 45 people and generated a profit of £27M in 2014. Imperial innovation has expanded its initial base in collaborating with other universities. Finally, the IP Group has agreements with over 15 universities for a profit of £9.5M in 2014. The report shows very different philosophies, whether public or private, with profitability as an end or not, with an obvious entrepreneurial dimension in the UK. if the focus on start-ups is important, this will lead to different structures, including maturation funds and incubators.

The report also shows that a licensing policy and a policy to support the creation of start-ups are very different. Finally, the new TT structures often have the sole responsibility of the development and maturation of IP, while research collaborations with industry remain the responsibility of universities. This separation could be a weakness when the two topics are linked.

A sensitive issue is that of exclusivity that can create tension when TT management is pooled over many universities. Some universities want to maintain some autonomy, especially in areas where the technical competence of the TT structure seems weak to them. Another sensitive issue is that of the structure by region while a transregional structure by field of expertise might be more appropriate. (The report also addresses research partnerships and international cooperation that I will not discuss here.)

In the final part, Rostand shows the complexity of the challenges. One must first define the mission of technology transfer which can be for profit or not. Externalization seems to be a trend in the three countries, but it has its advantages and disadvantages. It also seems that there is a lot of instability and fluctuations in funding cycles, which does not help to make an analysis of the transfer tools. The report also addresses the issue of human resources (types of skills and experience), another subject which may be related to the available resources of these organizations.

The only personal comment I make here is about my slight frustration at not having found in the report (which is extremely informative) an analysis of the US situation. The country of liberalism and private universities have very few external technology transfer structures, let alone for-profit. I have in mind WARF at University of Wisconsin-Madison – www.warf.org) while revenues of TT in the USA are significantly higher than in Europe. The explanation could simply come from a far more dynamic private innovation, regardless of all the systems in place.

Emerging Science and Technologies, why so many promises? (Part 4)

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This is my final post about what I have learned from Sciences et technologies émergentes, pourquoi tant de promesses? (For the record here are the links to part 1, part 2 and part 3).

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The last chapters of this excellent book try to explore ways to solve the problem of excessive promises that have become a system. In Chapter IV.2, it is question of “désorcèlement” (the closest term I found would be “disenchanted”); I read it as a critical analysis of the vocabulary used by those who promise. The chapter speaks at length of the transhumanist movement, the promise of promises! “[…] Describe how these actors certainly produce, but especially divert away, reconfigure and amplify these promises […] in front of passive and naive consumers.” [Page 261] and later “[but] transhumanists are first activists, mostly neither engineers nor practitioners […] attempting answers to questions not asked or badly expressed, […] hence a really caricatural corpus,” to the point of talking about a “cult” (quoting Jean-Pierre Dupuy), “a muddled, often questionable thinking.” [Page 262]

In Chapter IV.3, the authors explore unconventional approaches, a possible sign of disarray to “scientifically” react to the promises. For example, they have contributed to the creation of a comic book to answer another comic which wanted to popularize and promote synthetic biology.

Adventures_Synthetic_Biology

The final chapter explores scenarios that may follow the explosion of promises, like the idea of ​​increasing the number of Nobel Prize. New promises?!! More concretely, the author shows that the initial promises are not followed in practice: “The wait & see phenomenon in investment, or lack of innovation, is less known, though widespread: the effect of general and diffuse promises maintains the interest of players but too much uncertainty holds back investment in cycles of concrete promises-requirements.” [Page 297] “A game is at work which continues as long as the players follow the rules, […] they are prisoners of the game. […] They may also leave it if the right circumstances occur and then the game collapses.” [Page 298]

In conclusion, beyond a very rich description of many examples of scientific and technical promises, the authors have shown how a system of promises was built through interactions between the various stakeholders (the researchers themselves, the (political, social and economic) decision makers who fund them, and the general public which hopes and feels anxiety). The relationship to time, not only the future but also the present and the past, is beautifully described, in addition to a desire for eternity. And finally, we mostly discover that the promises have led to numerous debates that were perhaps, if not entirely, useless, as we could have known that the promises can not be kept, even from the moment they were created…