Leading Sources of Frustration
A startup moves at varying speeds, alternating between dizzyingly fast periods at high energy to other periods when the process seems stalled. These latter periods are the ones that the entrepreneur seems to find the most frustrating. Much of the frustration is based upon a mismatch of expectations. We list the top 10 sources of frustration among academic entrepreneurs below.
A company without a clearly articulated and credible business opportunity (the so-called “value proposition”) will not be able to raise money. Even federal grant programs such as SBIR and STTR require a viable product-commercialization plan for Phase II awards. Academic entrepreneurs must make sure that the company is pursuing markets, not technology.
Frustrations with the University: IP assignment
You thought that you owned the IP on which your company is to be based. Unless your research findings are already in the public domain, inventions that are created at Northwestern belong to the University under the provisions of the Patent and Invention Policy. This means the startup is required to negotiate an IP license with Northwestern to have rights to use IP the startup needs to build its business. It is important to make full disclosures of your plans to the institution’s technology transfer office before going too far down the road in starting the company—especially before dealing with potential investors.
Frustrations with the University: COI
Conflicts-of-interest review and approval entail more than checking a few boxes on a form. Full disclosure, often in face-to-face meetings, is necessary.
Relationships with business partners dissolve
Being partners with people in a business is not the same as being in research collaboration with them. The pressures associated with a business may bring out behaviors in friends and colleagues that you wish you had never seen. A frayed personal relationship can be one of the most difficult things to endure in a startup, especially when you are legally still partners with the individual (e.g. through stock ownership). It is thus essential that you understand the motivations, visions, and goals of your co-founders, both on the science and the business sides, before you enter into partnership with them.
Repeated CEO replacement
Do not pick your CEO merely by the fact that he or she has had “business experience.” All too often, the business person in a nascent company lacks the right experience or skills to run a startup in the company’s particular industry. Replacing the CEO not only takes a great deal of time, but also may dissipate any momentum the company has built as well as depress staff morale.
Your and the CEO’s visions for the company are at odds
No matter who is right in such a situation, if the investors decide to back the CEO your vision is unlikely to prevail. Thus, you may have to compromise “for the good of the company” in order to remain a key player. The fundamental role of compromise in a young company’s success is a departure from the academic culture, which typically rewards independence. If the business is to be successful, you must be willing to listen, communicate effectively, and trust the expertise and business acumen of your partners.
Relationships with investors sour
Sometimes investors, think that academic discoveries are much closer to the market than they actually are. They may not have the patience for the ups and downs of an extended period of R&D. This disconnect may result from the investors’ lack of familiarity with the industry (so-called “dumb money”) or their having been given an unrealistically optimistic plan for product development. It is, therefore, very much in the academic entrepreneur’s interest to be as realistic as possible about R&D timelines when courting investors.
Verbal promises have not been kept
In the heady days of forming a new company, when everyone is excited about growing a new venture, a plethora of items are discussed and many promises are made. All too often, however, promises are not documented. A year or two later, those who made them either claim they do not remember doing so or are disinclined to make good on them. Handshakes are nice, but you should get such matters in writing, especially when related to money or stock.
Starting and growing the company are consuming too much time
Do not underestimate how much time it will take to form a new company. With the initial vision for the company, the founder will be called on to impart that vision to CEO candidates, potential investors, and numerous other people during networking activities. Because of the host of responsibilities that founders have, it would be wise to talk with founders of other companies regarding the amount of time needed to devote to the enterprise.
You fear losing control of the company
Capital infusions from outside investors are a double-edged sword. On the one hand, they are the lifeblood that allows the company to move forward, but on the other, they result in the transfer of ownership interests. In an equity-investment company, it is virtually inevitable that the entity’s founders will one day become minority shareholders. A modest-investment company, however, has a much greater chance of remaining under the founders’ control. At numerous times in the life of a company, choices will have to be made with regard to accepting the money of others. How important is the investment capital? Is it worth the investors’ input and possible control of the venture?