Researchers who want to start their own companies have a lot to learn but can get help by finding trustworthy entrepreneurs to work with.
Lori Valigra
University of Massachusetts Amherst microbiology professor Susan Leschine came to a harsh realization when she talked to oil and gas companies about her idea to use plant-digesting microbes to generate ethanol as a fuel.
“There was more interest in burying the technology than in bringing it out. I felt obligated to do something,” says Leschine. “It took several months for me to decide to form a company.” She is a consultant for SunEthanol, the Amherst-based company she founded in 2006 to commercialize a processing technology designed to convert cellulose to ethanol more efficiently using natural, anaerobic microbes.
And so began Leschine’s journey into the world of business and finance, for which she had little training or experience. Working with colleagues at UMass’s management school, a group of successful local businesspeople, and the university’s technology transfer office, she learned everything from writing a business plan to raising money, essentially taking on another full-time job outside the university to get her company off the ground. “I was so naive,” says Leschine. “I was very frightened to do it.”
So far, it has paid off; SunEthanol has secured more than $2 million in funding in the last year from venture capitalists, a large biofuels company, and the U.S. Department of Energy. Leschine’s story shows how important it is for scientists to network with friends and colleagues who can introduce them to businesspeople with the skills to help move their science out of the lab and into the marketplace.
Using networks
In the late 1990s, Leschine and her research technician, Tom Warnick, identified a natural microbe that they later found efficiently ferments plant biomass, producing ethanol without the need to add the costly enzymes commonly used in conventional ethanol production. They filed a provisional patent in January 2006 and a full patent in January 2007 that is still pending. They licensed the technology from the university and formed the company with the help of local businesspeople who already had successful companies, mainly Internet firms, and were looking to help other entrepreneurs. Some of those businesspeople now are full time at SunEthanol, which has more than a dozen employees.
Leschine also had help from UMass management faculty, notably John Fabel, who heard about her work through the university’s technology transfer office. He is now the director of new technologies at SunEthanol.
She developed a level of trust with Fabel and the group of entrepreneurs, who took the lead in making the marketing and financial presentations to the venture capitalists. Leschine found the process of talking to venture capitalists, which involved a lot of probing and critical questions to assess the technology, somewhat intimidating: “They reminded me of the comprehensive exam committee for my PhD,” she says.
Dancing with investors
One of the most important lessons that academics learn when shifting into the business world is how to deal with venture capitalists. “Venture funding is a huge step,” says Leschine. “The obligation and pressure to perform is tremendous.”
So it’s important to scrutinize investors as potential partners, says Michael Naughton, chair of the physics department at Boston College who cofounded a nanotechnology company called Solasta in 2006 after coming in second in a Massachusetts business plan competition. “A personal connection is important,” he adds. “You have to trust them.”
Naughton speaks from experience. After an unfruitful summer of talking to venture capitalists, Naughton says he turned to his network of friends to find a venture capital firm that understood his company’s potential and needs.
He advises academics to not be afraid to ask venture capitalists questions about all aspects of the business relationship. “My advice is to be respectful but not awed by venture capitalists,” he says.
Leschine’s advice is to bring your technology as close as you can to the proof-of-concept or initial scale-up stage before going to a venture capitalist; this will increase your chances of meeting the milestones set for you and will also raise the value of your company, enabling you to potentially raise more money.
Start-up separation
Both Leschine and Naughton have decided to remain on faculty and consult for their respective start-ups, rather than work full time for them. There were differences between the academic and business worlds that gave them both pause. Naughton, for example, remains uncomfortable with the fact that venture capitalists do not sign the nondisclosure agreements (NDAs) that are commonly used among academics when discussing their research with outsiders. He and his cofounders decided to talk without an NDA, but for other academics, that’s a deal breaker, he says.
For Leschine, her heart remains in the lab where she can explore her own questions. “At the company we have objectives and goals. We can’t do basic research. It’s more focused on getting results.”
To remain as professors, Leschine and Naughton have had to carefully account for their time in order to abide by university policies that restrict the number of hours spent consulting for companies. To avoid any potential conflicts of interest, they’ve had to clearly separate research done for the company from their university work.
Leschine and Naughton had tenure when they decided to launch their companies. Leschine admits she wouldn’t have considered taking the plunge into the commercial world if she hadn’t been tenured. But Naughton says junior faculty members shouldn’t be automatically discouraged from starting a company, as long as they keep focused on their responsibilities to the university. “You just have to watch your time and benefit students and the university.”
Related careers articles on NNB:
Working in the pharmaceutical/biotechnology industry
Teaching at undergraduate colleges
Participating in business plan competitions