Waterloo Investing Trends 3

A student at the University of Waterloo added these insights to the Waterloo area investing trends discussion on his LunarLuau blog, and they should serve to raise concerns among every UW administration type whose job it is to foster the commercialization of intellectual property. Some of the more choice excerpts from his post:

During exams last year one of my classmates, Luke, said that he tried to get of few of the more talent CS majors about to graduate together to make a startup, but all had lucerative offers from companies and had little interest in joining him. So Luke too took a lucerative (sic) job rather than living just above poverty for a little while longer for a chance at making it big. Remarkably close to my own experience, sometimes it’s just hard to take that first step.

Understandable, but as feared.

It also doesn’t help that all UW really does to foster startups is what I like to call “pat on the back guidence.” The enterprise co-op system is more red tape than helpful, and the all the non-Geoff Malleck people we talked to in regards to the system we were developing talked to us like we were 12 year olds with a cool science fair project. Alas, things were uncertain, and the grad school acceptences looked ever so good when you don’t hear back from the first angel you talk to.

This is scary, as the city should be full of Angel Investors with all the time in the world for computer science students, given the Faculty’s great reputation.

Today in my distributed class the topic of UW policy 73 (the “you own the crap you make” one) came up, and my prof brought up a very interesting point. We get told how great this policy is, and how it fosters innovation and startups, but what is the downside? Since UW doesn’t have a small army of IP lawyers on staff, faculty with a potentially patentable idea would have to put great time, effort, and most importantly money, into filing a patent on their own. If UW had an IP office like MIT, there would be someone to take care of all that. So potentially good ideas may go to waste just because profs don’t want to go to the hassel of talking to soul sucking IP lawyers for an idea that they think is only half-baked.

He suggested that if UW had a system where a prof could give up a set percentage of the ownership of some IP they created with the university in order for them to administer it, it may lead to more commercialization of UW research. I really like this idea, and if I’m on board or senate next year (that’s another story) I’d like to see what I can do about it.

Queen’s University has had great success with this. Parteq, as it is known, has four full-time IP lawyers on staff (at last count). The annual royalties being produced by this program (as a result of IP commercialization) must run in the tens of millions. They’ve had more success with biotech than IT, but the point is what’s relevant: It’s working!

Several UW Administration VPs talked to me a few years ago about their interest in raising a commercialization fund, but it was more like a Gold Sponsor program than a mainstream vehicle (ie, Oracle would put in $500k, RBC $250k, and so on to sponsor an IP transfer effort). None of the sponsors would own anything; just gain some notional PR. It wasn’t well thought through, and nothing ever came of it.

I’m comfortable saying that people like Rick Segal (JLA Ventures), Peter Carrescia (VenGrowth), Andrew Abouchar (Tech Capital), Laura Lenz (Edgestone), Linda Bernst (Export Development Corp. Equity), and Robin Axon (Ventures West) would be prepared to dedicate $2 million each to a seed stage UW-sponsored funding vehicle that the VCs jointly-owned.

This vehicle would offer to take decent-sized minority stakes (just as in any Angel financed deal) in each and every good UW tech start-up idea that needed some capital to foster. Some of the VCs could then proceed with the Series A round and some could pass, but they’d have had the exclusive right to a first look. That’s the appeal to them, I hope.

As a percentage of their funds under management it isn’t big dollars, and could be appealing to all concerned if the University led the charge on campus. UW could take the best from Parteq’s unqualified success without losing its unique approach to IP ownership; an approach that appeals to many of their tenured Profs.

A fellow like UW Economics Prof. Larry Smith would be invaluable, and could play a role is bridging the gap between the campus and the “money”. He was a great mentor to RIM’s Mike Lazaridis, and has probably guided 500 student teams over the years.

Maybe this is an idea for the CVCA to consider….

I’d love to hear the competing arguments, based on facts and not 1) “we are the world” chest beating or 2) there’s lots going on down here, it’s just all secret right now. The linked Ottawa Citizen article can’t be the future: a branch plant tech economy.

This one student’s story reflects what I’ve been watching for almost half a decade now, when the tap seemed to seize up. And according to at least one eyewitness, there’s no end in sight to the dearth of recent Waterloo start-ups (beyond LiveHive and too few others).

MRM