The Five Building Blocks to a Successful Academic Venture Studio

Over the last few decades, basic research and transformative innovation has shifted from the private sector to almost entirely the academic sector where research within companies is now quite incremental in nature. For example, my iPhone 16 is largely exactly the same as my iPhone 6. This shift has created a substantial challenge which is that while academia is great at creating innovations, it struggles as commercializing them and bringing them into the world.

The reasons for this are complex and could fill multiple articles, but the point is that academia needs a mechanism by which innovations get brought into the world. While it would be ideal for companies just to show up and sign multi-million dollar licenses and do the heavy lifting themselves, this just about never happens despite most academics thinking that this is the most common path for their technology. Without such a mechanism, great ideas just get stuck in academia instead of helping to improve the lives of everyone.

A unique model to addressing this problem is the Venture Studio wherein companies are created de novo to commercialize technologies. In this model, there is no company in which you invest and there typically are no founders. Instead, the Venture Studio is tasked with building a company, finding founders, finding corporate partners and building an entire company from scratch.

The reason that this is such an ideal model for academia is that typically in academia you have a great idea but no one to run it and no customers. The Venture Studio is designed to bridge that gap and a great example of this is the NJII Venture Studio which we created at NJIT.

In launching your own Venture Studio, there are five big building blocks to think about:

Check Size and Fund Size

For a Venture Studio company you need to hire a CEO and/or a CTO where you typically need to pull these individuals from industry and commit to them for some significant period of time (12-24 months). Because of this need, you need to pay a meaningful salary (>$100,000 per FTE) and thus your minimum check size needs to be several hundred thousand dollars. Ideally, your check size would be $500K to $1M per company you start and you would be able to deploy small amounts of money to evaluate various ideas before pursuing as full-fledged companies.

For the fund size, if you are writing $500K to $1M checks, you need to be able to raise at the very least enough funds to launch 5-10 companies over 4-5 years. Even with raising $10M to launch ten companies, the economics are not great because you also need to fund the operations of the Venture Studio itself which at a bare minimum is going to cost you $300-500K per year (e.g., Venture Studio Director, Analyst, Expenses).

This means that it if you have a $10M fund and spend $400K in operating expenses per year over four years with ten investments, the investments need to yield 26% IRR to provide you with a 20% IRR overall. Any smaller of an investment fund and the math starts to become extremely difficult as the operational costs do not scale linearly.

Ideas

Perhaps this one is most obvious but you need a lot of deal flow in the way of ideas which is why being part of academia is so helpful. To make a single investment, you might need to look at 100+ ideas which can consist of patents, provisional patents, ideas, concepts and proposals.

Governance

To be a successful investor, you need as few people involved in the decision making process as possible wherein within academia there is a tendency to have lots of committees and individuals involved in decision making. This type of complex governance structure cannot work within a Venture Studio where decisions need to be made quickly by the Venture Studio team.

Talent

I have written about this extensively but the most difficult part of the Venture Studio is finding the talent for the portfolio companies. While everyone wants to call themselves a founder and CEO, very few people actually have what it takes to do this role and they are a rare breed. A lot of effort within a Venture Studio needs to be placed on finding these individuals and keeping track of them so that when an opportunity presents itself, you can identify the right talent. For example, in New Jersey there are likely only 100-200 people who could fit the role of startup CEO and even that number is perhaps generous. To just put this in perspective, very few people are willing to work on anything 80 hours a week for years on end without any guarantee of success - that is a strange person!

Corporate Partners

One of the reasons I like Venture Studios so much as a concept and why I was drawn to them initially is their ability to derisk startups. One of the key components to a Venture Studio company is having a customer on day zero where before you even start the company, you have a corporate bought on who agrees to be the first customer and to partner with you on the build…..the most common failure point for traditional startups is poor product market fit (i.e., no one wants your thing). Therefore, to build a successful Venture Studio, you need to have solid corporate partnerships which is one of the other reasons why the fit with academia is so perfect as institutions tend to have long-lasting relationships with large corporations.