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How can we help startups emerging from universities?

Research that emerges from Australian universities is world-class, with 85 percent of it rated at or above the world standard. Our country’s university system is fertile ground for cutting-edge ideas that have the potential to be turned into budding startups. In 2021, Knowledge Commercialisation Australasia found that over 300 startups and spinouts were based on the commercialisation of research that started at Australian universities. However, transforming research into a commercial reality is not always easy. The practice of research is very different to the practice of business, and academics don’t always see themselves as entrepreneurs. 

This said, it’s imperative to leverage our world-class research to navigate our rapidly evolving world, with the urgent threats of climate change, the potential for future pandemics, supply chain disruptions and cost of living ever-looming. The risks of not properly fostering research commercialisation include limiting benefits to economic growth and unlocking world-changing innovations that create new products, services and jobs. While strong collaboration between universities and industry is critically important, external support in helping academics create robust business models, and commercial structures to wrap around academic IP, is also key. 

The challenges of commercialising IPVentures, especially those emerging from academic backgrounds, face three primary challenges:

1. Technical Challenges: While academics usually excel in fundamental research, the technical journey requires intense product development and commercialisation skills. Taking technologies from university to market requires substantial capital investments and involves more risk than the average startup investment. Because of this, some academic operators struggle to navigate this stage and reach commercial readiness. Several universities have established engineering R&D units to drive academic research further along the “Technology Readiness Level” (TRL) spectrum, thus helping “commercialise” the fundamental research into a prototype, MVP, or product itself. 

Despite University-driven commercialisation efforts, challenges still remain. The Australian Chamber of Commerce and Industry has observed that oftentimes, universities encourage researchers to focus on academic publications, rather than commercialisation or collaboration with business. Local governments are already making moves to address this gap, with the Victorian government’s investment fund, Breakthrough Victoria, backing five Victorian universities to help them bring research to market.

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2. Legal Challenges: Intellectual property (IP) rights are also a significant hurdle for startups that emerge from academia. Universities are understandably protective of the IP developed under their purview. Researchers often must negotiate the tricky terrain of licensing or transferring IP rights, allowing them to transform academic research into a business venture. 

A UK government study into the commercialisation of university IP found that academic institutions, businesses and investors often reported difficulties with negotiation on equity shares, royalties and technology valuations. In Australia, the Higher Education Research Commercialisation (HERC) Intellectual Property (IP) Framework (the Framework) was introduced in 2021 to standardise the process. This framework, and other related government efforts, will be useful in providing academics with clear direction and support when looking to spin-out IP from universities. 

3. Commercial Challenges: With a technical product in hand and the resolution around IP rights underway, the third stage is the business model. Deep Tech companies are usually so cutting-edge that they may create new markets, or provide a solution to a problem that is not yet well-defined. This departure point is the opposite to most startups, who typically pick an existent problem and develop a tech product to solve that problem. This “technology-first” rather than “problem-first” approach to business building has means many deep tech businesses find themselves classified as “Solutions in Search of a Problem” (SISP). 

This means their commercial legwork is particularly important. Specifically, it will involve understanding the market the product will be sold into, identifying key customer groups, establishing the right distribution channels, and thinking through the financials of the business.

Bridging the research to realisation gap

Having worked closely with deep tech startups emerging from academic backgrounds, something I frequently observe is an unfamiliarity with the commercial aspect. Academics and researchers have built esteemed careers in academic research and may not be expert in navigating business and commercial challenges.

These startups need help with developing the right fundamentals and foundations for the business itself, that wrap around the technology. This means establishing problem-solution fit, knowing who your customers and where they are, what your channels to market are, and proving and refining product-market fit over time.

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One element of the business that deep tech founders should ensure they build internal capability around is the finance function. In challenging capital markets, founders need to understand and present defensible finances to investors. Startups, may need guidance in accessing incentives such as the Research & Development tax incentives or other government grants, that can assist in creating another cashflow stream into the business, and securing other funding to support the equity / debt blend in the business. 

These challenges can be overcome in a few ways. Founders can onboard a commercial co-founder to help drive commercial needs in the business or participate in an accelerator program to assist in building out the business. Alternatively, engaging external advisers can be a non-dilutive approach to seeking support. Advisers may include virtual CFOs or government incentives advisers who can build robust business models, lay down business foundations, ensure sound financial structure, and provide access to non-dilutive funding.

A brilliant example of a thriving deep tech venture is Vexev; developed out of the research driven in the PhDs of Vexev founders John Caroll and Eamonn Colley. Vexev is building a product that leverages computational fluid dynamics to detect vascular disease. It has proved itself not only to be a standout R&D company, but also as a business that understands market dynamics, unit economics and government incentives. Its strength doesn’t lie solely in its ground-breaking technology but also in its ability to align with leading venture capital funds and gain access to crucial support. 

While universities have a key role to play as startup incubators, the path from groundbreaking academia to a commercial product is not always straightforward. It’s a journey that needs outside experts to navigate successfully. By having the backing to better understand the legal and financial aspects of commercialisation, academic startups can realise their potential and become drivers of Australia’s innovation economy.

By Sophie Ritchie, Head of Portfolio Management, KPMG High Growth Ventures

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