Should universities get involved with venture capital?

Posted by - Published on July 27, 2015

For those of you who fear this blog is gearing towards being filled with accountancy jargon, then fear no more! I am not an accountant; in fact, my enthusiasm in the finance industry stretches as far as my basic duty to know the best interest rate I am getting on my current account – i.e. not much! Thus I have decided to write an easy to understand blog, so that you and I can dissect the best way to start a company at university.
Let’s start with a simple question: do you fancy working 9am to 5pm for the next 40+ years? I’m assuming it’s an obvious answer so perk up those ears and let me tell you about how some universities plan to invest in internal start-ups using venture capital.

Let’s start with the basics – here is the definition of venture capital:

Venture capital is financial capital (money) provided to early-stage, high-potential growth, start-up companies (companies that could be the next Facebook or Apple)

Universities are realising that the architecture of the economy is changing and as such need to adapt to new advances in education. Universities’ traditional thinking was to set the majority of students to work in established firms whereas now the emphasis is on creating a workforce of bright innovative thinkers who have the potential to produce multi-million pound companies.

New funds will enable university technologies to go to market by giving them smaller amount of investment during the embryo stage of the business. However, questions have been raised as to whether these small investments are justified. Venture capital is high-risk business.

- 80% of venture capitalists fail to reach their ROI goal
- 4% of the venture capitalist funds earn 66% of the industry profits

Therefore, universities who have no or little experience in this field may want to steer clear as inexperience appears to hinder success. If we identify some of the most successful companies: Apple, Microsoft, Intel, Cisco, Google, Facebook, the list could continue for just a little longer (remember that 80% of these companies don’t reach their original goals), the only trend identifiable to successful companies is that they are all in emerging industries and therefore, to spot them you need to have an understanding of what the ‘next big thing’ will be. Very few would have predicted the success of Snapchat, for example, as sending pictures that disappear within a number of seconds required a complete behavioural change in it’s target market.

So the real question is, what trend are universities trying to jump on to? Are they creating a new trend by marrying academia with innovation in its early stage? Will this really work?

My take on this is that universities will take the pedal off solely investing in themselves without the credentials and skills needed to execute this with any sort of success and instead, invest in educating their students on how to set up their own businesses, putting the power in the students’ hands to go and change the world.

For more information, please speak to the author of the blog, Hayley on [email protected] or 020 3695 3773.

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