Universities are an ideal place for startups to begin considering the expertise and financing they offer. But there are concerns that may not remain the case as the sector reels from COVID-19.

With international student revenue all but dried up, there are fears startup investment will too.

Many startups are in capital intensive sectors. Robotics and biotechs, for example, both require millions of dollars in investment to get off the ground.

The managing partner of one fund fears they’re an easy target for university cuts.

“They [universities] have lost a lot of money with the international students not coming in and so they don’t have much money to give to their resources like their commercialisation officers,” Stoic Venture Capital’s Dr Geoff Waring told Stockhead.

“Basically when a researcher comes up with some new intellectual property they have people allocated to these [projects] who help nurture them to the first part, and that’s just to get it so they can pitch to us and then get the intellectual property secured.

“That’s something they have to fund and there’ll be less resources for that now.”

 

Less competition, non-dilutive funding

While Dr Waring admitted there were some pitfalls to working with startups conceived within universities, there are positives as well.

“With university science based things you have to prove everything is safe, no one gets hurt by it and it actually works as well as you say it’s going to work,” he said.

“You’ve basically got to prove it all works and people want it before you get it out there, that takes a long time.”

And getting researchers to transition from university research to building a startup can also be difficult.

“Working with universities, you’re working with people who are super stars in the world, they’ve got big egos, they’re full professors and they’ve got a full time job that is very high status,” Dr Waring noted.

“So to get them stop doing that and then spend time in a [start up] company, it’s just really hard.”

The flip side is the difficulties faced with working with the university itself.

Dr Waring said being not-for-profit, universities are not fast moving.

“So if you need a shareholders’ agreement updated or anything its going to take a long time to get these contracts sorted out,” he said.

“That’s why most people don’t want to invest in those companies.”

The positives, however, are less competition and non-dilutive funding, according to Dr Waring.

“There’s advantages to it because one, that means others don’t compete with you; two, there’s a lot of government grants, that are non-diluting, so they’ll put in a lot of money to match you.”

 

Start ups are tightening their belts

Dr Waring says the mood among companies Stoic is invested in was one of just surviving the crisis, but long-term optimism still remained.

“It’s mostly pulling in the belt and hunkering down and making sure they’ve got enough cash to get through,” he said.

“[There’s] a sense of you can get through it if you just manage what you’re doing because we have enough funds to keep supporting our investee companies through it if they’re good companies.

“We just say ‘pull in the belt a bit and then by the time this subsides you have enough cash to get you through to when things start picking up again in 2021, so you won’t be going bankrupt’.”

Dr Waring said it was more difficult for the ones that weren’t well funded or supported by big cashed up investors.

“I think more broadly the ones that don’t have good funding — they don’t have big investors or are more angel fund individual investors who don’t have money available for follow on funding and they have to seek it externally — that’s going to be more stressful and difficult for them to get through,” he said.

Source: The university cash well could be drying up for startups – Stockhead