How Penn Is Turning Scientists Into Entrepreneurs
“David” cannot make a cup of coffee. But he is a better businessman than I am. I live in Lower Merion, which is overrun with Penn professors. Like David. David is typical of my Penn academic friends. You know the look: the beard, the glasses, the sandals, the environmentally friendly car, the sauce stain left over on the shirt he’s still wearing from the ethnic-themed dinner he ate two nights before. Kind of nerdy. David, like all my other Penn friends, votes Democrat, reads the New York Times and roots for the Mets or Yankees because that’s where his father grew up. And like all my other Penn friends, David is super smart. But it’s a different kind of smart. Ask him to discuss the latest developments in string theory, and he’ll talk like an expert until your ears melt. But ask him to make a cup of coffee or put in a load of laundry, and he’ll turn into a helpless child.
But here’s the thing: David the scientist, the sloppy dresser, the guy who was always picked last as a kid, the savant who spends most of his time in a lab is still a better businessman than I am. How is this possible? It’s because he works at Penn.
And that’s a smart move. He has a great health benefits. And an amazing retirement plan. His kids can go to Penn for free. And if, like my kids, they’re nowhere near smart enough to attend Penn, he can still get tuition at a bunch of other schools reimbursed. All of this is great stuff. But that’s not the biggest reason why he’s a better businessman. He’s taking advantage of a program at the University that I don’t have at my disposal, a program called UPstart that helps Penn scientists become entrepreneurs by setting them up in business and matching them with business people.
I talked to Michael Poisel, the former venture capitalist who runs the program.
How long has the Upstart program been around?
It was branded and officially launched in May of 2010.
How does a typical deal work with a Penn professor who wants to work with your program?
An interested faculty/staff member needs to sign a company formation agreement, which outlines the rules and policies of the program. The company is then formed as a Delaware partnership owned 51 percent by the inventors and 49 percent by Penn. We then start trying to match an entrepreneur to the company.
Who are the “entrepreneurs”?
We have developed an ever-growing pipeline of people looking to run one of our companies. The entrepreneurs sign a management agreement that grants them equity in the company while giving them milestones that they must meet in order to keep the equity. We also allow them to accrue a consulting fee that hopefully will be paid out when the company is funded. While it was difficult in the beginning, we now have a steady flow of both companies and entrepreneurs. We then work with the team to develop a business plan.
What other support does Penn provide?
We involve student interns and student consulting teams to assist with product entry strategies and market penetration studies. Once we have marketing materials, we then work with the team to get them in front of potential funding sources. Our first objective is to get a Small Business Innovation Research grant application put together, but then we also approach economic development groups, angels, venture capitalists, corporate partners and charitable foundations. Once the company is funded, we connect the company with a network of service providers that will work for free as they help to formalize the company operations. These services include a bank, attorney, accountant, insurance, benefits, payroll, bookkeeping and marketing.
Who owns the intellectual property?
The intellectual property is optioned to the company once an entrepreneur is on board, but we do not commit a license until funding is imminent or already in place. This allows our licensing officers to continue to look for corporate partners for the technology.
What makes Penn’s program unique?
It’s the level of involvement by Penn and the breadth of services available to these young companies without the need for them to contribute any money out of pocket. We form the company, recruit the management team, assist in developing a fund-raising strategy, and work with the teams post-funding to develop good business practices.
Who makes up the lion’s share of your participants?
Almost all of our participants are Penn faculty, but we also have staff members and some students. Our focus will always be businesses based around Penn-developed intellectual property. All we ask of the faculty inventors is that they be enthusiastic about working on the company. We try to minimize the amount of effort and time they need to commit to the project, but they do need to be involved.
The program seems very tech/science-oriented. Do you have many faculty or staff who contribute intellectual property from the business or arts side?
We have a few, but because the program has always been designed around intellectual property, we do not see a large number of those.
Can you share the importance of this program to Penn’s overall profitability, particularly its contribution to the University’s revenues?
The financial impact is still small but growing. We have brought in close to $5 million in research funds, but more importantly we are creating jobs and saving jobs that wouldn’t exist without UPstart. The financial impact will become important as the companies mature, but it may never be the driving force that keeps the program going. We are trying to incubate technologies that have the ability to make an impact on society if they can be developed into products and services. We are committed to cementing Penn’s reputation as a leader in commercialization.
Is it safe to say that the UPstart program is similar to a venture capital fund but instead of raising cash, the University is contributing intellectual property? Is that why, with your background, you are the guy running it?
Yes, that’s fair. However, I would compare it to a very hands-on VC fund that is willing to work alongside its portfolio companies and not simply attend board meetings while hoping that things turn out well.