For startups with university roots, an exit is priority number one

By Richard Nieva , written on May 15, 2013

From The News Desk

If you’re a startup worried about surviving the Series A crunch, my colleague Erin Griffith has said maybe you should bark up Yahoo’s treeTony Stanco, executive director of NCET2, also suggests exits for certain companies. But his rationale is a little different.

I met Stanco at the National Venture Capital Association’s Venture Scape conference today. NCET2, or the National Council of Entrepreneurial Tech Transfer, is a Washington DC-based organization that seeks to connect startups born out of university research projects with Fortune 1000 companies. The organization works with many of the large research universities, such as MIT, Harvard, and Yale.

This fall, the organization is holding a conference in San Francisco called Exit: Startups, an event that seeks to shop startups spun out of university research projects to potential acquirers. The organization, founded out of George Washington University, has been holding conferences annually since it was founded seven years ago, but the focus of this year’s event is different. It was previously called the University Startups conference, and those events were focused on making connections between startups and big companies, and doing things like teaching best practices. This year’s event is more direct – aiming to actually facilitate transactions.

That model is different from that of many venture-backed startups. Many companies that have had successful exits once had the intention of going it alone as an independent company, but considered an exit for a number of reasons: the direction of the business had changed, or their products felt like features and not companies, or a bigger company made them an offer they couldn't refuse.

But for many companies born out of universities, the goal from the very beginning is an exit, says Stanco. That’s because many of those companies are not consumer software companies with relatively lower costs. For some of the more ambitious projects, like one ultrasound technology company that came through NCET2, a single unit can cost thousands of dollars to make. Companies like that, Stanco says, often have no hope of mass producing without selling to a bigger company with more considerable resources, or raising a ton of venture capital.

For the big companies who attend a conference like Exit: Startups to shopping around for a purchase, the goals tend to be narrower as well. While companies often look at acquisitions as a chance to purloin a startup’s teams or customers, Stanco says companies looking into university startups often do it for “industrial” reasons. For them, buying a startup is like outsourcing research and development in lieu of having their own labs. “But with an entrepreneurial bent,” adds Stanco.

It’s hard to say whether devoting an entire conference to exits is a sign of the Series A crunched times, or if it's just a case of an organization finally being able to execute its mission. Stanco argues that it's the latter, but he does offer that he thinks, “The market is just not there for IPOs.” He also mentions again that the specific goals for companies born out of university research projects are different than most companies.

The goal of the conference is to free up some of the startups' angel investors financially, so their companies can exit, and they have more funds available to invest in new university companies.

Then it’s lather, rinse, repeat.

[Image courtesy: mtellin]