Venture investing is a long tail game where the majority of investments are expected to fail and a small handful of investments yield such tremendous returns that it negates the failures and provides investors with a healthy return on their investment. This is at least how it is supposed to work, but in practice about half of VC firms do not beat the S&P 500. To be successful, among other things, this formula requires a large investment fund from which many investments can be made, and the companies need to have huge home run success potential. For the companies that fail, one of the most common causes of failure is poor product market fit or in non-startup parlance, no one wants your product or service.
The concept of a Venture Studio is highly differentiated from traditional venture investing; the Studio’s intention is not to invest in the entrepreneurs bootstrapping in their garage to create the next Apple. Instead, the concept of a Venture Studio is predicated on creating companies de novo where the Venture Studio owns a large stake in the company and builds every aspect of the company from the management team to the business plan. Unlike traditional Venture Investing, a key component to building companies through a Venture Studio model is that before a company is even created, it should have corporate partners that have already committed to be customers and/or fund the company through either direct or in-kind contributions. This close connection with industry partners in the creation of the company means that the risk of poor product market fit is greatly reduced, and Venture Studio companies tend to reach Series-A funding 2.2 – 3.3X faster than their VC funded counterparts. For a Venture Studio to be successful, it needs to have 1) a significant pipeline of ideas, 2) access to potential company leaders, 3) relationships with corporations, and 4) back-office staff to support company building. Of these, the most important factor and the most challenging to create is the pipeline of ideas as a Venture Studio needs to thoroughly review 20-30+ ideas for every single company that is created.
In our view, the perfect combination of these factors resides in research universities which provide fertile grounds for the Venture Studio model which itself addresses a fundamental challenge in academia: commercializing intellectual property. Research universities in the US generate an abundance of patents, trade secrets, know-how and ideas but it is very challenging for universities to commercialize these efforts and to transform them into products and services. While some universities are quite successful at technology licensing, even these efforts only commercialize a small number of patents and an even smaller subset of the total ideas that reside in the university. Much of the reason for this is that outside of ideas which are easy to license and are lucrative, the remaining ideas need a unique combination of money, leadership, and know-how to move them along which typically is not available. For instance, many Professors generate a multitude of great ideas but the ideas stay on the vine as the effort requires a full-time CEO and/or CTO plus external funding, whereas the Professor usually does not wish to leave their academic role. In the same vein, the Professor likely does not have the money to identify or hire a team. While emphasis has been placed on translational academic research and new funding has been made available (e.g., seed grants, accelerators, incubators) over the last decade, there is still a huge gap between early ideas and the creation of a successful company.
The Venture Studio model is the perfect bridge for this gap wherein its success is based on an abundance of good ideas, and through a high touch approach it enables ideas to come to life. At the New Jersey Institute of Technology (NJIT), we have launched the NJII Venture Studio through our non-profit subsidiary, the New Jersey Innovation Institute (NJII). Through this model, NJII is working to build 8-10 companies over 4 years that leverage NJII/NJIT intellectual property (IP) wherein each company is provided up to $1M in funding to use over an 18-month period of time. These companies will each be built with a corporate sponsor, and over an 18-month deployment of capital they will be tasked with reaching a major valuation inflection point (e.g., profitability, Series A funding). NJII will leverage its team of 120 employees to support these companies and will target a diverse array of technology areas including life sciences, AI/ML, materials science, engineering, and manufacturing. Based on the commercialization success of NJII and the robust IP portfolio at NJIT, we look forward to generating several success stories through our Venture Studio.