From robotic arms to allergy pills, startup hubs are popping up at universities all over the place and strengthening the bridge between research and entrepreneurship. But how do investors assess which university startups have what it takes? We asked the experts what they look for.

In 1996, Sergey Brin was asked to give a tour around Stanford University for aspiring graduate students. One of the visitors was Larry Page, whose chemistry with the elder student was instant. A friendship was born and only two years later, the service we today know as the ubiquitous Google was born. Straight out of the campus dormitories.

Universities, despite their long-standing culture and tradition, are increasingly becoming hotbeds (in the best sense of the word) for bright ideas and lifelong friendships. What’s more, the increased focus on entrepreneurship in higher education is fostering an ever closer relationship between research, young pioneers and the startup and business community. This may well be where we’ll find solutions to some of the major societal challenges we face in the near and far future.

But how do investors and private equity funds assess which projects can survive outside the university bubble?

The process is not all that different from that of analysing other types of startups, according to Mads Lacoppidan, Senior Investment Manager at The Danish Growth Fund who is specialising in medtech companies, which often spring directly from universities.

“Uni startups undergo a similar analysis to all other startups, but there are a few things we have to be more aware of,” he says. “For example, the students or researchers generally have a good technical foundation and the research behind any given problem is strong, but the teams tend to be heavily research weighted, and are weaker on the commercial side of things. But that’s also what makes university startups especially exciting for investors.”

According to Lacoppidan, this increased focus on entrepreneurship in education matches the ambitions and ideas today’s younger generations are growing up with—in part due to a shift in the understanding of what it means to be an entrepreneur, meaning that both students and researchers are far more attracted to the entrepreneurial way of life than before.

“A few years ago, you could easily go through the entire education system without having contact with the concept of entrepreneurship as a possible livelihood. Today, you can hardly make it through the first semester without being introduced to it. This means that young people no longer only see themselves as potential employees. On the contrary, it has become sexy to be an entrepreneur.”

Human due diligence

As the startup ecosystem has grown, educational institutions have begun to professionalise the link between research and entrepreneurship and so-called “hubs” are popping up at universities everywhere. These hubs serve as facilitators, ensuring that the best ideas and projects of students don’t go to waste, but have the chance to be transformed into real-world potential. Meanwhile, angel investors are becoming part of such projects even earlier in the process, to contribute with the necessary commercial perspective.

One such angel investor is Claus Hansen of DanBAN, who has an impressive portfolio of investing behind him, especially when it comes to university startups. And the key to assessing the viability of a project, he says, is to get involved sooner rather than later.

“One of the most important things to assess in a university startup is what we call human due diligence. I want to get to know the people behind a project over a period of 12 months, not just in the 12 minutes it takes to pitch the idea. It’s that extended period that is so crucial for assessing whether a project can take off in the real world.”

He continues: “Rather than trying to ‘pick the winners’, I prefer to ‘build the winners’. The startups that will make it are the ones who are willing to listen to the competences of others along the way, and when you find that kind of team, you know you’re onto something.”

An early attempt to understand how other businesses, investors and funds will assess the company can pay off for angel investors in the long run. According to Hansen, it’s also about shaping a certain attitude and mindset in the young entrepreneurs.

“Projects in these early stages rarely make good investment cases. I love academics because they usually have such a deep, deep knowledge about a topic and plenty of data to back it up with, which is wonderful, of course. But there also comes a point when more data won’t help, when we have to figure out what we can use all that data and knowledge for. And you don’t do that by proving the problem exists 17 more times,” he says.

Micro grants for students

Since 2011, the Danish Foundation for Entrepreneurship (FFE) has offered so-called “micro grants” for students and researchers with entrepreneurial ambitions. There are three application rounds a year, and grants of up to DKK 50,000 can be applied for. The foundation receives approximately 400 applications each year and awards approximately 130 grants.

The idea behind the grants is just as much about moral support as it is financial.
“In the early stages, you also need someone to believe in you. Such a grant sends a powerful signal to any young entrepreneur. What’s more, the process of writing an application helps to clarify what it is you’re working on and we also ensure that everyone gets feedback, whether they are awarded funding or not. That’s always important when working with young people, because they’re in a learning process more than anything else,” says Emilie Normann, Head of Research, Analysis and Higher Education at FFE.

Over the past three years (since 2019), the foundation, in collaboration with Tuborgfondet, has launched a number of micro grants based on the UN’s 17 sustainable development goals. The aim is to get young entrepreneurs started on tackling the greatest societal challenges of today. These micro grants received a record number of applicants for the autumn application round this year.

“Along with the grants, we also coach the people that receive funding. This is where we can really see how increased focus on entrepreneurship at Danish universities over the past few years has benefitted students. It’s clear from our own data that the young startups we support do slightly better than others, and of course we hope that that’s because we give them more than just financial support,” Normann concludes.

This article is a part of the magazine ‘From University to Unicorn 2021’. You can read the full magazine here.