"Why give half of the money you raise to your university when you can rent lab space for hundreds of dollars a month?" --- very good point!
In practice, it doesn't work this way, and universities are much, much more than a monetary resource:
- unrestricted access to cross-disciplinary expertise
- access to a huge recruitment pool
- access to SBIR/STTR grants (with far fewer strings attached as compared to VC funding)
- scientific/technical credibility and legitimacy
- access to bleeding-edge equipment that cannot be purchased
While it's true that scientists often know little about entrepreneurship, this is a prime example of VCs knowing little about science. Reasoning in terms of cheaper lab space is penny wise and pound foolish.
I truly believe it would be better to join YC for the following reasons:
1) Capital. In terms of capital resources. YC will most likely be able to help raise a given start-up more many than a university because the primary purpose of YC is that, while that is not the case for universities.
2) Cross-disciplinary expertise. Granted this may be an advantage that universities have over YC. But, it’s much easier to recruit faculty as YC venture backed start-up than as a non-YC venture backed start-up, unless there are contractual obligations that skew incentives towards the universities themselves.
3) SBIR/STTR. SBIR stands for Small Business Innovation Research, while STTR stands for Small Business Technology Transfer. They are both congressionally mandated programs so that “….domestic small businesses can engage in R&D that has a strong potential for technology commercialization.” Nothing precludes a given start-up from not getting SBIR/STTR funds. In fact, an organization like YC helps bolster the case that the technology in question can be commercialized.
4) Scientific/technical credibility and legitimacy. Yes, YC is not a research university, and will not bring that level of “scientific/technical” credibility and legitimacy. But, they do offer credibility and legitimacy for partners, users, VCS, etc. In addition, most founders that are tackling a scientific/technical problem, usually have experience in that field, and bring a degree of scientific/technical expertise.
5) Bleeding-edge equipment that cannot be purchased. The cost/quality/risk really depends on the industry. For example, contract-research organizations (CROs) are common place for big companies and small companies throughout the pharmaceutical industry. In this case, CROs play the function that a university would in conducting/publishing the research.
>all things being equal (equivalent monetary amount, recruitment pool, legitimacy, etc.), for a given start-up today: would it be better to join YC or a given universities partnership program for start-ups?
There are two things here, but I'd like to address the contention that all other things are (or might be) equal. My entire argument rests on the fact that "all other things" are not equal. If all other things were equal, YC would undoubtedly be a better deal, but they're not, so it isn't (for us, of course).
>1) Capital
I was admittedly unclear in my previous comment, but in my own experience, the university does not directly help with fund-raising. Rather, it grants a legitimacy that aids in fund raising via other means (STTR, specifically, but more on that later).
Yes, YC can help you raise much more capital than federal grants or university funds, but this is by and large a non-issue. University partnerships grant you access to equipment and personnel, both of which drastically ease the financial burden, so less money ends up going much further -- I've done the math, so please hear me on this point! :)
>2) Cross-disciplinary expertise
Respectfully (and I mean it -- it's easy to come across as a jerk on the internet and it's not what I mean to do), this is completely back-asswards. Establishing a partnership with a university laboratory is first and foremost an exercise in proposing an interesting research project to interested parties.
At the administrative level, the university turns towards its faculty to judge the merit of the project before any serious deliberation takes place, so you have to have a strong professional relationship with a faculty member before approaching the university. Much like VCs, scientists are weary of projects that oversell and under-deliver, so good researchers -- the ones who consistently publish meaningful, interesting results -- want to work with someone they know personally or by reputation. By and large, they're untrusting of VCs, and they will be sure to mention this to the university administration. The result is that you'll either get someone far less competant to sign on, or end up working with someone who's not too terribly invested but wants the latest flux capacitor for his lab.
But all of this is really besides the point, since "access to expertise" doesn't imply hiring or recruiting. It means you can knock on any door of any department and ask for help on an interesting problem.
One lures researchers with interesting work, and this means you need domain-specific knowledge, not money.
>3) SBIR/STTR
STTR explicitly requires that your startup be partnered with a nonprofit research group, so actually something does preclude a startup from getting research funds without a university partnership (or equivalent). YC is for-profit, and does not qualify.
Regarding SBIRs, a bit of context is needed. SBIR operates in three phases:
- Phase 1 is for the exploration of technical merit or feasibility of the technology
- Phase 2 is for expansion of phase 1 results, and evaluation of the *potential* for commercialization
- Phase 3 is for moving to market. No funds are allocated for phase 3 and, in fact, external funding is required to benefit from SBIR mentorship.
Moreover, SBIR/STTR are obvious examples. There are a great deal of public research grants that are only accessible to private institutions having partnered with a university, so again, we can get funding that ends up costing us less.
>4) Legitimacy with respect to investors
Your point is well-taken, but a university can do this as well and, again, with few/no strings attached. Business depts/schools love this kind of stuff.
>5) Bleeding-edge equipment
I now realize you probablycome from a pharmaceutical background. I know little about pharmaceutical research, so you're probably right.
For the rest of us, my point stands: universities often have unique equipment that simply isn't available on the market.
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In an attempt to be more constructive, here's a short, mutable list of what it would take for me to consider YC:
1. Very favorable terms relative to the sum of money being invested. I'm not willing to sell 10% of the company's shares for $1 million when $100k will ensure that those very same 10% sell for $5 million in one year.
This is especially true given that such deals almost always involve preferred shares. It's a poor deal for me.
2. Strong guarantees of research independence. We know more about the science than YC does, and culturally speaking, scientists are very untrusting of private funds in this respect. If one is not careful, private backing can quickly degrade legitimacy. I have no reason to believe that YC doesn't provide such guarantees, but it's important to me, so I'm mentioning it.
Or is it simply due to paying rent costs?
Lab-space-for-hire is not a new concept, if anyone was wondering, though it often exists only in life science hub areas (e.g., LabCentral: http://labcentral.org/).