Ml Commercialization With Venture Funding

MIT Media Lab Research Commercialization Options for Venture Sponsorship Ray Garcia [email protected]

Goal • How to best leverage the ML assets to help facilitate having its research artifacts get adopted either commercially or integrated into beneficial public services. • Commercialization is a strong signal to the sponsoring companies that the research results in benefits to those who seize the opportunities early. • Engaging the VC community in Entrepreneurship at MIT Media Lab

Desired outcomes • • • • • • • • •

Enhanced learning experience for the students Exploit all the resources at MIT for student performance Realization of students/faculty passion to change the world Sponsors desire to create breakthrough products and services Faculty/Researchers/Students desire to form commercial enterprises ML goal to retain, increase and acquire sponsorship ML diversifying its sponsors to include Venture Capitalist Increase PR for ML to maintain reputation Compliance with MIT Office of Technology transfer process

Constraints • Multi-constituency interest needed to be serviced without compromising on a few essential core values at the ML. • The commercialization should add to the learning and research environment. • The research commercialization should increase relevancy and provide insights for further development • VC has expectations of measurable results

Constituencies • • • • • • • • •

Faculty Research Scientist Students Alumni Media Lab MIT Sponsors – corporate, government, ventures ML/MIT spin-off companies Public Good

Challenges • Gap between research and products needs experience from people who understand both and know how to convert • IP Ownership concerns need to be minimized to avoid unnecessary complications until appropriate • Need early active sponsor involvement in the research through the commercialization phase to act as catalyst • Funding and opportunities for large scale real-world context for research opportunities to test commercial viability • Cultural Gaps between academia and commerce • Differing incentive models for academia and commercial efforts need to be segmented not mixed

Candidate Options • Expand commercialization activities within the existing Media Lab and MIT context – – – –

Sponsors users group Sponsors research showcase to engage ML Expand/diversify sponsors with alliance categories Encourage ML participation in 100k, Desphande, E-Club and other MIT entrepreneurial activities – Tap alumni network of spin-offs

• Engage the Venture Community – Funding entrepreneurship and commercialization

Build Leverage • Much of the ingredients for rich commercialization activity already existing with the Media Lab and the Sponsors with all the supporting programs at MIT • Sponsors have innovations programs and research collaborations but these remain largely disconnected from the ML research and should be further integrated • The gap exist in the high risk early stage nature of most research used to launch a commercial entity, this gap remains a void and obstacle for the ML and Sponsors to collaborate thus having more innovation pipeline tracked into the sponsoring companies

ML & Sponsor Proposal • Establish an ongoing forum between sponsors innovation and Media Lab constituents that have research they believe is candidate for commercialization and jointly chart out activities to test and develop the products within the Sponsors company labs or market • Activate the “Living Labs” as a marketing commercial test bed with research data being generated as a byproduct not as the primary objective.

Catalyst • When ML Sponsors opt-out of commercialization participation the local early stage Venture Capital community should be engaged • An InnoVenture Lab should be created for Venture Capital Sponsorship of Post-Grad/Doc Fellowships in technology entrepreneurship within the ML • Sponsors provide the potential market channels for the commercialized products once they are proven using Venture high-risk funding

InnoVenture Lab • • • • • • • • • • • •

Joint Lab with Sloan School, leverage entrepreneurship support at MIT Entrepreneurship course requirements as pre-requisite (Sloan) Proposals for ML research commercialization (product and business model plan) would be submitted on a competitive basis. Only graduating MS and Ph.D. can apply as post graduate fellowship Must have proof demonstration to enter and valid market test possible within 12 months Seed investment provided for market realization of the research Small teams of 2 – 3 people to ready the product for full investment Team of mentoring advisors with corp/start-up/academia experience who have formed technology companies, (MIT Venture Mentoring Service) C-Corp structure to address ownership via stock vesting period VC reserve for 1st round full investment for successful spin-out Tech Licensing Office involvement and supporting activity throughout ML Sponsors have option to participate in funding round or early exit licensing at commercial terms if product proves to be market viable and VC opts-out of next round investment

InnoVenture “NOT” • • • • • • • •

It is not research, nor is it complete product development It is to take working research prototypes and address the scaling and commoditization problems, technical and business problems will need to be solved during this stage transition It is to create and demonstrate a viable business model, cost and distribution and research/test market need These are not innovation labs for sponsors and will remain autonomous to prove business viability The main achievement of the year is to remove uncertainty and build confidence in market viability and achieve a feasible business model It is not to launch or bootstrap an actual business, that will be done in the 1st round investment after the post grad/doc period This is a technology transfer option that is easier than the alternatives of people attempting this without support outside of the ML It is not the typical Angel or F&F investment and comes with the same high risk profile for investors as any early stage start-up, investors are only securing early right to invest once the business is ready to launch, investment is not guaranteed

InnoVenture Feasibility VC Event to explore feasibility jointly with ML – Closing the gap between research and commerce – Active Research presentations – Innovation processes – Past Commercialization case stories – Idea Storms and Streams – Research Commercialization Outlook

InnoVenture Structure • Venture Syndicate – – – –

Angel and Venture Capitalist (potential 1st round funding) Corporate Strategic investors (potential acquirers) Mentor network (commercialization process) Legal Firm (entity governance)

• Funding allocation structure – – – – – –

ML Sponsorship (what is done today with corp. sponsors) Fund Entrepreneurship programs Fund Contest [MIT 100k example] Fund PostDoc Fellowships in Entrepreneurship Funding grants to small teams with 5, 10, 20K amounts Fund IP process, tech licensing and patent filings

Venture Commitment • Assuming a threshold of quality submittals VC discretion on number, size and composition of funding • 3 – 5 million over three years – 1 Million of fellowship awards per year – 2 Million of 1st round funding within 3 years • Lead investor in the 1st round • Generous stock pool with incentives for all constituents • VC option to fund IP filing or license if appropriate • VC network to help fill out the business launch team • Target of 5 VC’s in a consortium for total of $15 - $25 Million

Governance • Corporate entity • Board with By-Laws • Affiliation or Alliance with MIT but not part of the Media Lab entity. This is set-up as a consortium for profit entity • Advisory board of vested participants • Shareholder voting • Spin-out from ML InnoVenture Entity after first year • Innoventure maintains small stake in spin-out

Results • The InnoVenture lab would remove the risk gap for Sponsors and facilitate a clear path of commercialization for ML research that has reached product feasibility • For each VC sponsor 2 companies would have been bootstrapped through the process within 3 years with many more attempting to discover viable business models for ML research • As successful cases emerge ML Sponsorship from VC and Corporate Sponsor should grow each year • InnoVenture Lab appreciates in value quickly with its shares in spin-offs returning value until it becomes its own endowment at which point it is self funded

Resolution • New source of Funding for ML consistent with its mission and history • All constituents may participate in the InnoVenture Lab and share in the rewards through the stock plan, including Sponsors if they contribute funding or resources • Venture expertise is made readily available to the ML and Sponsors that remove risk of early stage businesses • ML is able to clearly demonstrate one of its benefits to Sponsors and continue to attract the best students and faculty

Next Steps • • • • • • • •

Explore ML interest and feasibility Stakeholders feedback and model revisions Sloan School engagement Survey of ML research suitable for commercialization with timing and interest Team and committee formation ML agreements and entity structure Local VC community feedback Marketing and Business Dev

Candidate Investors • Venture Angels – – – – –

commonangels.com keiretsuforum.com (350 members) ecoastangels.com launchpadventuregroup.com newyorkangels.com

• 1st Round VC’s in Boston – Highland Capital hcp.com – sigmapartners.com – Polarisventures.com

Center for Venture Research at University of New Hampshire “Small Business Association estimates 260,000 Angels active in US funding +55,000 small companies a year for a total of +20 Billion as compared to +28 Billion a year from formal VC’s” VC Discovery Tools: angelsoft.net thefunded.com ncet2.org National Council of Entrepreneurial Tech Transfer

References • • • • • • • • • • •

MIT Entreprenuership Center http://entrepreneurship.mit.edu MIT Enterprise Forum http://enterpriseforum.mit.edu MIT 100k Contest http://www.mit100k.org MIT Tech Licensing Office http://web.mit.edu/tlo/www MIT Lemelson http://engineering.mit.edu/education/special_programs/lemelson.php Kauffman Foundation Feb ‘09 Report Entrepreneurial Impact : The Role of MIT http://web.mit.edu/newsoffice/kauffman-report2009.pdf Kauffman Foundation http://kauffman.org Tech Stars http://www.techstars.org Ycombinator.org http://ycombinator.org/about.html Idealab http://www.idealab.com/about_idealab National Venture Capital Association Yearly Report http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid= 446&ItemId