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CEOs and Scientific Founders: Tips for a Long and Successful Marriage

Opinion

Xconomy New York — 

It seemed like the perfect match: A scientist founder from a top-tier academic institution; A technological innovation based on years and millions of dollars of federally-funded research in a university lab; And a successful entrepreneur and industry veteran named as the CEO of the startup that would take the work forward.

But soon after the scientist and CEO began working together, problems began. Feelings were hurt over who should serve as the public face of the company when talking to the press and potential funders. Bitter disputes emerged over each change to the product being developed. Worst of all, mismatched expectations about how to split the equity in the startup ended in shouting matches, from which neither party was willing to back down. Within months and well before raising any venture funding, the company had fallen apart in acrimony.

Unfortunately, I have seen this story unfold far too often. Of the 25+ startups that get launched each year based on cutting-edge scientific inventions emerging from Columbia University’s research labs, most launch successfully and go on to raise venture financing. But a disappointing number fail quickly due to these fundamentally avoidable misunderstandings and misalignments.

In 2016 alone, over 1,000 startups were founded over innovations emerging from U.S. research institutions and medical centers, according to the Association of University Technology Managers. Historically, academic startups have led to some of today’s most successful and well-known companies and products: Google, Akamai, Genentech, Duolingo, and more. In many cases, matching scientific founders with venture-backable CEOs is one of the most critically important steps to getting promising science-based startups out of the lab and into the market. Scientific founders often have the insight, tech chops, and passion to launch the company. But without a founding team that has successful business and startup experience, the company is often not fundable (and hence never gets to market) or fails in avoidable ways in the early years.

Unfortunately, CEO/founder matches too often fail over miscommunication, misunderstandings about norms, misaligned interests, bruised egos, or other avoidable issues. If these issues could be systematically addressed up front, many more of these matches could lead to great CEO/founder harmony. Here are seven of the most common sticking points and some expert advice for how to avoid them:

1. Look before you leap: Scientific founders and CEOs may feel pressure to rush into a formal relationship before they have spent enough time and effort to determine whether there is truly a good match. Given all the ups and downs that startups go through, founding teams need to both like and respect their partners. According to Marc Singer, Managing Director at Osage University Partners:

Initial impressions can be misleading. If you are a founding principal investigator, you need to evaluate potential CEOs not only in terms of ‘hard’ skills (quality of thinking, product orientation, experience) but also ‘soft skills’ (communication style, how collaborative they are, fit with the founding scientists). Don’t rush it; this takes time. Work with them as an advisor first, with no pre-commitments. After three months, decide if this is a worthwhile partnership.

Sal Stolfo, Professor of Computer Science at Columbia and serial cybersecurity entrepreneur (Red Balloon; Allure), agrees:

For my recent company, I interviewed more than 16 CEO candidates until finding the one who fit the opportunity best. The key characteristics were clear reputation for integrity, breadth of relationships in the venture community as well as the business community, and a strong network of professionals in sales and marketing. But even more critically, the CEO candidate needs to be well steeped in the specific target market, not just business in general. Startups don’t have time for the CEO to ‘learn on the job.’”

In addition, Stan Reiss, a general partner of Matrix Partners, comments:

Unfortunately, I have seen way too many technical university startups preyed on by low quality ‘leeches’ who are really good at negotiating their equity package, but aren’t and will never be stellar performers. Invest the time to get to know them, do thorough reference checks, and ask, ‘If this was a technical co-founder, would they be good enough?’”

2. Splitting the pie: Scientific founders often feel strongly that the company is being built on their insights and years of work in the lab. CEOs, meanwhile, believe the company’s future depends largely on their efforts, like raising venture funding. Issues often arise around starting equity percentages, how these should change over time, based upon what milestones, and whether equity can be revoked. Osage University Partners analyzed thousands of university startup cap tables from 2009 to 2018, and provide the following guidance for an “average” startup:

Unfortunately, these ratios will often vary based on who leads the fundraising, how much time each founder is investing, and how far the product is from commercial launch. Local startup-centric attorneys and university tech transfer offices may be able to provide guidance based on their own experiences. According to Carlo Rizzuto, a partner at Versant Ventures:

I advise academic founders to recognize that it will take many highly-skilled people and much capital to translate an academic discovery into a successful product. It is far better to own a small piece of a large (valuable) pie than a large piece of a small pie.”

3. Focus: In most university startups, senior faculty members rarely leave their university positions, instead becoming part-time (<20 percent) scientific advisors on the scientific advisory board. It is also not uncommon for successful serial entrepreneurs to work with multiple early-stage startups concurrently as they gain momentum. Accordingly, CEOs can sometimes … Next Page »

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