October 30, 2012
I recently listed co-founder asymmetry as one of the key failure conditions for startups. While definitely a major cause of startup collapse, there is one scenario where co-founder asymmetry can work well enough: university spin-outs where you have student-professor partnership. Students don’t have the expertise and seniority of their professors, but typically have far more hours to put into a venture. For this kind of relationship to work it is important that the expertise provided by the faculty member truly offsets the higher workload of the student. Just being a professor of high status isn’t enough (even if many professors would like to think so). Execution is king, so the high workload student has an intrinsic advantage in the value creation “competition”.
Professors likely have higher technical skill and prestige than their students but just having those isn’t enough. They need to find a way to inject these values into the start-up. Technology-wise, the professor has to be an innovation engine for the startup to offset the often relatively modest workload impact. Similarly, the prestige of the professor needs to translate into tangible opening of doors and recruitment of advisors. Both of these contributions also need to be maintained over time. Once a startup leaves campus it takes a certain kind of professor to remain deeply involved in an innovation function. Even rarer are professors that are able to continue to have a profound impact on the business side of the startup, through strategic guidance and door-opening. If this sounds demanding, consider the fact that the student co-founder is probably working 80-100 hours per week for her co-founding stake.
I had the privilege of founding a company with a professor who truly made all these contributions and more. Himself a serial entrepreneur and inventor of over 100 patents, he brought deep expertise to the game and had a profound impact on the company. At the same time, I have seen many student-professor founding teams that don’t balance at all. Often, those are primarily on the institutionally determined hierarchical relationship. Even if that relationship works during the first few months of the startup, as the startup gears up the professor will ultimately become an over-compensated co-founder which is almost guaranteed to lead to trouble down the road. University startups in particular need to be prepared in advance to for these shifts in co-founder dynamics. A good choice is to reverse-vest founding shares at specific levels of impact (e.g. full involvement, advisory services, no contribution). Alternatively, the startup can issue fixed founder shares to all but then create a large additional incentive grant to operational co-founders.