Professors: leave "the kids" alone - how much startup equity should you take?

Understanding the Culture

Five years ago, we began examining the hurdles within academia. We specifically focused on the challenges faced by postdoc researchers when wanting to bring their science into the real world. These individuals are full-time scientists who have completed their PhDs and now work within a lab led by a PI (Principal Investigator). A PI's lab can consist of a handful or several dozen students, PhD candidates, and postdoc researchers, depending on the funding and the PI's standing within the university.

Achieving tenure is a significant milestone in this hierarchy, reflecting the status of the PI.

In my experience with established professors, I quickly learned that many refer to the researchers in their labs as "my kids." This endearing term often symbolizes a sense of responsibility for their apprentices in the lab. The careers of these young scientists are influenced by the guidance they receive.

However, many young researchers report troubled relationships with their PIs. The term "kids" may also reflect the hierarchical culture in academia. Often, there is an unhealthy focus on status rather than fostering long-term relationships. This dynamic is crucial in a field dependent on human capital, as attracting talent is essential for success.

As someone trained as an attorney, I understand the importance of a strong apprentice-trainer relationship and its impact when functioning effectively. My lack of emotional ties to academic culture allows me to observe these dynamics more objectively. Consequently, we often offer compassionate, pro-bono support to disgruntled researchers, helping them navigate their next career steps. However, this approach is not sustainable. We cannot provide case-by-case support for every researcher if we want to improve academia's function as a whole. Therefore, increased awareness and systemic change are essential.

The Scenarios - Are You Using Startup Equity Wisely?

The culture within the lab becomes profoundly evident during a spinout and influences the future of science commercialization. Here are the common scenarios we often see:

An IP "asset" (like a patentable discovery or know-how) is developed in the lab.
PhDs or postdocs close to the development of this IP aim to become full-time founders to commercialize it.
The PI, remaining in academia, usually has limited experience in commercialization.
The researchers-turned-founders and the PI must negotiate the equity split of the new company.

At this stage, you encounter two types of PIs:

Scenario 1: The Supportive PI

The first type recognizes that the founder's role requires speed and focus. They understand that their involvement will be minimal and agree to be compensated through their stake held by the TTO. They may ask for a small percentage of the company for continued guidance as scientific advisors.

Scenario 2: The Controlling PI

The second type sees the patented discovery as an extension of their academic ambitions. They believe that by directing postdocs as project managers, they deserve equal or majority shares in the new company. Unfortunately, they still view the researchers as "the kids" in the lab.

If you, as the researcher-turned-founder, find yourself in Scenario 1, here are advantages:

Enough equity to motivate you to fight for the company in the coming years, despite dilution.
Sufficient equity in the startup to recruit key team members or create an option pool.
A mature relationship with your PI, who acknowledges your chosen path outside academia and can validate your scientific direction.
Better chances of attracting funding, as investors will see equitable incentive distribution and a "clean slate" approach.

Conversely, if you identify with Scenario 2, understand the challenges ahead:

You may enter with a hierarchy mindset, inhibiting your ability to innovate.
You risk making slow, costly mistakes under the direction of a PI with limited focus.
The flawed culture within the company may drive away top talent and breed mistrust.

It’s crucial to note that many PIs in Scenario 2 operate out of good faith. The dynamics of launching a company differ drastically from those of running a lab. They consult peers who have engaged in spinouts but may lack insight into what truly creates successful ventures. TTOs also often focus on preserving academic hierarchies, not on what's best for the company's future.

If you've already settled on equity numbers, it’s not too late to reassess. Cease adding value to the company, including discussions with TTOs or potential investors. Dedicate time to educate your PI on effective company practices and what successful companies execute.

In some instances, founders have opted to start anew, exploring innovative solutions. These individuals produced superior technologies compared to the original IP and received backing for their initiatives.

The Advantages for PIs: Embracing Scenario 1

Some PIs stand out due to their ability to foster an entrepreneurial culture in their labs. By promoting innovative thinking, they attract top talent seeking diverse professional paths, including the chance to become founders.

Retaining this talent allows PIs to continuously explore new ideas and venture into practical applications. In the real world, execution outweighs ideas; while many concepts fail, effective leaders often thrive. The decisions made during the spinout phase will shape not just the lab's culture but also its brand equity. The caliber of leaders attracted in the future hinges on these foundational choices.

If you're starting your journey as a PI and believe your lab has a viable spinout opportunity, there are resources available. We offer programs to support novice PIs in creating "spinout-ready" labs. Curious about how to initiate this journey? Consider guiding prospective scientist founders to join Sandbox and apply to Bootcamp.

Conclusion

Academia is a vibrant but challenging landscape, especially for postdoc researchers. Understanding the dynamics between researchers and PIs is crucial for realizing successful outcomes in both academic and commercial fields. By fostering a supportive culture and recognizing the unique paths of researchers, we can pave the way for innovative discovery and entrepreneurial success.