What It Really Takes to Be a Spinoff Entrepreneur

By Ben Solomon, Founder and CEO, FedTech

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Moving technology from a research lab to market is one of the hardest transitions in the startup world. Through our Startup Studio program, FedTech has worked with more than 800 entrepreneurs and taken 200 companies from the lab to thriving companies and those that succeed invariably have five consistent traits.

First and foremost, successful entrepreneurs are collaborative. They must first convince the inventor, who likely has many years and significant dollars invested, that they have a viable plan to bring the product to market. This collaboration extends to the technology-transfer office at the university, research institute, or federal laboratory that is an essential ingredient in protecting inventions via patents, negotiating licensing agreements under mutually beneficial terms. In my experience at FedTech, investors rarely seriously consider funding a spinoff without strong IP protection in place.

Effective collaboration extends to working with prototyping firms, lawyers, production partners, and others who all have their own success metrics and constraints, and every one of them must be convinced that they’re getting in on the ground floor of something that could be transformative. After all, they’re taking a gamble that the technology has significant long-term revenue potential for them as the company grows, which often means they’ll initially be working for less compensation. 

Successful entrepreneurs are also exceptionally resourceful because, unless you're coming from a marquee institution with a proven track record, significant early private capital is unlikely to be forthcoming. The risk profile is simply too high, and the cost of the journey from lab to product is too steep for most early investors. The best spinoff entrepreneurs I've worked with accept this and attack the funding problem from every angle, from pitch competitions to government prizes and state and local grants, to basically anything that moves the needle. They understand that fundraising is cumulative, that early money derisks the next round, and that momentum matters even when the individual amounts are small. The entrepreneur also doesn’t let ego get in the way when their efforts might only raise $5,000.

One of the greatest challenges for budding entrepreneurs is telling a story, which is no small feat, since entrepreneurs are often scientists and engineers. They're comfortable telling a great story to their peers but find it almost excruciating to turn this into a convincing pitch. They must describe their technology to their first employees, customers, partners, and seed investors. The successful entrepreneurs are those who can describe what's on offer without being condescending or overly simplifying what is, in fact, a true innovation.

The best entrepreneurs are also extremely curious, making cold introductions at trade shows, exploring adjacent industries, pressing their inventors with questions about applications they haven't considered, and following up long after most people would have moved on. Technology targeted at aerospace manufacturing, for example, may also have applications in other markets that on their face seem unrelated to what the technology was assumed to be useful for only to find it has benefits for other industries that may ultimately have even greater revenue potential.

Finally, even though inventors are hoping to succeed beyond their wildest dreams, not every invention has a viable commercial path, and not every technology can anchor a growth-oriented company. They need to cut their losses. The line between commitment to a startup and denial about its prospects is often nearly invisible from the inside. The best entrepreneurs I've worked with are honest with themselves when the evidence turns against them.

However, they don’t simply sink into their chairs and give up, because they’ve gained invaluable experience and a long list of relationships that couldn't have been achieved in any other way. They can take this experience and move on to the next invention, but this time they won’t start from scratch.

In summary, the steps from developing a technology into the foundation of a viable company are extremely challenging. In addition to the traits I’ve mentioned here, any entrepreneur will tell you there’s an element of luck, support, and happenstance that are also factors. But when the process works— when a technology that spends years in a lab finally reaches people who need it— there's very little in the venture world that compares.