Exit Interview: Lita Nelsen on MIT Tech Transfer, Startups & Culture
[Editor’s note: This is part of a series of stories examining entrepreneurship on MIT’s campus and beyond.]
MIT’s approach to nurturing entrepreneurship has changed a lot over the past 50 years.
Lita Nelsen has seen it up close—and played a part in its evolution—from her studies there in the 1960s, to her business-school fellowship in the late 1970s, to her 30 years working in MIT’s Technology Licensing Office. She spent the last 23 of those years directing the office, along the way becoming a pillar at MIT and in the tech transfer community nationwide.
Now, her career has come to a close. Last fall, she told administrators she planned to retire this spring. She officially stepped down in April after MIT announced her successor: Lesley Millar-Nicholson, director of the Office of Technology Management at the University of Illinois at Urbana-Champaign. Jack Turner, associate director of MIT’s Technology Licensing Office, is serving as interim director until Millar-Nicholson arrives in July.
Nelsen is now a consultant on tech transfer and entrepreneurship issues, and she is also serving on the boards of companies and nonprofits, according to her LinkedIn profile.
Xconomy sat down with Nelsen in March at her (now former) fifth-floor office at 255 Main St. in Cambridge, MA, on the eastern edge of MIT’s campus. She had plenty of knowledge, history, and opinions to share.
Our wide-ranging conversation covered the progression of MIT’s entrepreneurship curriculum and campus resources, the rise of the Boston-Cambridge area as a high-tech industry powerhouse, the prospects for an MIT venture fund, the challenges for university tech transfer offices, the roots of today’s startup culture, and more. The following transcript has been edited for clarity and length.
Xconomy: How has the culture of entrepreneurship changed in your 30-year career here on campus?
Lita Nelsen: It’s gone from incidental to purposeful, in the sense that companies were spinning out of MIT forever, but certainly going back to the ’50s.
What, I think, is the first technology-based, early-stage venture capital fund anywhere, American Research and Development, was founded between Georges Doriot at Harvard Business School and Karl Compton, who was president of MIT at the time. I don’t know if it was their first investment, but they invested $ 75,000 in a researcher named Ken Olsen, at MIT. Twenty years ago, everybody in Boston knew he was. He was the founder of Digital Equipment Corp. Although Digital has gone under, it was one of the most successful companies in Massachusetts for decades. I mean, nothing lasts forever.
So companies were spinning out forever. My first job when I graduated from this place was my professor’s spinout company.
X: When was that?
LN: I got my bachelor’s in ’64, my master’s in ’66 in chemical engineering. It was a little company called Amicon, which the brand is still around. It basically helped invent the ultra-filtration field. Then it got acquired by Millipore.
X: I read an article from 1998 that you were quoted in—it sounded like Stanford’s Niels Reimers helped MIT reorganize its patenting and licensing office in 1986 to make it more like Stanford’s model.
LN: Right, he came on a sabbatical year. Basically it was a restart from primarily a legal office to an office filled with people with technology and marketing backgrounds.
X: So you wanted to emphasize the commercialization and industry expertise over the legal expertise?
LN: Right. And so that’s what Stanford did, so it was set up in that model.
I wasn’t the director then in ’86. And then in ’87 we started making the spinouts official rather than just go out the backdoor. That meant we were licensing. And that meant that MIT had to look at its policy of doing this as MIT, rather than private activities.
And so we got our act together, we got our policies together, very conservatively. And we started to do it more officially, take some equity in the companies, allow the faculty to have equity—but still have exclusive licenses.
I guess the first two companies were Immulogic and, I believe, American Superconductor. Immulogic isn’t around anymore, but I think American Superconductor still is.
As we started doing more of it, entrepreneurship is catching… And one of the impacts was on the business school.
I was a Sloan [School of Management] fellow [at MIT] back in ’78-’79. And I was very disappointed because, with the exception of one or two courses, the Sloan School was primarily oriented to Fortune 500 companies and to Wall Street—finance theory, that sort of thing. Just about nothing, one or two courses—Ed Roberts had one—on entrepreneurship.
But as the technology part of MIT started to be known for these companies spinning out and starting to influence even the development of the region, the MBA students started self-selecting to come to MIT for entrepreneurship, technology-based entrepreneurship. And the Sloan School responded, and now the entrepreneurship and innovation track of the MBA program is by far the most over-subscribed.
Meanwhile, there started to be more student interest, more faculty interest. We got to know the venture capital community around town.
X: What time frame was this?
LN: The late ’80s, early ’90s. Most of the companies that were getting started, the capital was coming from California or New York.
And it wasn’t just MIT, but we were certainly, I think, an important part of it. New funds started forming here and some of the bigger funds elsewhere started putting offices in Boston and Cambridge.
And then [there were] various ways in which entrepreneurs in the region or in the university could get help. The [MIT] Enterprise Forum had been around, it must be 40 years old by now. … The student business plan contest must go back to the early ’90s, I think. We were one of the earliest.
And then other little things came up. There were more entrepreneurship courses in the Sloan School, and that of course led to the Entrepreneurship Center, which has now become the Martin Trust Center.
Typical MIT, things start experimentally. They don’t get planned from above for these kinds of activities; somebody gets an idea. Two alums went to the provost. These were two successful business people who were now at a stage where they were interested in giving back. They said, “We have an idea for this mentoring service.” I think Bob Brown—who is president of [Boston University] now—said, “OK, I’ll give you half a secretary and a cubicle. See what happens.” And now of course there’s 150 mentors [in the MIT Venture Mentoring Service], and it becomes an important part of the game. [The latest count is 230 mentors.—Eds.]
Now, we’ve got entrepreneurship courses, we’ve got networking [events], we’ve got the student business plan contest, the Venture Mentoring Service.
Then along came Desh Deshpande [who, along with his wife, seeded the Deshpande Center for Technological Innovation in 2002]. By now, the entrepreneurship virus was getting rather active and spreading around here. It just kept going.
X: What else was happening, culturally?
LN: There were clearly very important social and economic forces. What I consider the “social contract” was broken when the telephone company [Lucent/Bell Labs] and IBM did layoffs. Because [before that] the idea was join a big company, keep your nose clean, and you’ll have a job for the rest of your life. So, if you thought about it, why would an engineering graduate join a crazy, fragile, could-go-out-of-business startup when they would have this absolute security otherwise? Well, when that security went away, the relative risk of joining Blue Sky Biotech versus Merck [became] less of a difference.
So more and more, there was interest in new job creation from the government and the foundations, saying it’s coming from high-tech companies. And from individuals, it was, why not?
MIT’s always been a place where going and joining a crazy little company was not really considered risky. On the grounds that, hell, you’re good enough, you’re bright enough, you’re well-enough educated that if it doesn’t work, then you can join Merck or IBM or somebody.
The risk-taking because you can always do something else, was always there. Most of my friends back in the ’60s were joining little companies, because they were more fun. They were more interesting.
And now MIT, with its emphasis on innovation, is investing officially in training students in innovation and entrepreneurship, along with, not separate from, their intense technical educations. It’s not “you go and learn how to be an entrepreneur,” it’s you learn biology or chemistry or electrical engineering or computer science, but you also learn how entrepreneurship and innovation and moving technology out into the marketplace works—rather than having to learn that after you graduate.
X: There are a lot of resources and options on campus for people who want to get their company started.
LN: Yeah, everything but money, because MIT does not have a venture fund or something that would invest in your company.
X: Would it ever do that?
LN: There’s been no need. People say to me, “Does MIT have an incubator?” And my classic answer has been, “Yes, it’s called the city of Cambridge.”
But there’s another reason, a very important reason, and that is that, when we’re talking about serious investment—not two students and a puppy and a laptop in the dorm—but real technology-based, or shall we say research-based, entrepreneurship, where you’re taking truly new stuff that’s going to take a lot of money and a lot of time to bring to market…
X: And patents.
LN: And patents. Patents are needed because the whole idea is if you’re going to get somebody to invest a lot of time and a lot of money, if you succeed you don’t want the other guy, the bigger guy, saying, “Well, thank you very much. Now that you’ve shown the way, get out of the way.”
We are primarily using patents as an incentive for investment. We’ll give you an exclusive license if you’ll commit to development. And then if you succeed, you can recoup your risky investment because you will have patent protection in the market.
X: And the other reason why MIT wouldn’t do a fund?
LN: Well, given that it takes a lot of sweat equity to get an MIT company off the ground. [The Technology Licensing Office helps] start about 25 or 30 companies a year. God knows how many [other companies started on campus] go out the back door. No one fund could put that amount of sweat equity into all of them.
Now imagine we have MIT’s fund, and I invest in company A, but don’t have the resources to do B, or maybe not C. Then I go with C to [an outside venture capital firm] and say, “How would you like my leftovers?” There’s a negative selection bias there for what we don’t invest in. So, better to let a level playing field for anybody who wants to play.
X: The big university venture fund announced in recent months is the University of California system’s $250 million fund. What are your thoughts on that effort?
LN: The more money the better, but whether they’re going to pay off is another story. Maybe when you’re as big as the University of California, you’re not limiting your deal flow to one place. I don’t know.
The more money the better, it’s just that we haven’t needed it. We don’t have a lot of trouble getting decent companies funded. If people get their act together and the science is good, it gets funded.
X: Has an MIT venture fund been considered?
LN: In one way or another, this office has been offered investment funds consistently, maybe once every couple of years. We keep saying, “No, we don’t need it, and we don’t want to get into the conflicts [of interest].”
Whether MIT corporately decides someday that this is a good thing to do, fine. But one thing any institution doing it has to decide is, are we primarily in it for return on investment? Or are we primarily in it for getting companies started that wouldn’t otherwise get started? You usually get a mixed message if you ask people which it is. And as everybody knows, when you get mixed missions, things get very hard to manage.
Certainly one consideration early from the “well, we could make money, why not put a piece of the endowment into a venture fund?”—because the money has to come from somewhere. The money managers say, “Why would we put our money into a single fund when we can take a piece of the endowment that, in terms of portfolio management, would be in higher-risk, higher-return ventures, and pick the best venture funds in the world and invest a little in each of them so we’re not constricting ourselves on deal flow.” [That’s the consideration] if it was just about the money.
If it’s just about getting things going that wouldn’t otherwise go, well then the fund has to be managed differently.
X: What do you mean?
LN: Well, the fund managers [in that scenario] shouldn’t just be looking at what’s going to make the most money. But instead, this is a very worthy project with very good science behind it, and it deserves to be helped to be launched into a company that will bring the product to the public, to the market, whether it be for economic development or a new vaccine or the good that we think we’re supposed to be doing.
X: How well do the entrepreneurship initiatives and support organizations on MIT’s campus work together? Do they sort of operate their own fiefdoms?
LN: No, just the reverse. We’re all friends. Occasionally there will be a rivalry, but when that starts we say, “Hey, wait, wait, wait—we’re all in this together.” It’s just personalities. Nobody’s doing it to get rich and famous. A lot of this stuff is being done by volunteers or people who are doing it to give back.
It seems to work. I think if it were ever organized, it wouldn’t work as well because then it would be a corporate structure and you’re essentially being told what to do, as opposed to you invent what to do. The latter has been very successful.
X: How has the tech transfer model changed, more broadly?
LN: It’s already changing with an emphasis on entrepreneurship. The tech transfer offices have recognized that except for a few pharmaceuticals—and very few of those, that have been brought along by hospital funds to the point where the big pharma wants it—on the whole what comes out patented from university research is too risky and too early for knocking on the door of established companies.
So the universities have to start figuring out how do I ripen the technology to the point where it enters the big company stream of commerce. It’s been hard for most of the time I’ve been here, but it’s getting worse simply because the emphasis on short-term earnings makes it harder and harder for a company to invest long-range in something that’s risky. They want less risk and shorter time frame to market.
The way we to date have chosen is the startup; they ripen the technology and then go knocking on the door of corporate partners.
So various other universities—not yet us, except in the tiny, tiny sliver of the Deshpande Center—are investing funds to try to do the very late-stage research or even early product development inside accelerators of various types. The problem with accelerators is the definition has become as broad and varied as incubators, which range from science parks to little projects within universities, so you don’t know what the word means until you dig in. But some of them are putting money into product development. Some of them are venture funds expecting ROI. Some of them are [funded] through donations, as we did with Deshpande and Harvard did with their accelerator.
It’s going to be interesting to look at the mechanisms that people are trying. Because the problem is there: How do we get from the stage of which the university has done its research and maybe even gotten on the cover of Science magazine, to where somebody is going to invest in that ripening process before it actually turns into true product development, short-term product development? How do you get from the petri dish to full-scale clinical trials? You’ve got to get pretty far along before pharma’s going to do that for you.
So people are looking both within universities and outside of universities as to how you fill the gap.
X: How much equity does the Technology Licensing Office usually take when it spins out a company?
LN: Usually in the lower single digits, maybe a little higher if you have a software spinout. And it’s common shares.
If it’s research-intensive stuff—biotech, things that take multiple rounds of funding—[our stake] usually gets demoted down to [tiny] portions. You make a little money; you don’t make a lot. Except in cases when the Wall Street bubble is totally irrational.
Even nationwide, you can show that tech transfer is, at best, a lottery if you want to make an ability to influence [a university’s financial position]. The primary winners—not 100 percent of them, but damn close—are single pharmaceuticals. Because if a pharmaceutical hits the market, it’s going to be in the multi-billon dollar [range]. The equity is seldom worth a lot, unless of course you can follow up with preferred investments. But that’s not what we’re in the business of doing.
Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble.
The key element of why this office succeeds is that the upper administration of MIT is not primarily doing it hoping we’re going to make them a lot of money. But they understand the other benefits of what we do, in terms of midwifing technology from our labs into the economy, and the impact on students and the public.
You take that, and the fact that the MIT style is to delegate a lot of autonomy down so that things can happen. I don’t have to go through lawyers; I can sign the license agreements. So long as you know what you’re doing, stay out of ethical problems, and the outside world thinks you know what you’re doing, they allow people to operate at the interface, rather than climb up and down the bureaucracy ladder. That makes it possible to attract good people into the place.
From 30 years at this thing, I know that it’s a talent-based business. The people have to have the credentials in terms of understanding the technology. But we also hire people who have significant business experience so that they’re bilingual between academia and industry. And then hire people who are self-motivated, who can solve messy problems, and who want to get the job done because it’s interesting and worthwhile.
X: How does it feel to be retiring?
LN: It feels that 30 years is enough. It’s time for me to learn new things, do new things. But I’m leaving a wonderful staff, which is hard. And this place, it’s my hometown in a way. I went to school here and all.
There are losses, but I think we’re all very proud of what we’ve built. I’m grateful to have been here.
Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon
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