We need more professors in Ferraris
“What would people say, if a university professor owns a Ferrari as a result of publicly funded research?”
I hear this refrain from time to time. My answer:
“They should say well done!”
If she has taken some risk to make it happen and if that difficult research now manifests at scale in the world, we should have more professors with Ferraris.
The behaviour behind the comment leaves innovation on the shelf.
What is “skin in the game”?
Skin in the game is the idea that personal risk for the “players” causes better results in the “game”.
When the players are exposed equally to the upside and the downside, this alignment delivers more likely survival and bigger impact.
The status quo distrusts skin in the game
Large organisations like governments, universities and corporates distrust skin in the game. There are two main causes of this.
Conflict of interest: the idea that other work will suffer if there is upside in one thing. Sufficient downside risk prevents upside conflict in most cases.
Point-in-time greed: the focus on a single moment in time that maximises for value capture at the point of decision rather than designing for future alignment.
By avoiding risk, we avoid the best outcomes. Designed-in risk (upside and downside) creates a self-regulated framework for success.
The plunge into an unknown future for researchers
It surprises me, when a researcher wants to take something out, that they are often managed by an institution with an independent assessment on the best way to commercialise the technology.
If a researcher wants to leave a stable position inside an institution there is already significant skin in the game put forward.
Finances: likely pay cut until impact is delivered — countered with upside in the event of success. Probably loss of special pension schemes and long service leave entitlements.
Reputation: likely drop in publishing & speaking volume decreasing reputation in academia. The risk of making claims about a company that might not work out. This is a 10 year+ leap into the ‘Valley of Death’ that must succeed otherwise a prized academic career will falter.
Agency: the pathway to success or failure is mostly on them. Imposter syndrome rages battle with the wins that come from no longer needing to ask permission.
These conditions should default commercialisation decisions around supporting the researcher.
There is so much skin in the game that the researchers have no choice but to succeed.
Investors need to be “all in” as well
What is the risk facing an investor at the time of decision? Investors share some of the same dynamics as founders although the upside and downside risks are spread across a portfolio.
Finance: Most venture investors invest their own capital into the funds that they manage so are actually risking their own money in every decisions. As an individual investor in a fund, we are also investing our peers’ capital. We feel this burden.
Reputation: I would also argue for investors to be ‘“all in” with their reputation. If we believe in a company, lean into it for the next ten years. Take a position publicly. Make an ass of yourself if you are wrong. There is a currency to reputation in venture capital that can be burned so easily.
Time Scarcity: There is only so much time to invest into the companies we choose. Each decision is one around a ten year+ commitment to a company. Which ones will we pick? We reduce the risk of a bad decision by working hard for the decisions we make.
All of these dynamics are very different to being a decision maker or negotiator with no skin in the game, who will not join the company into the ‘Valley of Death’.
Institutions — my questions to you…
If you matter to the success of a company, what risk are you taking? What is your upside and what is your downside risk?
If you don’t matter to the success going forward and don’t have downside risk, are you taking too much upside?
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