How MIT built its thriving entrepreneurial ecosystem, lessons for Spain?

Summary:

On 4 November 2021, the Rafael del Pino Foundation organised a dialogue entitled "How MIT built its thriving entrepreneurial ecosystem, lessons for Spain?", with the participation of Jean-Jacques Degroof, investor in technology startups, and Iñaki Berenguer, co-founder and CEO of CoverWallet.

Jean-Jacques Degroof commented that, since the 1990s, he has been trying to improve the entrepreneurial system in Europe. Entrepreneurship at MIT is an inspiring example that could help us think about how we develop entrepreneurship in Europe, how we support it. The case of entrepreneurship at MIT is also a good example of the power of entrepreneurship to create wealth, jobs and innovation through innovators, at a time when the world needs to confront today's major challenges.

A few years ago, a report estimated that MIT alumni had founded more than thirty thousand active companies employing 4.6 million people, with revenues of close to two trillion dollars. If it were a country, it would be the tenth largest economy in the world. This illustrates the capacity of entrepreneurship to generate wealth and well-being. MIT alumni found an average of 100 companies a year. It also licenses an average of 2,213 startups annually to use its patents. In the last twenty years, the neighbourhood around the campus has become the largest cluster of biotech companies in the world.

In Europe, on the other hand, we have not managed to rejuvenate the industrial fabric. We have very few companies that are global leaders in their sector and that are more than two decades old.

However, MIT is an exception to the rule, even in the United States. The same is true of Stanford University, which is the centre of Silicon Valley. But what MIT has done is not built overnight. What MIT has done is a two-period story. The turning point was when, after the Second World War, MIT scientists and engineers who had worked on the technological development of the weapons that won the war - the atomic bomb, digital computers - left that field and went to work in the private sector, where they applied that knowledge in the productive sectors. Some of them created companies that led to the microcomputer and workstation revolution in information technology that inspired MIT students, faculty and staff, stimulating entrepreneurship, which was new to them.

This was not so much the result of a well-planned policy since the 1970s. Rather, it was the result of the interest in entrepreneurship of students, alumni, faculty and other faculty members, who created, of their own accord, extracurricular initiatives that led to entrepreneurship, such as the organisation of business plan competitions, seminars, conferences, etc., along with networking activities that had to do with entrepreneurship. Today there are eighty such initiatives still being organised on the MIT campus.

One example is the story of a business plan competition with a prize of ten thousand dollars. Students established the first entrepreneurial club and decided that, in order to gain visibility and recruit more members, they would organise a business plan competition, known as the 10k Plan competition. The reason was that it cost ten thousand dollars to obtain a patent. So they started to convince the heads of the different faculties to get sponsors and they managed to launch this competition. It was successful, it was repeated year after year and it started to be done in other countries. In recent years, the competition has involved a thousand students in 250 teams and has generated some magnificent companies, for example, Acamar, a company that today is worth seventeen billion dollars. This story is very typical of these initiatives that develop in the community. Some still exist, others have failed. It all started in the basement of MIT, where people met and talked about their ideas and plans.

It is also important to mention that the MIT management allowed these people to experiment with new ideas, new initiatives, new activities. They were given space to experiment and also to fail, which is also important in entrepreneurial life. As students' interest in entrepreneurship grew, they started to teach classes on entrepreneurship and now there are more than sixty classes on entrepreneurship at MIT.

There are two factors in this: the culture of MIT and the realisation that start-ups were a very good way to develop a career. When you look at the MIT logo, you see the scientist and the worker, side by side. MIT's motto is "Mind and Practice", multidisciplinarity and learning by doing. It is science not for science itself, but for real-world problem solving. Problem solving is at the heart of this culture. For this reason, members of the MIT community adopted this entrepreneurial mindset; it was already present in their organisational culture.

In 2000, students realised that the centre of gravity of the economy was shifting towards the technology sector, which is driven by innovative companies. There was a growing need to train people in how to set up companies, and this was increasing. Some of these students became entrepreneurs, while others went to work in business, government or non-profit organisations. But the important thing is that they went into those organisations with that entrepreneurial mindset and became agents of change in those organisations. Some of them were the organisations that needed to change the most, that needed the most disruption. In short, a culture that supports entrepreneurship and that students realised, for the first time, that a career in entrepreneurship was very credible.

If European universities do not prepare students to become entrepreneurs, they will fail in their mission, not only because they have failed to prepare students for the labour market, but also because they have failed to train new innovators that we need every day to solve problems such as climate change, energy, pandemics, and so on.

Second, US universities own the patents generated by publicly funded research. MIT, in exchange for licensing the patent, asks for on average 4% of the startup's capital in order to maximise the chances that the startup will grow and succeed. The idea is that if it succeeds and creates jobs, wealth and innovation, it will return a multiple of what the research cost with public funds. In Europe, on the other hand, many universities use patents to generate income. There is a case of a Northern European university asking for 60% of the startup's capital plus a 5% royalty. That startup has very little chance of succeeding. It might remain a small company, but it will not grow. This is a big problem in Europe, but not at MIT.

Finally, in Europe there is still a lot of confusion about what a startup is. An innovation-based startup is a company that looks for projects with great potential and has to finance them. A traditional small business does not have much capacity to innovate and grow and is basically an instrument to provide an income for its founders. The problem in Europe is often that policy makers, or university programmes, are supposed to want to help and give incentives for startups that are based on innovation, but the incentives are given to small businesses. For example, there is a government proposing to lower the tax rate for startups for the first four years of their existence, but it is not well thought out because a startup that has no ambition to innovate is not going to be able to pay back anything in the first four years, it needs that to grow.

Iñaki Berenguer agreed with Jean-Jacques Degroof's comments. He had experienced it during his years at MIT. It is true that this bottom-up approach, with clubs, classes, competitions, contests, talks, visits from successful entrepreneurs who come to the university, alumni who work with the university, companies that they visit from time to time would be the best example. She was in a Fintech club at MIT and that happens a lot there. When I was studying there was the curricular part, but also very interesting examples of people who visited the campus to share their experience. The university was that public space to be able to talk about these kinds of activities without conflict of interest. It is very important to have a platform where there is no conflict of interest trying to enrich oneself.

The fundamental purpose of the university remains pedagogy and research, impacting the world as a consequence. One way to achieve that impact is to commercialise the results of research, but without seeking to enrich oneself. This is something that does not happen very often in other parts of the world. Large companies try to contribute to the development of the spirit and the entrepreneurial ecosystem, but there is always a conflict of interest. It is difficult to succeed because there is always a conflict of interest, there is another objective, even if they say they don't want to make money because it is a way of contributing to the non-profit ecosystem, but there are other things. In other countries they try to make money with every licence, with every patent.

The biggest difference in Spain is density. If you are in New York, or Boston, or Silicon Valley, or Austin, the density of startups and large companies, universities, investors who finance these investments and talent is enormous. Any company that is at least minimally innovative is going to need talent. It's not just an entrepreneur with a great idea. That is important to set the vision, to get to a certain level, but you need a great team of expert executives, and this is something that is in short supply in Spain and in Europe.

This, however, is changing for several reasons. Firstly, because there are more success stories. Of course, not on the scale of Apple, Microsoft, Google or Facebook, but there are already companies that have had success stories worth five or ten billion. These executives take what they have learned in the past and apply it to the present and the future. So the entrepreneurial density multiplies rapidly. Each success throws up twenty executives who can help twenty other companies to achieve these results.

Then there is the money. In Silicon Valley, in Boston, in New York, investors have a lot of money. But there are a lot of people investing in Europe and American investors are investing in Europe too. Twenty years ago you looked at Silicon Valley and you saw something magical happening there, you didn't understand anything that was happening. Now, all these entrepreneurs have their blog, they have their podcast, they speak at their conferences, you see them on YouTube. So entrepreneurs who have never been to the United States can learn what happens in the early days of a company, even without living it. They can learn from those experiences and apply it in Spain.

In 2021, things are very different from what they were five years ago. There are so many successful startups in Spain. There is Glovo, Cabify, Flywier, Paack, Jobandtalent, ... All of them are unicorns and they are created by Spanish entrepreneurs.

There is something important about being a serial entrepreneur. When you start a business, you have to suffer, you have to sacrifice. Then you feel proud, but when you are there, in the thick of it, you can only grow the company by obsessing, by focusing as much as you can, because otherwise it is impossible to have exponential growth. So you're in the eye of the storm, you say never again, then you succeed and you start again. When he started his third company he said he was never going to do it again, but he knew he had the passion inside him to start again.

It's all about teams, it's all about people. This is a team game. In the three companies he has created, he always started working with a partner. In the first one it was a colleague from MIT at 3Black. This is very important. First of all, you need to find people who are complementary and also people who have lived that level of excellence, that determination, that perseverance, that drive. Places like MIT are precisely where you are going to find this profile. It is always advisable to start the company with a partner, sharing the pain, because it is too hard, you suffer too much.

It starts with the co-founders and continues with the team. Those first ten employees have to be type A people and that's how you're going to keep attracting great people, because if you start to get off track and you don't hire the best people, the next waves of employees are going to be worse and worse. So it's about hiring professional people, but it's not easy because you have to pay them well, you have to convince them that it's going to be worth it because you're going to achieve tremendous success.

In the United States, companies wanted to be leaders. European companies say that because American companies are leaders there, they are going to be leaders in the European market. But now, more and more, they want to be global leaders, starting here. But, from day one, they are already thinking globally. It wasn't like that before. In contrast, in the United States, they have always wanted to be global leaders.

Jean-Jacques Degroof agreed. There is still a difference in the level of ambition between Europe and the US, but there is a further difference between investors. In the US, investors are also more ambitious and have higher standards. Fortunately, in Europe things are changing. However, there are still a lot of investors who have this confusion about startups that are focused on innovation and are going to grow with that and what we call SMEs. They don't realise that they are very different creatures. For example, if they invest in a startup that relies on innovation to grow, many investors still don't realise that they are going to have to reinvest over time. If they don't, their stake will be diluted, but they also run the risk of losing their investment, because new investors will ask for conditions that will be detrimental to them. So a lot of individual investors in Europe are still investing in startups but they think they are investing in an SME, in a traditional company. That is problematic for them but also for the entrepreneur who is getting the money, because when you get the money for your startup it is like a marriage without divorce clauses. Relationships work well until difficulties arise. Then the relationship can suffer.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.

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