New company formation is a high risk proposition. While many Yale startups are successful, others are not. Some common problems that can cause academic startups to fail are:
• Inexperienced management – A strong, experienced, cohesive team is required for a successful startup company. Problems can arise if founders or other members of the team do not have enough startup and business experience or if founders, new management, and investors do not have the same strategic vision.
• Lack of funding – A startup needs sufficient capital to overcome technical challenges, reach critical business milestones, and progress to the next phase of development. To attract investors the company must have a solid business plan and a strong management team.
• Technology does not meet commercial need – Sometimes the science is innovative and exciting but does not correlate to a critical commercial need, or current solutions are still better than the new technology.
• Timing – Even when a commercial need exists, the company may miss the market. Sometimes this is because the market is not ready for a product, e.g. it’s too early, still too expensive, or the market need is unrecognized. Sometimes it is because the product is too late to the market and the need has already been filled by a different technology, or competitors have leapfrogged over the company with an even better product.
• Marginal Niche – If the target market is smaller than expected the company may not meet its financial targets.
• Bad luck – Sometimes events outside of the entrepreneur’s control can negatively impact a company. But even failure is often seen as one of Silicon Valley’s greatest strengths.
Additional information about why University startups fail can be found here.