April 12, 2012

Jumpstarting University Technology Innovation Ecosystems

By: Matt Van Itallie

Source: Science Progress

In recent months, state and federal policy makers have launched a broad set of innovative programs aimed at accelerating technology transfer, the commercialization of government- and university-created intellectual property, or IP, through licenses and business startups. This fall, for example, the Obama administration directed federal agencies and labs to measure and expand their technology transfer efforts. At the state level, Gov. Martin O’Malley’s (D-MD) Maryland Innovation Initiative, announced in January, would provide seed funding and foster greater cross-university collaboration to help close the state’s gap between its research levels and commercialization results.


Some universities, too, are rethinking their policies. Penn State, for example, announced in December that the university is no longer required to own intellectual property created by industry-sponsored research. “In short we consider the net present value of the interactions and relationships that our faculty and students have with industrial professionals to be real and therefore greater than the apparent future value of the proceeds from such IP,” wrote Hank Foley, Penn State’s vice president for research, in announcing this news. “Our goal … is to flatten any and all barriers or impediments to innovation and that includes our own past stance on intellectual property.”


The rationale for these policy changes is clear: Technology transfer can provide a broad range of benefits, but these benefits have not been distributed across all communities. For example, academic inventors can solve practical problems while funding additional research during dwindling budgets; students and graduates can get career paths and professional skills; universities can contribute to a virtuous cycle of regional economic development and diversification while facilitating student and faculty recruitment; and regions can get new businesses and more jobs.


These rewards can be substantial: The University of Wisconsin’s technology transfer efforts have resulted in more than $1 billion back to support the university.


Failing to successfully commercialize the research and technology coming out of universities and research institutions thus leaves considerable unrealized value on the sidelines.


To date, though, many of the benefits of U.S. university-based technology transfer have been concentrated in a few communities such as Silicon Valley. Eleven of the approximately 200 members of the Association of University Technology Managers contribute more than half of its technology transfer revenue. This suggests that some university communities may not be bringing to market the full potential of their research.


Government and university efforts to increase the impact of university technology transfer are essential. But there is another group that also has an important role to play in accelerating university technology transfer: private-sector ventures. Businesses large and small have a unique opportunity to jumpstart real, transformational change in a community’s technology transfer efforts.


To make this opportunity clear, it helps to specify the five major challenges that currently limit technology transfer.


Five factors that inhibit technology transfer

As a quick recap, it is helpful to think about the overall technology transfer process as a funnel—a “wide mouth” of research investment feeding a “narrow end” of successful commercialization. Research can lead to inventions, some of which are disclosed to a school’s technology transfer office, or TTO. The TTO pursues patent applications for some disclosures; some are approved. These disclosures can be commercialized, usually by licensing, renting the intellectual property to an existing company or startup, and forming a company. Only some commercialization attempts generate revenue or sustain a startup. At this point, startups enter the traditional business funding and growth cycles, such as self-funding or seeking seed funding.


Of course there are far more ideas generated than will ever be commercialized; that is the beauty and the challenge of technology transfer. But five factors inside and outside of the university contribute to incomplete technology transfer—that is, the casting off of ideas with validity and potential impact before commercialization is achieved.


Inside universities, we need to consider incentives, structures, and cultural factors. First, incentives—or more appropriately, the lack thereof—can contribute to inefficiency. Universities rightfully need to focus on their core missions of research and instruction. Maintaining research funding, which can be hundreds of millions of dollars or more, must be a core function. A high-risk, noncore activity like technology transfer is not likely to be an area of focus.


Second, structure: Institutions are rightfully skeptical of substantial direct investments in noncore functions with certain short-term costs and uncertain long-term benefits—which is exactly the case with universities and technology transfer. This is especially true when technology transfer offices have to operate at a loss for many years, as many do.


As a result there may be underinvestment in essential technology transfer activities such as getting to know professors and researchers and earning their trust. One practitioner estimated that a tenfold increase supporting campus entrepreneurial activity would not exhaust the supply of commercializable ideas.


Third, culture: Technology transfer offices must focus on protecting the university’s assets and reputation. Sometimes, though, this may come at the expense of encouraging new ideas. As one former university official noted, “Academic tech transfer offices too often think in terms of processing paper.”


They may, for example, set up barriers via contracting processes that limit value creation or place undue emphasis on procedural outputs that hamstring a university’s chance to succeed.

To be sure, these factors inside a university can be important. But focusing only on universities’ contributions to incomplete technology transfer would miss the full story. The “innovation ecosystem”—the supporting institutions, activities, and culture relating to technological innovation—is also a major determinant of technology transfer performance.


In the 1990s, for example, Stanford University did not encourage startup businesses based on new technologies, yet the school still led the nation in startup creation. As a research team who studied this observed:


“Stanford’s success in generating new businesses … depends not only on university policies and strategies but also on the institutions, entrepreneurial climate, and fertility of the economic soil (including access to venture capital) in the recipient community.”


The ecosystem’s contribution can be summarized into two factors: innovation-entrepreneur matching and pre-seed support. Innovation-entrepreneur matching describes the connection between the academic innovator providing ideas and energy with a commercialization team who can guide that idea into the marketplace. Given the complexity of this matching, which involves connecting subject matter expertise, personalities, and communication styles, it is not enough to post disclosure summaries of available technologies online and hope that an entrepreneur finds it—proactive matchmaking is essential.


Pre-seed support describes the degree of financial and non-financial encouragement of a fledgling company. Funding is part of this support, but it is only one part. Consider this comparison of Baltimore and Silicon Valley from almost 20 years ago:


A person with an idea to begin a new business in the Santa Clara Valley would be encouraged to take the plunge by friends, family, and co-workers. These people would offer assistance, advice, and most likely start-up funds. If someone with a reasonable idea would not seek to start a company, everyone would think they were crazy. In contrast, the same person with that same idea in Baltimore would be discouraged by everyone they knew from starting a firm. Indeed, they would be thought crazy if they gave up their job security and benefits.


New startups and entrepreneurs need the financial, intellectual and, yes, emotional support to make it through the challenging early years.


When all or some of these five factors are not in place, we would expect to see incomplete technology transfer.


How the private sector can help address these challenges

In underdeveloped innovation ecosystems facing some or all of these challenges, private-sector ventures are well suited to chip in. 


They can play an intermediary role, reducing transaction costs and distributing risk effectively across multiple steps of the value chain.


Specifically, business could help close the gap from disclosures to pre-seed ventures by developing business models to address the five limits on technology transfer. They would operate under different incentives and structure. While a university may not focus on a very low probability risk of launching a new commercial enterprise, a private venture, with a 100 percent guarantee of failure unless value is captured, most certainly would. A business can also provide expertise in innovator-entrepreneur matching and provide services to help build an internal culture and structure that supports innovators and new startups.


One analogy for this approach comes from the history of the automotive industry. Early manufacturers like Henry Ford had to build almost everything themselves.


They began to enter into agreements with Firestone and Goodyear for tires. Over time, other specialized firms grew dramatically. By 2008 there were 9,100 equipment manufacturers, making everything from trim to transmissions.


But at the early stages of this “automotive ecosystem,” a single business had to solve many needs. So it may be with universities and technology innovation.


Several private-sector entities have been formed to help close this gap between technology transfer practice and potential. Intellectual Ventures, which works with thousands of inventors around the globe to commercialize and expand their inventions, is one. Another is Technology Ventures Corp, or TVC, which recently announced plans to expand nationally to assist Department of Energy labs in technology transfer.


My venture, Canterbury Road Partners, is a third example. We aim to support technology transfer for one or more universities in a community by launching locally-based pre-seed startups based on that university’s “unrealized” innovations—those that a Technology Transfer Office was not able to commercialize.


Looking ahead

University communities looking to harness private-sector institutions to accelerate their technology transfer ecosystem will have to identify the right partners. They’ll also have to demonstrate the organizational will to do things differently, such agreeing to standardized, forward-looking intellectual property contracts that lower the transaction costs for startups and facilitate private investment necessary for product development and business expansion. University partners must be excited about their partnerships if they are to work; begrudging support won’t cut it.


Private ventures can help by creating a value proposition for universities and their communities that is worth being excited about. They must acknowledge simultaneous economic and community development goals and be empathetic about the challenges universities face in optimizing the technology transfer process. Beyond the traditional measures of technology transfer effectiveness, such as licenses generated or revenue from startup companies, businesses should commit to a broader set of goals and metrics that matter as much or more  to universities, such as jobs for graduates and local residents, the number of ideas that are turned into marketplace realities, and local economic development.


To be sure, substantial risks are involved. But there is also potential for substantial gains. Effective technology transfer can revitalize office space in once-shuttered buildings around university campuses; encourage the next generation of professors to choose their school based on the chance to turn their ideas into impact; give hometown students who have attended colleges in other cities the opportunity to return to their hometowns to start their careers; and create thousands of new jobs. Simply put, as Stanford’s Office of Technology Licensing said: When it comes to technology transfer, “Everyone Wins.”

Matt Van Itallie is the founder of Canterbury Road Partners, a technology transfer accelerator. He resides in Baltimore, Maryland.