innovation, incentives, and the commercialization of...

© Charles Wessner, PhD 1

Innovation, Incentives, and the �Commercialization of University Research

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8th Annual University Startups Conference Washington DC March 21, 2014

Charles Wessner, Ph.D. Director, Technology, Innovation, and Entrepreneurship

The National Academies


From the “Ivory Tower” to the Marketplace

•  “Pure” Research is not the only University Role

•  Research Related to Industry Helps Generate Training and Skills Necessary for Productive Lives –  (and the tax dollars for

Research)

•  Industry’s Needs and Questions can Drive Research and be a Source of Relevant Publications

Myths about Expanding Faculty Entrepreneurship

•  There is no evidence to suggest that: – Commercially oriented faculty are less likely to

publish – Commercial motives shift effort away from

fundamental research questions – Sponsor concerns to protect IP delay the

publication of research results – Commercial results trump scholarly output for

academic advancement


NRC: Managing University Intellectual Property, 2011

Reality: Faculty Entrepreneurship Advances Academic Research

© Charles W. Wessner PhD. 4

• Groups that collaborate with industry: – Generate more fundamental scientific

output – Conduct more developmental research, as

measured in number of publications. •  Bart Van Looy, Koenraad Debackere, et al., Research

Policy, 2004.

How can we encourage this collaboration?

Three Best Practices



Three “Best Practices”

ü  Create a Supportive Policy Framework: The Bayh-Dole law Allows Universities to benefit from the Commercialization of State-funded Intellectual Property §  The IP used to be government controlled

ü  Provide Money to Start: SBIR Encourages Faculty to Start New Firms with Innovation Awards

ü  Invest in Places to Meet, Learn, and Grow: S&T Parks Link Universities with Businesses within Research Parks that are close to Universities §  Incubators can help—need to be close

The 1980 Bayh-Dole Act Created Incentives for Commercialization

•  Bayh-Dole encouraged universities to patent results of federally funded research* – Transferred rights to intellectual property

generated under federal grants to the universities

– Academicians can profit from the market transfer of their work.

– Universities can earn royalties by licensing research innovations to private companies

* M Feldman, I Feller, J Bercovitz, R Burton - Management Science, 2002


Impact of Bayh-Dole Took Time, but Change is Now Clear for U.S. Universities

Source: AUTM U.S. Licensing Activity Survey, 2012

300 276 35

5145 5130

705

0

1000

2000

3000

4000

5000

6000

University Patents LicensingAgreements

Startups

The Bayh-Dole Effect

1980

2012

8

The Challenge

Making Bayh-Dole work for Inventors, for the Universities,

and for the Science System


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The Myth of Perfect Markets • Strong U.S. Myth: “If it is a good

idea, the market will fund it.” • Reality:

– Potential Investors have less than perfect knowledge, especially about innovative new ideas

– “Asymmetric Information” leads to suboptimal investments

– George Akerlof, Michael Spence and Joseph Stiglitz received the Nobel Prize in 2001, "for their analyses of markets with asymmetric information“

© Charles Wessner, PhD

A Reality Check: Technology

Readiness Levels

© Charles Wessner, Ph.D. 11

The Valley of Death: A Major Challenge for Innovators


Valley of Death

Where can you find the Money?

Is Venture Capital the Solution?


The Myth of Perfect Venture Capital Markets

•  Myth: “U.S. VC Markets are broad & deep, thus there is no role for government action”

•  Reality: Venture Capitalists have – Limited information on new firms – Prone to herding tendencies —Fashion counts! – VC investments have moved towards later, less

risky stages of technology development – Limited investments in the seed stage of

investment—$943 million (208 deals) in 2013: •  Important but not the drivers of the U.S. economy

14 © Charles Wessner, PhD

VC Investments in 2013

15

© Charles W. Wessner Ph.D.

Seed3%

Early33%

Expansion33%

Later30%

Early Stage: $9.8 Billion 2003 deals

Expansion Stage $9.8 Billion 984 deals

Later Stage $8.8 Billion 790 deals

Seed Stage $943 Million 208 deals

Total $29.3 Billion 3995 deals Source: PWC MoneyTree Report, 2013

© Charles Wessner, PhD

Problems with Venture Funding

• V.C. Dollars are hard to get – Deals can be tough

• VC firms seek “big winners”—scalable firms, large markets

• Early venture can cost founders control and share – Early rounds can crush down

inventors and founders


Where do Entrepreneurs Get the First Money?


© Charles W. Wessner, PhD

Sources of Funding for U.S. Startups Personal Funds are the Norm

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Source: Vivek Wadhwa, 2010

1.  Personal Savings 64.4%

2.  Friends & Family 17.8% 3.  Business Partner

16.9% 4.  Bank Loan 14.6% 5.  Venture Capital 14.2%

There is a Public Option

SBIR provides the first money and lowers the risks of faculty

entrepreneurship


What is SBIR? •  Competitively awarded support for

technological innovation •  Uses up to three-phased awards from

federal research funds to address government mission needs.

•  “SBIR provides funding for some of the best early-stage innovation ideas -- ideas that, however promising, are still too high risk for private investors, including venture capital firms.“ Roland Tibbetts

© Sujai Shivakumar, Ph.D. 20

Why do some Universities Like SBIR?

•  SBIR links the University with Industry and helps Spin-outs – Lowers Risk: Faculty do not have to give up

University post to apply – Lowers Overhead: Don’t need to have a

company to apply – 15 to 20% success rates—comparable to other

grants •  SBIR Innovation Awards Directly Cause

Researchers to create New Firms •  New firms help grow the region and

provide returns on R&D investments


How can Universities Encourage More SBIR Applications?

•  Publicize SBIR: Get the word out—Money to commercialize research –  Reach out to Agencies to learn about SBIR opportunities

•  Incentivize SBIR: –  Provide “Phase Zero” funding and support for SBIRs –  Tenure credit for professors who win SBIR awards –  Course credit for students who work on SBIR projects

•  Guide SBIR Applicants –  Identify mentors who know the ropes –  Use social media to build peer networks

•  Targeted Outreach to Women and Minorities

© Charles W. Wessner, PhD 22


Shared Facilities: A

Focal Point for University-

Industry Cooperation

Universities as Innovation Hubs: A White House View

•  A Key Role: “Research universities have the opportunity to strengthen and enhance their additional role as hubs of the innovation ecosystem.”

•  Market Ready Grads: “While maintaining the intellectual depth of their foundations in basic research, they can change their educational programs to better prepare their graduates to work in today’s world.”

•  More Proactive: “They can become more proactive in transferring research results into the private sector.”

–  Source: PCAST: “Transformation and Opportunity: The Future of the U.S. Research Enterprise.” November 30, 2012


To Commercialize, Leadership is Required, as are Real Changes in

•  Culture and Values: This requires new leadership and new incentives

•  Status of Professors: permissive environment to encourage innovations, collaboration with industry, and pursuit of innovation awards and wealth

•  Institutional Practices: Parallel research institutes with self-select mechanism

•  Incentives are needed to Effect Change –  Bayh-Dole created new incentives to commercialize –  Award Programs like SBIR actually shift the culture


Thank You


Charles W. Wessner, Ph.D. Director, Program on

Technology, Innovation and Entrepreneurship The U.S. National Academies

500 Fifth Street NW Washington, D.C. 20001

[email protected] Tel: 202 334 3801

http://www.nationalacademies.org/step

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