© 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
© Charles Wessner, PhD 2
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
© Charles Wessner, PhD 3
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
© Charles Wessner, PhD 5
© Charles Wessner, PhD 6
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
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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
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The Challenge
Making Bayh-Dole work for Inventors, for the Universities,
and for the Science System
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10
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
© Charles Wessner, Ph.D. 12
Valley of Death
Where can you find the Money?
Is Venture Capital the Solution?
© Charles Wessner, Ph.D. 13
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
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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
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Where do Entrepreneurs Get the First Money?
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© 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
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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
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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
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© Charles Wessner, PhD 23
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
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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
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Thank You
© Charles Wessner, PhD 26
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