by Nanette Kalis
The Bayh-Dole Act of 1980 marked the moment when universities could finally lay claim to the innovations developed within their environs. In the wake of this groundbreaking legislation, the technology transfer movement within higher education was born. To some it was a superb, new way to generate revenue and polish the school’s reputation. To others it was an oxymoron, a dichotomy, a flat-out bad idea.Universities are ideally suited to education and research. Partnering with businesses, developing portfolios and deal-making with corporations ran up against those dearly held missions. The draw was too strong, however, and universities not only kicked technology transfer engines into gear, they went beyond. Realizing that merely transferring technology to established, large corporations was not always the best vehicle for bringing early-stage technologies to the market, they began technology commercialization efforts and went on to set up business incubation programs. They plunged headlong into new company formation. Business incubation and technology commercialization within universities brought face to face, in the words of technology transfer expert Michael Crow, “two very complicated and oppositional cultures.” Crow, vice provost and professor of science and technology policy at Columbia University in New York, is involved in tech transfer yet he still understands that universities have a single objective. “They are keepers of knowledge. They produce it, they store it, they synthesize it. …We are not sitting around worrying about the market,” he says. Of Columbia’s 6,000 to 7,000 active research grants, “not more than 20 are driven by some problem in the marketplace,” he says. That is just one of many culture clashes between universities and companies that put technology commercialization and business incubation at odds with institutions of higher learning. Knowledge sharing is critical to advancing understanding of all academic disciplines while nondisclosure is critical to companies ready to break out a new technology-based product. Academics who come up with the technology capable of being commercialized may want to be involved in the company forming around it but have a profound lack of business experience. Even if students or faculty are an asset to the companies their research spawns, the time involved in running a business can mean far too much time away from learning or teaching. Other conflicts involve the difficulty of fairly dividing ownership of intellectual property or the problem with using state-funded facilities to give these university-created corporations advantage over their competitors. Still, many institutions are successfully incubating companies, transferring technology and involving faculty and students in the business world. Columbia is a prime example of an institution that overcame the barriers. It has granted roughly 1,000 technology licenses over the past several years, which generate about $95 million a year. It spins off roughly five to 10 companies annually. Clearly it has learned to overcome the culture gap. Universities that set up incubation programs early on – as you will read later – have many more companies to their credit. How have these universities put together thriving tech commercialization and business incubation operations without rubbing ivory tower ideals the wrong way? One piece of research summed up best the factors that lead one university to be better than another at incubation and tech commercialization. Benchmarking Best Practices for University-Industry Technology Transfer: Working with Startup Companies (1995) came from the Southern Technology Council (STC), a division of the Southern Growth Policies Board. It listed success factors in technology commercialization that hold true today. These factors run the gamut from formal, stated policies to more intangible – and informal – attitudes that promote entrepreneurship among faculty, students and community members. The various factors have the combined effect of overcoming the cultural gaps discussed earlier – of bridging the chasm between academia and entrepreneurship. Below are the success factors and examples of how universities have put them to work.
Universities differ widely in their research and technology portfolios. Some universities take a more proactive approach to developing inventions through start-up companies. These universities keep close track of their technology portfolios, and make it their business to know the strengths and weaknesses of their state and regional economies.Ohio State University (OSU) serves as an example of a university that’s striving to be in tune with its regional economy, in part by helping to create new start-up companies. David Allen, director of Ohio State’s Office of Technology Licensing, says that in the past, the university’s technology rarely stayed in the Columbus area. “It has gone mostly to the coasts,” he says. “And companies have been started there and value has been created there, but very little value other than some research and some equity came back to us.” Also, because the local economy was strong, few people saw the need to invest time and resources in small, entrepreneurial ventures. “Our economy is just going gangbusters in Columbus,” Allen says. “Nobody sees why you want to do technology. Well, if you really dig down, you start to see that per capita incomes are declining, that we’re losing competitiveness, that the technology companies are moving out, and we’re having problems hiring technology workers. So we really need to build community awareness.... We need to work with the community so that the technology that’s coming out of the university has a chance, at least, to be competitive locally.” To accomplish this, Ohio State is creating the Technology Commercialization Corp. (TCC) and a preseed venture capital fund, slated to be in place before year’s end. Within several years, it hopes to have raised roughly $5 million for a first-stage venture fund using grants and donations from foundations, government agencies, corporations and individuals. Start-ups that benefit from TTC expertise and preseed capital will then enter the university-affiliated incubator with their management on board and crucial connections already secured.
Institutionalizing a commitment to technology commercialization is another way to succeed in technology commercialization through new company formation. The most promising universities have it right in their missions. The commitment also is clear in position descriptions, administrative practices, hiring preferences and public communications in general.Louisiana State University (LSU) is a prime example of a university that has institutionalized its commitment to technology commercialization. In 1990, the position of vice chancellor for research was changed to vice chancellor for research and economic development. The title has changed since but the commitment has not. The current vice chancellor, Lynn Jelinski, is aggressive about removing barriers to getting technology out of the labs. In addition, the term “economic development” appears in the LSU mission statement. According to the STC study, these changes were prompted by state law that “directs the university to emphasize licensing to Louisiana companies and tends to tilt the office toward start-ups.” According to economic development experts in Louisiana, LSU’s actions have made a difference in the field. Charles D’Agostino, executive director of the Louisiana Business & Technology Center, the university-sponsored business incubator, says the efforts are very visible. “LSU’s chancellor, Mark Emmert, is on the board of directors of the chamber of commerce. The university administration has directed from the top that faculty and staff are to be involved in the community, and has encouraged faculty to partner with industry, commercialize technology and start companies,” D’Agostino says. “The results have been good. We have seen increased sponsored research, increased industry partnerships and increased royalty payments. My incubator board has two vice chancellors and five deans on it–this gets results from the faculty. Of the 25 companies in our incubator, about 15 license LSU technology or are owned by faculty or students. So the message is, LSU is an economic engine for the community and the state.”
Universities that are supportive of technology commercialization tend to have flexible personnel policies and practices. Louis G. Tornatzky, former director of the Southern Technology Council and coauthor of the STC study, explains that “many of the personnel policies and practices that impact (technology commercialization) have to do with the following: policies and procedures regarding conflicts of interest and commitment; permitted uses of sabbaticals; and, more indirectly, the rewarding of these activities via tenure/promotion policies and practices.” He adds that the best polices and practices acknowledge that “conflict of interest is inevitable – not a crime – and is best addressed by managing, rather than punishing. A common issue regarding start-ups is the role that the faculty-inventor can play in the new enterprise. Early on, his or her involvement in the technology may be critical. The university must be willing to be flexible about using unpaid leaves or sabbatical periods for these purposes.”An example of a flexible policy might be one that allowed a faculty member to drop back to a half-time appointment or take six months off to become involved in the launch of a new company. The most successful universities have high expectations about reporting and disclosure, coupled with few direct prohibitions and a decentralized administrative approach.
Business incubation also ranks as a way to make tech commercialization through new companies work. The STC study noted that nearly half of the universities it examined have a working relationship with an incubation program. Most were actual facilities though some incubators were without walls.Rensselaer Polytechnic Institute (RPI) in Troy, N.Y., serves as an example of a “proactive institution,” one that has spent two decades creating an infrastructure in support of technology commercialization. The first step began in 1980 with the creation of the RPI Incubator Center. According to Michael Wacholder, director of the Rensselaer Technology Park, “The whole concept [behind the incubator] was to transfer the technology of the university to the marketplace, and the incubator was the perfect mechanism for such a transfer.” Wacholder has noted previously that the push to engage in technology commercialization and new company formation right on campus can be traced to former RPI President George M. Low. Low’s vision of higher education included a solid belief in the need for partnerships between education, industry and government. Low, who directed the Apollo Lunar Landing before joining Rensselaer, was convinced that the university should play a role in economic development. He has been quoted as stating that to receive a well-rounded education, Rensselaer students must be exposed to “the laboratory of an entrepreneurial company.” Rensselaer’s incubator provides students with the hands-on experience, often serving as interns or part-time employees for client companies. Others do short-term projects with companies – helping with business plans, conducting market analyses – to fulfill class requirements. In addition to student help, clients receive a full range of business assistance services from staff, mentors and alumni. There are many office support services on site and the university’s library and computer center are at clients’ disposal. For an additional fee, the incubator companies may obtain access to university labs and equipment, as available. From 1980 to 1999, the incubator has served more than 150 in-house clients and numerous affiliates (out-of-house companies). More than 80 percent of these clients are still in business. They provide more than 2,000 jobs and $200 million in revenue to the regional economy–hundreds of these jobs are filled by Rensselaer graduates. More than two-thirds of the companies were founded by Rensselaer faculty or students. Currently, the incubator has 28 clients who generate $14 million in annual revenue. Bolstered by the success of its incubator, Rensselaer went on to create a technology park in the early 1980s. “It was the same concept [as] the incubator,” Wacholder says. “It’s a concept that enriches the university, that fundamentally creates an environment where our students and faculty have access to the things that they practice and to the things they are studying.” The technology park includes 21 buildings spread over 1,250 acres. Some 50 companies rent space in the 875,000 square feet of the various buildings. Ninety percent of these companies are involved with the university. Some were founded by Rensselaer faculty, alumni or students. Others license Rensselaer technology or employ Rensselaer students and graduates. Overall, the companies employ more than 2,000 people; company payrolls total approximately $55 million. In addition to job creation, the companies contribute to local economic development in the form of taxes – some $1.5 million in school and property taxes enter local coffers annually. Further integrating entrepreneurship into the university’s fabric, Rensselaer created the Center for Technological Entrepreneurship, which Wacholder describes as “a bridge between the classroom and the community.” The center is largely responsible for internships and work-study programs. Rensselaer did not restrict its activities to campus. As the incubator and technology park were growing, the university reached out into the community to develop a network of “venture affiliates,” people who were involved in new company creation. A second support network made up of area business leaders–the Capital Region Technology Development Council–serves entrepreneurs. One of the main goals of this group was to retain and nurture technology business in the area surrounding the university. By the late 1990s, these various entities were working in concert as the Rensselaer Technological Entrepreneurial Council (RenTEC) with the express purpose of moving university technology into the marketplace. Wacholder says, “We took our tech park, our incubator, our Office of Technology Commercialization, and our Center for Technological Entrepreneurship, and put them into a council. And the mission is focus on technology commercialization.... We began to see that once we did that, we could promote deal flow. Right now [in 1999], we’re celebrating RPI’s 175th anniversary. We did more deals in our 174th year than we did in our first 173 years.”
Universities that successfully commercialize technologies play a proactive role in enterprise capitalization by linking entrepreneurs with gap funds. The sources range from institution or state-level programs of funds for prototype development and proof-of-concept work to seed and venture funds, according to STC.ARCH Development Corp., which is a wholly owned subsidiary of the University of Chicago, has been creating new companies – and investing in them – since the mid-1980s. ARCH Vice President Terri Willey explains that the university became interested in technology commercialization when it passed on patenting a synthetic compound that later proved to play an important role in chemotherapy. If the university would have licensed the compound to an established company, it would have made money. If it would have patented, licensed, then built a new company around the compound, it would have made even more money. Having missed the boat either way, the university looked hard at the technology transfer process and decided to focus on new company creation – the one that held more promise financially. “They felt they could build more value with their technology assets through new venture creations than through established companies,” Willey says. ARCH became the technology transfer program for the university. Initial investment capital for new companies came from the university. But by the 1990s, ARCH was using its returns on equity to create a “virtual venture fund” of $1 million to $1.5 million to be used for capital investment. “We end up with equity in companies through three mechanisms,” Willey explains. First, ARCH accepts equity in lieu of upfront cash for licensing technology to a company; second, ARCH accepts equity for founding a company; lastly, ARCH accepts equity in exchange for investing cash in a company. The arrangement for each company is different, depending on the depth of ARCH‘s involvement in the company. “The returns we get from stock go back into replenishing the fund – instead of coming from the university, the money comes from our technology transfer program,” Willey says. The university made some changes along the way, but Willey says there were still problems with lack of investment capital for early-stage companies. “Not being able to invest in subsequent rounds means that we lose a lot of value because we get so diluted,” she explains. “We might hit big one year and not see anything for several years. Returns are spiky. Exits are long.” As a result, ARCH has decided to begin working with more universities. The corporation also intends to spin out its start-up division as a stand-alone seed fund. “ARCH will continue as a licensing division that knows how to work with start-ups,” Willey explained. “But hard-core company creation activities will continue through our fund.” Working with the federal Small Business Investment Corp. (SBIC) program, which will allow ARCH to leverage its funds, ARCH is attempting to put together a $100 million fund for investing in both start-up and established companies.
Some universities that excel in technology commercialization allow small companies use of laboratories and/or major equipment through creative arrangements, which range from flexible leases to in-kind investments in new enterprises via free space or equipment use.According to a 1998 study by the Battelle Memorial Institute, universities commonly handle arrangements for lab and equipment use at the departmental level. Broader policies covering the university as a whole usually contain prohibitions against conducting routine testing or competing unfairly with the private sector. The Battelle study cited notable examples of lab and/or equipment use policies at three universities. The University-Industry Relations office of the University of Wisconsin has created a facilities database listing university resources and the departments in which the resources can be found. The database matches labs, equipment and services such as business planning to companies’ needs; individual departments set fee rates. The departments themselves are responsible for updating the listings, which is easily done online. This database is geared to businesses in need of consultation services. According to a 1999 study completed by Philip Sobocinski, associate director of the University-Industry Relations office, some 178 Wisconsin-based companies have been formed around technology created by UW-Madison faculty, students, staff or alumni, with an average of 13 start-ups formed per year over the past five years. Overall, the companies employ an estimated 7,000 people. Purdue University offers a technical assistance contract wherein access to facilities is available for a fee. “When these facilities are free of student or faculty use, they can then be rented by small companies,” says John A. Schneider, assistant vice president of industry, research and outreach for the Purdue Research Foundation. Contract length varies according to need. The contract is monitored to ensure that student and faculty access to resources remains unimpeded. Schneider estimates that two to four new companies per year are created around technology developed at Purdue University. Many of these enter the Purdue Research Park, which includes business incubation and graduate facilities. “We have almost 30 start-up companies in our incubator,” Schneider says.
Universities may not regard entrepreneurial pursuits as a formal factor in promotion or tenure decisions but, in more informal ways, universities do provide incentives for entrepreneurial ventures for faculty, students and community members. For example, several universities sponsor “inventor of the year” awards. Others offer workshops about technology commercialization, which tends to spread knowledge about and acceptance of entrepreneurism throughout the region.Monetary rewards range from a $10,000 annual inventor award at the University of Virginia to licensing income awarded to the inventor’s research program or laboratory. The latter is an incentive offered by the University of Wisconsin-Madison. According to a university press release, the university formerly split licensing income among the inventor (20 percent); the inventor’s department (15 percent); and graduate grants and patenting expenses (65 percent). The revised formula, effective fall 1997, gives the majority of early licensing income (70 percent of the first $100,000) to the inventor’s research program and/or laboratory.
If the technology transfer or licensing offices at leading universities have a great deal of autonomy and flexibility in their operations, they make better new-company generators. There is limited ongoing oversight by upper-level administration or by institutional boards, the STC study found. This approach encourages the sort of creative deals and arrangements necessary to effectively pursue technology commercialization.In the late 1990s, Ohio State University revamped its approach to technology transfer, in part because of a study by Battelle Memorial Institute, which found that many businesses – small companies in particular – were frustrated by the university’s organizational structure. Ohio State created a new position – assistant vice president of technology partnerships – which Allen now holds. This central office will lead and coordinate all technology partnership activities. Just as importantly, it gives the university a single, accountable point of contact on technology issues. The three existing technology offices will be examined for overlap and synergistic relations with an eye toward creating a one-stop-shop approach to technology transfer. In addition, all offices were moved to the same floor – a physical relocation that underlines Ohio State’s determination to provide easy access to its technology transfer experts. Adapted from Technology Commercialization Through New Company Formation: Why U.S. Universities are Incubating Companies by Nanette Kalis, NBIA Publications, Spring 2000.
According to the Southern Technology Council, universities that lead their peers in technology commercialization are generally:
Keywords: technology commercialization, special-focus incubator, specialized equipment/facilities, technology commercialization, technology incubator, university partnerships
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