August 17, 2011
At TandemLaunch, we invest in multi-media concepts but ultimately we are trying to disrupt the university technology transfer space. I wrote about the benefits of improving this highly inefficient $50billion+ market earlier. It’s big; it’s inefficient; and we believe that it is ripe for disruption.
Technology transfer is a high risk commercialization venture like any other. Success therefore depends on three factors:
– Product-Market Fit (quality and market relevance of the product/service/intellectual property)
– People (quality, business/tech/operational skill set and aligned effort of the people)
– Resources (money and all the good stuff that money buys)
The current players in the tech transfer space have great difficulty with all of this. Most conventional university tech transfer programs suffer from all three gaps. A few have created secondary vehicles (e.g. consultants, valorization centres, etc.) that can fill one and in the best case two of these gaps. Unfortunately, ventures don’t work unless you cover all three parts…
Product-Market Fit: University inventors, like all other product creators, are unlikely to achieve product-market fit in a vacuum. Achieving it requires customer interaction. Talk to people, find out their pain points and design your product to solve them. Unfortunately, the current university reward system is designed to keep researchers on campus – far away from the human beings whose live they are supposed to improve. Papers can be published from the comfort of the office, grad students arrive on campus through a convenient recruiting system, and even technology transfer offices seem to expect that licensees will happily queue up on campus. “We build it and they will come” is the campus religion.
This is made worse by structural challenges. Research grants, the principal source of support for university development, often prohibit expenditure related to finding product-market fit. So even if you want to leave campus and go beyond the reward system, you cannot. My first university start-up was founded solely to raise a small amount of “unrestricted” funding for market evaluation – despite the fact that we had over $1M in research grants for the project. Completing the absurdity, some genius reviewer at NSERC decided during the last year of that grant that the concept of LED TV wasn’t commercially viable (at that point the first LED TVs were showing up in Korean factories…).
People: Universities suffer from skill homogeneity in a world where diversity is king. There are world-class technologist aplenty, but finding business and operational skill sets is very hard. As a result, the technology transfer world today is dominated by a tiny number of professors at each university who happen to have business and/or operational skills (essentially by accident since universities generally make no effort to encourage those). It’s not uncommon to see a university with thousands of professors where a handful of operationally-savvy inventors make up the lion’s share of technology transfer activities (and often the entirety of commercial successes). This imbalance is structural and greatly retards commercialization. It’s like re-population planet earth after a nuclear war and somebody forgot to put women into the bunker. Possible with a lot of (bio-engineering) effort, but it would sure be easier with more diversity in the first place.
Resources: Universities with billion dollar budgets will allocate a handful of millions to their technology transfer offices. In alignment with the incentive model of the university, the vast majority of that money will then be allocated to the administration and identification of even more research funding. Only a tiny trickle goes towards the actual commercialization of the research output (i.e. technology transfer). None of the money, usually, goes into actual projects. That makes technology transfer offices irrelevant as resource-providers and leaves venture investors as the only source of financing. Maybe this sounds reasonable, but venture investors are rapidly moving away from early stage investments these days. The average fund size per VC Partner has gone from $5M to $35M in the last decade as a result of the incentive model that world (management fee dominating carry as source of VC payout). Seed-stage alternatives, such as Angels or mini-VCs (Super Angels), have largely bought into the Web2.0 mania at the expense of investments into deeper technology advancements. As much as I would like to scold the venture investment world for their lack of activity at universities, I have to admit that their reluctance to engage in university tech transfer is justified – the product-market-fit and people challenges above are real and implicitly make most university ventures a bad investment opportunity for traditional investors.
So, university technology transfer suffers from bad product-market fit, lack of qualified entrepreneurs and scarcity of financing relative to other investment fields. Venture economics would tell us to just abandon such a hopeless activity. End of the road, just let it go.
Except that innovation is the engine for our economy. Without innovation and its efficient injection into society, our quality of life advantages will erode very quickly. And universities remain by far the largest concentration of innovative research in our societies. We spend more money on university research than we spend on just about any other activity related to entrepreneurial innovation. University research consumes four times more money than industrial basic research. It consumes more than twice as much money as the entire venture capital industry invests. It employs nearly as many people as the entire high tech industry (and most of those high tech employees were at university at some point). And it is growing at a 5 year rate faster than the NASDAQ, the VC industry or any other common measure of technology commercialization!
Update: An interesting point of definition came up in a LindedIn discussion of this article. If you define “tech transfer” as the narrow step between “receiving inventions from researchers” and “transfering inventions to product entities”, then it is definitely a much smaller space and functioning at some efficiency. That happens to be the narrow mandate of most tech transfer offices and they can usually point to getting 50-200 invention disclosures from their faculty each year, patent maybe half of those and then license maybe 10-30% of that. Not a hugely successful rate but in the same ballpark as say the success rate of venture investing (these numbers are just my experience, I am sure there are many different regional TTO statistics).
My definition of “tech transfer” in this context is a lot broader. It starts with “money spent on applied research” and ends with “commercial revenue from that research” (not university revenue, global product revenue which is as good a measure of “benefit to society” for product technology as we can come up with). That’s what really matters. With $50B+ in research expenditure at US universities and less than 5% of product-related GDP coming from universities, that’s definitely a big inefficient space (relative to the industrial pipe at ~$12B in research expenditure and implicitly the other 95% of product GDP contribution).
In that context the so-called “tech transfer office” (using the more narrow definition in their terminology) is an important player but lacks the resources to cover the entire mid-range of this chain. For example, somebody needs to work with the researchers to calibrate their problem statements to improve the chance of ultimate product market fit. That’s only possible if you are in the market. At TandemLaunch we support university projects long before we invest by maintaining a feedback loop between representative industry players and the research group (i.e. we literally travel back and forth from university to industry with incremental updates/demos/feedback/problem statements – something that a TTO has neither the budget or mandate for). We hope that doing so will increase product-market fit of our ultimate investments and thus elevate value for everybody involved.
There are many other example both before and after the TTO mandate that we are trying to fill. I am sure we don’t get everything right, but we are learning every day.