2014 tech transfer preview

As far as timing goes, 2013 seemed to be the perfect moment for Global University Venturing to arrive on the university venturing scene. Since we began in earnest to provide coverage of the sector, we have seen plenty of evidence that this is an area preparing to accelerate. And in 2014, we expect to see the pedal hit the metal as this promising new asset class really comes into its own.

But what else can we expect to see in 2014? To answer this question, we conducted a survey of our readers in December to see what emerging trends would feature in the year ahead.

Funding

In a world still feeling the effects of the 2008 financial crisis, government funding for new research is a growing concern. Nowhere is this more pertinent than in the US after the budget sequestration kicked in last year.

The sequestration, enacted to reduce government spending, is due to deal a major blow to US innovation throughout the rest of the decade. By 2021, $95bn will have been wiped off the federal research and development (R&D) budget, leading US National Institutes of Health director Francis Collins to speculate that the cost-cutting policy could take with it a generation of young scientists.

The UK’s chancellor of the exchequer, George Osborne, has kept R&D spend at a flat £4.6bn ($7.57bn) since 2011, and intends to keep it at this level until the 2015 election. The chancellor has previously said R&D was “absolutely central to Britain’s economic future”, and while he has succeeded in protecting the R&D spend from the raft of cuts to hit other areas of government spending, the lack of increase means a slide from the effects of inflation, while other nations may leapfrog the UK in terms of innovation.

Survey respondents who highlighted funding as a major issue for the year ahead suggested that universities are going to have to find other ways to pick up the slack or get left behind. While a few options are open to universities, the main one appears to be industry collaboration. Although it is an issue likely to prove divisive with academics, further corporate collaboration at the research level could prove a blessing in disguise.

A major problem for commercialisation is the process of getting research from the labs across the funding “valley of death” and through early-stage investment. With more corporate partners at the initial stages, projects could find a partner much sooner with pockets deep enough to provide what is needed for sustained growth.

This is also a sentiment shared by our readers – all but one of our respondents said they would be looking for either the same or increased levels of co-operation with corporates and their venture capital units over the coming year.

Collaboration

The process of universities working together was also highlighted as a developing trend, and one we are due to see more of in 2014.

This is especially important for smaller tech transfer operations, which can see themselves muscled out of investment by a better-established university. In the UK, one network of universities which has exemplified the value of collaboration is the SetSquared alliance involving universities in Bristol, Bath, Exeter, Southampton and Surrey.

This union over the past few years has given the five institutions the critical mass they need to compete against top-ranking efforts, and one that has proven wildly successful in attracting investment to its start-ups, raising nearly £750m. It also brought 10% of the UK’s higher education research budget under one banner, and accounts for 11% of all UK university patents.

In France, SetSquared’s regional focus style was replicated in 2012 on a national scale with the Sociétés d’Accélération du Transfert de Technologies (Satts), which has rationalised the fragmented approach of one tech transfer office (TTO) per university into 14 regional tech transfer centres. This has given each Satt having considerably more bargaining power than the individual components had, with collectively more resources to bring to bear on getting technologies out of institutions and into the real world.

In the US, while there are no major examples of tech transfer units themselves coming together to form a single front outside self-contained university systems – which should be considered an option for universities in states less known for tech transfer than their bigger east and west coast counterparts – there are increased signs of collaboration at the incubation level.

For example, Johns Hopkins University worked with commercialisation firm BioHealth Innovation, venture capital firm and serial accelerator launcher DreamIt Ventures, and defence contractor Northrop Grumman to launch a new incubator, a project that illustrates how collaboration can bring all the major components together. Johns provides the ideas, BioHealth the commercialisation expertise, DreamIt the financial side and accelerator know-how, and Northrop the route to market.

University venturing

Over the past year, we have seen more moves towards venturing – universities taking equity stakes using their own venture funds.

The stand-out examples are Stanford in the US and Cambridge in the UK, both opting to take a more aggressive stance on university venturing but with different approaches.

Stanford is looking to use its student-founded incubator StartX as a sounding board for start-ups looking for investment. Those that manage to pass through StartX will be eligible to receive investment via an uncapped fund provided by the institution.

In the UK, Europe’s largest tech cluster last year formed Cambridge Innovation Capital, a £50m fund that will feed into both spin-outs and start-ups forming in the area. Cambridge intends the fund to be evergreen by aiming to raise a further £50m in three years’ time via flotation on London’s Aim, an alternate investment market, and ploughing any proceeds from investments back into the fund. The fund, if it lives up to expectations, will create a financing pool giving Cambridge’s companies a reliable source of investment for the foreseeable future.

The idea for these funds is not new, but it has proven largely successful for those who have taken the plunge. Imperial Innovations, the tech transfer unit of Imperial College London, has been doing so since 2006. Describing itself as a balance-sheet investor as opposed to a venture capital fund, Imperial Innovations has so far raised over £200m to invest in portfolio firms, which include businesses coming out of Cambridge, Imperial, Oxford and University College London. Over £135m has been invested in 85 companies.

Depending on how it is deployed, a university venturing fund can make additional cash for the university, help foster innovation or do both. Due to this, as we have conducted our global tech transfer regional features, multiple respondents have told us that they are considering putting together a venture fund of their own in the near future, and we expect such funds to become a more prominent feature in 2014.

Entrepreneurial spirit

Without incentive, ideas will stay in the comfort zone of their thought bubbles. Already a major discussion around university campuses, our survey respondents expect a more intense dialogue on how best to get students out of the union bar and academics out of the faculty buildings and beating a path to incubators and tech transfer units.

From a student’s point of view, post-degree money and success makes for a great motivator in the mind of the average cash-strapped undergrad. But what separates the California Institute of Technology, where start-up density is one per 300 students – compared with MIT’s one per 500 and Stanford
one per 1,250 – from the average campus?

Undoubtedly, parts of Caltech’s formula would be its high standard of tuition and its focus on technology that can be applied to new companies. But, as with other entrepreneurially- focused campuses, two of the most important aspects would appear to be a question of the resources on hand to support and encourage students, and the on-campus culture geared towards starting a company where start-ups are seen as an academic badge of honour.

Plenty of other universities are currently developing entrepreneurial programmes of their own. The trick, if there is one, appears to be making sure the support networks for entrepreneurialism are there. Last year was a stellar year for creating start-up competitions, start-up weekends and new business incubators, with 2014 looking to build on that trajectory.

But what of spin-outs? The difficulty with encouraging faculties to get on board with commercialisation is that many academics are generally happy where they are. Money is not as appealing to academics as to students, with many feeling they are already well enough compensated and prefer to focus on research into their subject of interest rather than enter the business world.

Furthermore, some academics find tech transfer units hard to engage with. Some go as far to treat them with contempt and view them as unnecessary meddlers and middle-men. To address this, tech transfer units have tried many tricks, though many seem to have backfired. Reinforcements of monetary awards have been ignored, intellectual property seminars have gone unattended, and academics dubbed as champions of commercialisation have been viewed as propaganda mouthpieces. The question remains, how do tech transfer units make themselves more appealing?

Perhaps a solution lies within the narrative tech transfer units can tell. As most academics know all too well, facts are not always the best approach to winning people over and, in fact, can drive people away. But a decent story? That can change everything. By working more closely with the communications department of a university, tech transfer units may be able to develop new ways to reach academics, through both internal messages and via external media, and capture more interest.

This is, of course, one of many possible ways to approach the problem of academic engagement – an issue we will undoubtedly see more of in the near future.

Improving the TTO experience

There is no one-size-fits-all approach to building a successful TTO. Even on a national level, there can be huge disparities between different offices. Variation can be found at every conceivable level. Terminology used by offices is not unified – which is why we often refer to some TTOs as units. Some TTOs operate independently from their institutions, such as Imperial Innovations, while others are wholly-owned departments of their universities.

The focus of the unit can vary between making money and getting innovations out the door. Some are in tune with business with modern websites and a decently sized staff, others are two-men-in-a-shed-type operations with online fronts akin to late 1990s design. In some cases, staff are put through training courses, while other TTOs decry such programmes as arbitrary and argue for experience and knowledge.

Even the split between licensing incomes can vary wildly. While a three-way split among university, academic and faculty seems to be the golden standard, others can cut academics a smaller piece of the pie and wonder why they have trouble encouraging professors to come forward. Some, by contrast, put the academic at the forefront, or have sliding pay scales dependent on how much money has been made.

The equity stakes that units take is also a topic of discussion. Is a large stake preferable, or is does it present an unwieldy obstacle to pushing forward innovation? There is even an argument for taking no equity at all.

What can be safely said is that there is no silver bullet that will work everywhere for every university of any size. But there is much to be said from analysing what works, and what does not, both at home and at other universities. Figuring out the right path to take, and what is necessary to walk it, will remain a talking point for the community throughout the year and beyond.

More spin-outs on the horizon

Nearly all our respondents reported that they expect to see both increased income from licensing and more spin-out creation in the coming year.

More optimism on spin-out creation is welcome to see, especially following the findings of last year’s University Start-Ups: Critical for Improving Technology Transfer report, written by Walter Valdivia, a fellow at the Center for Technology Innovation and Governance Studies at Brookings.

The report reveals the top 5% of licensing earners in the US receive half of the total licensing income. Furthermore, most universities were failing to meet the costs of running tech transfer units, with 84% of universities operating in the red during 2012.

To counteract this imbalance, the report recommends more focus on generating spin-outs and suggests that better support for these fresh businesses needs to be established.

The Scottish independence debate

One side presents a manifesto full of holes, the other publishes facts supporting the union but changes them a month later. Both are armed to the teeth with rhetoric. It would seem the only thing we know for sure about what will happen if the Scots vote to leave the UK is that no one knows anything.

As with just about everything else to do with the debate, a fog of spin has descended over the future of Scottish universities and their spin-out companies. Can Scotland afford to keep higher education free? Scotland takes more in tax from the UK than it provides, but when you factor in oil, fossil fuels in the North Sea could balance the books. Possibly – depending on who you believe concerning who will get what share of the reserves.

What about research funding? It is not going to come for the UK, and as Scotland’s future in the EU remains disputed – nationalists claim they will slide right in automatically, while Brussels and its bureaucrats are not so sure – funding from the continent is in question. What about the UK’s post-independence funding? Will it remain at the same level, be increased, or be cut off? How about collaboration between the two countries?

Once research has been developed, where is the money going to come from to take the technology further? Will an independent Scotland attract venture capital and other investments, or will the lure of the UK’s Golden Triangle prove irresistible for venture capital firms?

Global University Venturing expects the debate to intensify as the September referendum comes closer. Whether any questions about the consequences will be answered beforehand is another issue.