Recently Knowledge Commercialisation Australia (KCA) released its annual Survey of Commercial Outcomes from Public Research (SCOPR). With a reported doubling of commercialisation revenue in the two years from 2018 to 2020, it is the first time the report has delved into the commercialisation activities of the survey participants. And it has revealed some interesting and encouraging results, particularly in its final chart on “Equity held in Startup and Spinout Companies 2018-2020”.
Based on the KCA survey, Deakin University has the highest equity portfolio valuation for startups and spinouts of any Australian and New Zealand public research organisation, even exceeding the CSIRO’s reported holdings, which I am assuming are treated separately to any interest from the Main Sequence Ventures portfolio.
Deakin has achieved this with a small team compared to some other institutions but consistent with a venture capital firm operating a similar sized portfolio. And while the reported commercialisation returns of less than $1m for 2020 is low, the portfolio size and spread does provide the university with options to realise future commercialisation returns.
Or in summary: Deakin’s reported outcomes for 2020 are that it has a staff of four full-time equivalents, managing 13 active spinouts or startups, with a portfolio value of about $165m, delivering commercialisation revenue of less than $500,000, from research revenue of about $85m and about $200m in research expenditure resulting in 30 invention disclosures.
If Deakin can achieve a portfolio of this scale given its size and relatively shorter commercialisation experience, what potential is there to see Australian universities achieve research commercialisation portfolio valuations of more than $1bn?
Why should that be a goal? What frameworks and support need to be in place to make that happen? Is it possible given the impact of the pandemic on the university?
A research commercialisation portfolio with a strong equity basis provides a university with more options to realise a return beyond a traditional licensing revenue approach. Those options include returns from sale of equity, access to dividends, and of course research income streams. Notably the Deakin result does report low commercialisation returns at this stage, but what impact could there be from the Li-S Energy (ASX:LIS) listing and other opportunities approaches with diversified and evolving portfolios over time.
How valuable to a university would a commercialisation portfolio be if it can deliver an annualised income stream in the order of 5% to 10%? Especially if that portfolio could then grow 25% to 50% per annum through existing and new value, or as even reported in the KCA survey, double in two years. For a portfolio of $100m then that is $5m to $10m a year, and you can do the simple maths to see what a larger portfolio might realise. Then add in a reasonable exit into the mix.
Some universities will be comfortable with their current approach – look to the reported performance of Auckland and University of Queensland (UQ) as examples. Others will be looking for new ways to increase and diversify revenue streams. A venture-based approach to building a commercialisation portfolio can certainly play a role. UniQuest, the tech transfer arm of UQ, is a leading Australian such example of where a portfolio approach is in play with strong licensing returns from human papillomavirus vaccine Gardasil and more – but it looks like they just lost the equity crown to Deakin.
Getting to the point where there is a portfolio with options to deliver those returns, and maintaining that portfolio does require some practical frameworks, effort, support and patience.
Starting with the end in mind, post translation the focus for university commercialisation shifts to managing obligations as an equity or rights holder, ongoing research engagement, and of course maintaining the intellectual property (IP) portfolio as well.
Most universities will generally be a passive player once a commercialisation has completed translation and will be able to manage this within their current frameworks. A more active participation post-translation will require a university to be more proactive in its management approach.
But having commercialisation outcomes that have been translated and managed in a portfolio is the easy part.
Now the difficult part. Translation of research is high risk and challenging – commercialisation of university research is hard.
In Australia it is well a recognised challenge. At the federal government level there is the in-progress review into University Research Commercialisation by the Department of Education Skills and Employment (DESE), and the ongoing reference to its importance by the current and previous ministers.
DESE have just released an updated consultation on Higher Education Research Commercialisation IP Framework and the discussion paper proposes a standard form IP framework. I think it might be missing the point.
In his opinion piece in the Australian Financial Review of September 26, 2021, John Howard highlighted the need for greater collaboration between universities. industry and government and highlighting the growth in research income. The same point applies to commercialisation and collaboration.
From a personal perspective the challenge of commercialisation is less about the IP, sorry, and more about people and the attitude of organisations towards commercialisation and finding effective pathways to realise value from research.
It is what makes it so hard.
In my opinion this, the cultural willingness to commercialise is the greatest challenge to successful commercialisation and must be a key factor in any framework period and necessary for building a valuable portfolio. It is also in part reflective of the IP licensing “rope-a-dope” that can suck too much oxygen from the experience for all stakeholders and where I think the current DESE consultation misses.
Firstly, the motivation, experience and skill of researchers, professional staff and executives (individually and collectively) in a university need to be aligned in understanding what is valuable in IP and how it is realised. Secondly, recognising there are a range of commercialisation approaches to enable and realise value from the IP and most returns are often not recognised across the entire value chain until some point in the future.
But the key challenge remains culture and how that shapes approaches to commercialisation – both by universities and any external parties involved.
As an idle study check your favourite university’s current strategy to see how often commercialisation and translation feature. What does that say about attitude to commercialisation – add-on, nice to have, or integrated in strategy?
In building a commercialisation culture most approaches look to developing an entrepreneurial culture for researchers as a central theme. That is important, but one part of a more complex story where commercialisation of research is involved and adopting commercialisation approaches beyond licensing.
In my thinking on commercialisation portfolios my perspective is often dominated by a venture-based approach to commercialisation. I do recognise licensing and research in and of themselves are valid and can be a right approach for the right situation – I just think there is more in the venture approach. Venture based approaches encompass university-led startups, researcher spinouts, joint ventures, for purpose vehicles and others often require the university to have skin in the game. Venture-based approaches incorporate licensing and research aspects and have the potential to deliver the greatest returns overall, but not without risk.
Further building a commercialisation portfolio extends beyond traditional university research and broader university operations and integrates corporate venturing, innovation management and venture investment thinking with business and research skills – and a degree of courage.
Adopting a venture-based commercialisation portfolio approach is not exclusively an investment fund management approach either because the portfolio incorporates for profit and for purpose engagements across venture, licensing and research elements to deliver impact and realise value.
But a healthy dose of the investment management discipline does not hurt. Especially regarding investment strategy, governance and management decision making, often readily or normally resident in a university where research commercialisation is involved.
While there is certainly expert support and investment available, as noted previously often the greatest challenge in translation and commercialisation rests with a university and its capacity to facilitate and support the initial commercialisation effort itself.
In keeping with the people theme, access to talent that can translate research is essential – whether they are researchers, professional staff or key partners. Preferably all three.
The pandemic and its impact on university income has placed more pressure on university management. Can they afford to invest in commercialisation, can they afford not to, and with reference to the KCA report have they even got the right balance?
But the pandemic has also increased the profile of some of our researchers and universities. It has accelerated broader strategic and global shifts and an increasing interest in “sovereign” solutions and capability.
We are now seeing the emergence of translation focused investment and management models which look to bring execution expertise and support in addition to investment. The amount of dry powder, increased interest in impact investment, emergence of “venture science”, “venture studios” and the range of new initiatives at state and federal government levels suggests funding is available for the right opportunities.
Of course, the management and distribution of any returns, maintaining the portfolio and managing poor performers can be difficult, hence a portfolio approach. But building an equity portfolio with options to realise future returns could provide additional income to a university – and seed other opportunities as well.
UQ has long been a leader. The emergence of Deakin is a new indicator.
So, given the current environment and challenges confronting universities is it possible to build a $1bn commercialisation portfolio?
With courage and culture – more so now than ever.
– This article was first published on LinkedIn. It has been edited for style and republished with permission. You can find Ken Mahon on LinkedIn and learn more about Campus Plus here.
