This article has been updated from a previous version, which incorrectly stated that university tech-transfer offices have created almost 1,600 startup companies since 1980. The actual number is 5,171
WASHINGTON, DC – University startup companies play a crucial role in the US economy, but are struggling to line up the financial support to see them through the lengthy gestation period between their initial launch and successful technology commercialization, members of a Congressional Innovation Panel said at a luncheon held here last week.
In order to address this challenge, these startups need new, innovative funding models, increased federal funding of university research, and faster assignment of patents by the government, members of the panel said.
The discussion at the US Capitol was co-hosted by the National Council of Entrepreneurial Tech Transfer, also known as NCET2, and the Congressional Internet Caucus Advisory Committee, to introduce Congressional staffers who are tracking technology policy to leaders in technology development.
Tony Stanco, director of NCET2, moderated the panel, which also featured John Fraser, recent past president of the Association of University Technology Managers; Bill Tucker, executive director of research administration and technology transfer for the University of California system; and Michael Chasen, CEO and co-founder of educational software startup Blackboard.
Stanco, who is also director of the council of entrepreneurial tech transfer and commercialization at George Washington University, said that NCET2 was started as a way to bring together university leadership from around the US to focus resources on creating university startup companies.
The formation of such companies creates jobs, wealth, and innovation locally, and is essential to the success of the US economy, Stanco said, citing statistics compiled by the National Venture Capital Association, AUTM, and others.
According to Stanco, since 1980, technology transfer offices at universities have created almost 5,171 startup companies, 68 percent of which are still in business — a significantly higher success rate than non-university-based startups, he said.
Stanco said that approximately eight percent of university startups go public, about 114 times the typical rate for all startup companies; and that more than 400 university startups are created each year based on $30 billion to $40 billion of federally funded R&D.
Despite this, Stanco said, the most typical funding source for startup companies — particularly those stemming from university research — is overwhelmingly friends and family, with less than 20 percent of funding stemming from venture capitalists and other sources. As such, he said, there is a need for new innovative models to finance university startups.
Based on current R&D expenditures, Stanco said, “if we get this right we could probably get a 10-fold improvement in university tech-transfer-related startups,” which translates into a “reasonable goal” of 4,000 new university startups per year.
According to Fraser, who is also executive director of the office of IP development and commercialization at Florida State University, an increasing number of university startups are due to commercialization of research by undergraduate and graduate students, a trend that needs to be further supported by tech-transfer offices and the federal government.
“When you are a student, you are thinking about getting a paying job,” Fraser said. “And to move into a situation where you don’t get paid is a little scary and very risky. You really need some cash to move forward. When you look at the investment community in the US, though, it’s very risky getting involved.”
Fraser added that there is a small but growing number of angel investors and professional groups stepping in to fill the gap, but more needs to be done.
“The government needs to encourage more risk taking,” he said. “Our job [at tech-transfer offices] isn’t to make money for the university. When you really look into it, our job is to find the students and faculty members who are willing to take the risk and walk away from a solid paycheck and try something like this. Technology transfer is working well — it’s the commercialization that’s failing.”
The University of California’s Tucker agreed, adding that even at a technology commercialization machine like the UC system, funding to bridge the “valley of death” between the formation of a company and product commercialization is still extremely difficult to come by — particularly in biotechnology.
“Biomedical technology leaves the lab very immature, and finding money to nurture it to a stage where it attracts potential licensees is very difficult,” Tucker said. “I compare what I see in the US with what I hear [is] going on in other countries, such as Spain, where there is an enormous amount of investment in early-stage technology.
“They’ve recognized what we’ve done so well in the US — that these technologies are the industries of the future and the economic drivers,” Tucker said. “But they’ve put their money where their mouth is, and we don’t see it as much in the US — and certainly not in California. We think we’re way ahead in the US, but I think the rest of world is catching up.”
Blackboard’s Chasen, speaking from his experience of founding Blackboard with a college roommate and a group of undergraduate students from Cornell University, said that universities are handling the incubation of nascent companies “fairly well,” citing business plan competitions, entrepreneurial education programs, and local professional groups as invaluable resources.
He also said that universities help create networking opportunities that would otherwise be difficult to find. Still, Chasen joked about eschewing the guidance of the technology transfer office at Cornell but still stealing furniture from the school’s tech-transfer office to get his company off the ground.
“Our job is to find the students and faculty members who are willing to take the risk and walk away from a solid paycheck and try something like this.”
Such “backdoor” technology commercialization, where the tech-transfer office is not involved, is not uncommon at universities, the panelists agreed. Despite this, Fraser said that if he had been at Cornell when Chasen and colleagues were attempting to start Blackboard, “I would have helped them carry the chairs out the back door. Why? Our job is to get the technology out, period.”
“Part of our role is educational — to encourage students to come and talk to us to find out what the ground rules are, and we’ll help facilitate it,” Fraser said. “Overall, we have to be flexible and realize there are a variety of ways that things get out.
“We also recognize in the long term that if they are successful, those entrepreneurs will come back to the university with a gift,” Fraser added. “We’ve seen it, we know it happens, and this is part of the return to the institution.”
All the panelists agreed that the federal government needs to get more involved to support the formation of university startups. One way they can do this, Fraser said, is to increase the financing of university research, “which attracts intelligent people” and in turn creates more entrepreneurs and entrepreneurial opportunities.
“The government’s cutting back of research funding is creating shackles” for university technology commercialization, UC’s Tucker added.
Stanco said that another important way the government can help is to improve the US Patent and Trademark Office’s efficiency in assigning patents and establishing intellectual property rights, because worries about potential litigation are a huge detriment to potential startups.
One audience member proposed that the government is in fact helping promote university startups through Small Business Innovation Research and Small Business Technology Transfer programs, which Fraser acknowledged by saying, “Hallelujah and thank you.”
Fraser agreed that SBIR and STTR are highly valued programs, and that “if they shrank up things would really go away.” However, several other audience members pointed out that these programs have “serious flaws” such as the relatively small amount of money that they offer, gaps between the different stages of the grants, the need to determine the IP landscape very early on, and the general “late stage” timing of such grants in the commercialization process.
Despite these issues, Stanco said, these remain “key programs” in the formation of university startups; while Fraser added that organizations such as the National Science Foundation have been stepping up to the plate with additional SBIR and STTR funding in recent years.