Nearly every research university is dissatisfied with its ability to commercialize its technological innovation. And for good reason. University based research in the United States may be this country’s most squandered resource. U.S. domination in pure research rivals that of the military — each can be described as “the greatest force of its kind ever assembled”. No country can come close to matching the United States here. Our K-12 education may be a disaster but our colleges and universities are the best in the world. Graduate students from all over the globe flock to America to study, innovate and invent at our Universities. These immigrants and our own kids are prodigious producers of innovation, generating thousands and thousands of patentable ideas per year.
However, only a small number of these ideas leaves the university and finds its way to the marketplace. Why is it that so much important innovation is stranded on campus? This topic is complex and highly debated. We often hear from practitioners that the problems lies in: 1) the lingering conflict between pure academic pursuit and capitalism; 2) poorly resourced university technology transfer offices; 3) a lack of “gap” funding to be used to prove a concept and extract the technology from the university; 4) inadequate start-up eco-system around the university; and 5) poor connections to the venture capital community. Places like Stanford, MIT, and Berkley have done well, but many others have failed to reach their potential. The University of Minnesota is a great example. Among the most prolific patent producers in the world, the U of MN ranks #4 on Scientist Magazine’s list of “Patent Powerhouses” — behind only the University of California, the University of Texas and North Carolina State University. Despite all this innovation, historically, the school has not seen its share of success. There is no Google or Yahoo or Sun or Cisco (all based on technology developed at Stanford). Not since the 1950s when Medtronic’s original pacemaker was invented based on work at the University of Minnesota has the school seen a blockbuster deal. The world’s first web browser, Gopher, was invented here but was eclipsed by Mosaic (Netscape). Sadly, the school has many other “woulda, coulda, and shoulda” projects that failed to achieve meaningful commercial success.
This may all be about to change. Under the leadership of Doug Johnson, a former venture capitalist with Norwest, the University of Minnesota has developed a program that may have cracked the code on how to identify and extract disruptive innovation from a major research university and, importantly, how to ensure that its first steps outside the womb are successful. Doug’s secret? — One that every VC should know – “it’s all about the people!” Doug has recruited a stable of world class CEOs, all of whom have managed an early-stage technology company to a successful exit, to do the mining, filtering, extracting, and company formation work. This program will succeed (where many before it have failed) because the likelihood of finding venture funding for a project when it comes with an experienced, proven executive, who has spent six to nine months researching the opportunity, is exponentially higher than if the same opportunity came “raw” (the way universities typically attempt to transition technology to the outside world). Let’s face it; most VCs just are not organized to invest in raw technology. However, combine highly innovative, patentable technology with a proven CEO who is passionate about the project and who will do the heavy lifting to extract the technology from the University and you’ve got a winner (at least in terms of getting an initial round of funding). Based on early success, Doug plans to increase his current roster of “CEO’s in Residence” from three to six. The Golden Gophers may not win the Big Ten in football any time soon, but Doug Johnson’s CEO-based innovation commercialization program may, in the near future, help the school achieve its ultra-aggressive goal to be one of the top three public research universities in the world in the next three years.
This seems like a good idea, but is it scalable? If you limit the pool of candidates to world-class CEOs that have managed a early-stage tech company to a successful exit, you have a small group of folks, especially if you’re outside of Silicon Valley. Most of the Stanford companies that you list were founded and run by grad students for quite some time before “professional” management was brought in. I think that the hunger of the students and the accessibility of capital for young entrepreneurs is what led to those success stories. I would think that bringing successful entrepreneurs in to mentor and encourage the technologists versus joining as CEO would enable the university to spin out more companies, since it will take hundreds of failure for every large-scale success.
The record of commercialization of technology from R&D hubs such as academic institutions and other similar entities is SIGNIFICANTLY lower than its potential. Our economy and standing in the future of the global economy partially depends on addressing this issue if we are to remain competitive. If left to its current path, it will be one of the reasons we become uncompetitive and fall behind. Traditionally, venture capital wants to put money into companies that have a record of customer traction, revenue, and a strong team.. This traction in a normal environment (other than outliar events such as the bubble) takes many years. Venture capitalists want to invest large sums of money into A rounds and later because their funds are larger and the expectations to LPs have grown with the growing size of the funds. However, there are thousands of opportunities moving towards this path at much earlier stages that stall or fail because of the lack of resources and the funding gap. Some will say the model needs to be completely Darwinian in nature. I disagree. The current direction of venture capital may lead to an inordinate supply-demand problem, with too much capital waiting for “proven” companies, but not enough supply of viable opportunities to fund. The reason…we failed to invest in the infrastructure necessary to make early stage companies viable for that later funding. I like the idea that a CEO needs to be attached to an early stage company. I don’t think it solves the larger problem unless it can be expanded significantly, but this specific model will probably increase the likelihood of success for the companies that adapt this approach with the current environment. I think most people in venture capital and those who understand it, realize this industry is going through its own post bubble change, with significant consolidation over the next several years. The landscape will change dramatically as those who raised funds from 1999-2003 look for their next move. I think there are significant opportunities for venture capitalists to do some “out-of-the-box” thinking and shift their models of capital to optimize the potential supply-demand environment that could exist if we enabled more viable companies and opportunities to reach the level of funding viability and self sustainance…obviously enabling new value creation in the overall economy. Let’s put our thinking caps on and figure out a way to significantly increase the commercialization success of the R&D expenditure in our universities, corporations, and various other hubs of opportunity.
Great post, David. As a U of MN guy myself, and (as you know) a longtime tech startup consultant here in our state, I’ve been waiting for our great local research university to break out of its technology commercialization slump. I applaud Doug Johnson’s efforts. And thanks for spreading the word beyond Minnesota.
cheers,
Graeme