This was published in Silicon India April 2011.
US public and private research universities are by far the best in the world at educating young people and conducting basic and applied research. Harvard College was founded in 1636 and was followed by many other universities up and down the east coast. However the first university to emphasize research along with education was Johns Hopkins, founded in 1876 with a $7 million gift from railroad baron Johns Hopkins. Johns Hopkins’ model was partially adapted from German research universities. Following Johns Hopkins many US industrialists became benefactors of private and public research universities: Rockefeller to the University of Chicago in 1892; Carnegie Institute in 1902, etc.
The Federal government established the National Academy of Sciences in 1863 and the Morrill Act was signed in 1862 provided federal land to states to establish public universities. The first “land-grant” college was Kansas State University which started in 1863 (where my father went for his engineering degree in the late 1940s). Michigan State University, Pennsylvania State University, Rutgers, University of Wisconsin followed closely behind. The Federal government also passed the G.I. bill after WWII that allowed hundreds of thousands military personnel to get university education. Federal institutions like the National Science Foundation (NSF) and National Institute of Health (NIH) were also created right after WWII, launching the 60-year technology led economic boom the US has enjoyed. Between 1940 and 1950, the contribution of the federal government to university incomes increased from $39 million to $524 million. The direction of university research shifted away from research intended for local industry application to more basic scientific research, with applications to national goals in defense and health care.
The economic impact of US research universities in commercializing their research has been immense:
- Since 1939, Stanford faculty and students have founded more than 2,454 companies, such as Hewlett-Packard, Cisco, Sun Microsystems, Google, Yahoo, contributing to the economic dynamism of Silicon Valley.
- In 2009 MIT published Entrepreneurial Impact: The Role of MIT. In 2009 there were 25,800 active companies founded by MIT alumni that employ about 3.3 million people and generate annual world revenues of $2 trillion, producing the equivalent of the 11th-largest economy in the world.
- According to AUTM (Association of University Technology Managers) just in 2009: 658 new commercial products introduced; 5,328 total license and options executed; 596 new companies formed; 3,423 spinoff companies still operating as of the end of 2009
- Gulbranson and Audretsch (2008) studied two programs centered in engineering schools, the MIT Deshpande Center for Technological Innovation and the UCSD von Liebig Center. After granting less than $10 million to projects, these centers helped advance 26 spin-offs that have raised a total of $160 million in outside investments.
- Between 1980 and 1999, university spin-offs in the United States created $33.5 billion in economic value (Cohen 2000), at an average of $10 million per startup
In 1980, Congress passed the Bayh-Dole Act that enabled universities to own and manage the intellectual property (IP) arising from federally sponsored research. Universities were obligated to commercializing this IP by transferring it to existing and spin-off companies. The resulting licensing revenue was split between the university and the faculty inventor. Shortly after 1980, spin-offs and products based on university IP rose steeply as universities and faculty were incentivized to commercialize their inventions (see charts below).
Boston University (BU) was established in 1869 as a divinity school. It became a major commuter university in the Boston metropolitan area with about 300,000 living alumni. More recently it has become a renowned research university with over $400 million annually in research funding going to over 2,000 laboratories. BU has 19 colleges and schools with 3,300 faculty, 16,000 undergraduate and 13,000 graduate students. The Office of Technology Development was established in 1975 to commercialize BU’s research.
BU established a venture capital fund called the Community Technology Fund in 1975. By 2007 it had invested $14M with one significant exit: A123 Battery, an MIT spin-off that was incubated at BU’s Photonics Center incubator. In 2007 the new President of BU, Bob Brown (formerly MIT’s Provost), decided that BU should not have a VC fund and the Community Technology Fund was shut down. The un-invested portion of the fund was placed in the university endowment and the Office of Technology Development receives an annual draw to support BU spin-off activities. These are invested in two programs: Ignition Grants that advance laboratory research towards commercialization and Launch Awards that provide bridge equity funding for BU spin-offs that will raise venture capital funds.
The university spin-off process requires tremendous support from university tech transfer offices. Faculty are generally naïve about spin-offs and have to be educated about the process. Entrepreneurs find it difficult to identify viable spin-off research projects and have to be matched to the appropriate project. The scale of the opportunity is immense, for example at BU at any given time we are managing about 600 commercialization projects. Each one has a unique path to commercialization. These can be broadly broken up into two distinct paths: license to an existing company or license to a spin-off company. Licensing to an existing company is ideal but it is hard to match existing companies’ R&D plans with university research. One has a lot more control of the commercialization process with spin-offs though not with follow-on funding from VCs.
At BU we have developed a New Ventures group and process that has the following components: (1) the Kindle Mentoring program that has about 100 start-up CEOs and executives that are matched to spin-off companies; (2) Gap funding with Ignition and Launch awards; (3) student analysts who help with go-to-market strategies and (4) a New Ventures director who orchestrates these assets. They key to obtaining follow-on funding from VCs or other non-equity sources of funding is to match the right entrepreneur/CEO with the appropriate project at the right time.
I joined BU in January 2010 to transform the Office of Technology Development. Having no background in university technology transfer turned out to be an asset as I brought new thinking into the process. We are one year into a three-year plan to transform the way university technology commercialization is done. A key component of the plan is to create 10 spin-offs a year from BU intellectual property and know how. At the end of 2010 we had a dozen spin-off in the market raising equity financing. Several have raised small amounts of seed financing from angels and recently we received our first tier 1 VC term sheet. Stay tuned.