Paul O’Brien, Professor of Inorganic Materials at The School of Chemistry and The School of Materials, at The University of Manchester discusses innovation and exploitation within UK Universities.

• Universities exist in my opinion for three reasons: to provide education; to create new knowledge and understanding; and to benefit society through vocational training, transferable ideas and/or technology. But within this academic research may have value and become an exploitable reality
• There are three fundamental universal reasons why an academic might be interested in IP/technology transfer to change the world; to make money; to enjoy the process. A fourth reason also exists: self-interest. Success in this area is often now a criterion for promotion. This final motivator is a poor one, as it encourages people without a real interest in the area to get involved in research.
• Nobody knows the future but it is important to understand each other to successfully form deals that lead to start-ups or IP transfer. Good deals are ones with which everyone is happy.

Introduction

The dichotomy between academia and business is encapsulated by a quote from Geoff Nicholson, one of the 3M Post-it team, who described:

“Research as the transformation of money into knowledge and innovation as the transformation of knowledge into money.”

The quote gives a working idea as to where universities sit in contrast to those in successful corporate research. The article will delve into the middle ground, in which academics can be helped to think that their research may have value and become an exploitable reality.

Universities exist in my opinion for three reasons:

• To preserve knowledge and transfer it to the next generation (education);
• To create new knowledge and understanding (research);
• To benefit society through vocational training, transferable ideas and/or technology.

These were formalised by the three mission concept of universities mission work in the UK.  The third mission has only been reinforced by the introduction of impact as a performance criterion in the UK. Innovation and entrepreneurship were first given a higher profile in the time Margaret Thatcher was Prime Minister), in which IP (intellectual property) generated on government grants was made available for public institutions/universities to exploit on a no royalty basis the results of government funded research.

This is somewhat in contrast to the USA where Bayh Dole Act which is a bit more prescriptive and inserts more specific requirements into the implementation of federally funded research. The US Model has been often followed, for example in India and South Africa; but there is some evidence that the UK approach is more effective. The impact of technology transfer from universities is generally agreed to be a significant factor in economic growth, one well appreciated by the Obama Administration. However, the dependence of state/general economic benefit on the nature of the arrangement for academic technology transfer is less clear.

The University

The idea will most likely originate from an academic(s) at any level. Most typically ideas originate with an individual academic or a grouping. It is important that if a group of people venture forward in this way that their ownership (of IP) is defined as early as possible and written down on a terms sheet. These groups may broadly be identified/typified as:

• academic(s);
• and or plus student(s) usually a research student;
• and or plus other university employees e.g. a postdoctoral employee working for one or more academic and experimental officer or technician.

This specifically excludes parties sponsoring work owning, i.e. having paid for the right to exploit or an option on exploitation/IP.

There are three fundamental universal reasons why an academic might be interested in IP/technology transfer:

• to change the world interest/creativity driven;
• to make money;
• to enjoy the process.

To change the world: Many great inventors/innovators have been driven by this desire: Edison, Ford, Land, Gates and Jobs and Wozniak provide very different examples. Academics will need to think about.  How will your idea or invention have influence? How will it find its way to the market place? What will it cost to reach the market place? Where will it fit into a supply chain? What are the regulatory requirements? Academics need to appreciate the difficulty of exploiting ideas.

Some inventors of exploitable technology waive rights to personal income in favour research money e.g. from the Gates foundation; this is laudable as many important projects, especially those benefitting the third world, are not intrinsically attractive as profit making exercises.

To get rich: There is nothing wrong with making money. If you succeed it can be a good consequence yet many academics react with horror at the idea of contaminating their purity; however this is a very limiting approach, but perhaps not as reprehensible as only being interested in the money. Remember if you make money it can be used to do good things.

To enjoy the process: on average academics need to appreciate that it will be tough to work through to success, at some stage they will have problems and maybe wish they hadn’t bothered. I would suggest simply for pleasure is not a good idea.

A fourth reason also exists: self-interest. Success in this area is often now a criterion for promotion. This final motivator is a poor one, as it encourages people without a real interest in the area to get involved. In some ways this encouragement by universities is an overreaction to academic prejudice against useful innovation which was rife until the 1970s.

Technology Transfer  

Universities in the UK all have some kind of grouping managing technology transfer (TT). The normal arrangement is as a fully owned limited company. This route helps with compliance and simplicity of management, as universities are charities. Other large charities do trade but the arms-length set up does have advantages. However because TT groups are most often fully owned they can tend to follow the current fashion in University politics, rather than take a more basic business driven position to seeking success. Pay in these groups is often low and not significantly bonus incentivised. Highly motivated entrepreneurs are not generally attracted to them. It is a shame because working with academics gives an opportunity to work close to a fertile source of new projects.

If we analyse this as a customer client relationship then the academic is always pretty free to develop or not develop an idea, they can also often progress the idea without the use of the Technology Transfer Office (TTO). If both sides want the idea to progress the following should be aspired to:

• being successful;
• satisfying university performance criteria often statistical drive numbers of: patents spin outs, licensing agreements;
• being good at technology transfer by causing ideas and inventions to be exploited (and hence usually make money).

This view presents a common conundrum in life in general, business and even sport. If we are successful in exploitation then criterion one will be met. The second point can therefore be a false avenue: if we produce without true impact we may have statistics but no value: in other words we could score lots of goals but never win a match or big trophy.

The Investors

There are many different routes to early stage funding and the availability of such funding varies with the culture at the time and the national an international economies. Funders include:

• universities themselves, although they often prefer to fund research within the confines of the university;
• business angels;
• schemes (often government sponsored) providing early stage investment;
• Venture capitalists (usually in a limited partnership or a company);
• Other venture activities (for example by big companies).

Self-funding, family or friends are often listed as a first option, but for the majority of university spin outs, the amounts of money may be too great for an individual. That said universities seem remarkably unprepared for the idea that academics might want to invest in their own company.

One dichotomy is what people define of or think of as research; academics have a clear perception of where research ends and development starts. They err on the side of caution in defining research as that which has great academic impact, influences other research and originality is the key in determining quality and hence perceived academic value. On the other side of the coin investors and others in TT will try and get academics to fund development through research funds. This situation can produce a Catch 22 position when linked to peer review processes which will either tend to view an application as research or development. It is common in my experience for academic peer review to undervalue development. In contrast others may urge academics to use funds from research to develop ideas for exploitation. Putting off funding to found a company ie only consider a spin-out when risk has been reduced. There is room for much more clear and specific advice from funders in this area.

Conclusions

At present we are in a time of change in this area in the UK with the influential Dowling Report  coming into play and a serious consideration of the future of such activities is in hand with a consultation on patient capital active as I write.  To understand this we can look at common divergences based on the key perceptions of those involved by using a series of topics: Value, Innovation, Risk and Exploitation on which the parties need to agree on for success, and harmony.

• Value: academics are poor at understanding valorisation, universities can badly affect the value by strategies to diminish their risk, investors, myself included, diminish risk by maximising the equity return on investment. Investors are often over keen to define money making exit strategies, based on a good valuation above the success of the business.
• Innovation: academics tend to think of disruptive ideas as intrinsically valuable, universities want success criteria to be compatible with academic objectives and impact metrics, investors often poorly understand the nature of innovation and the landscape. A new innovation will occupy disruptive space, new entities without a product, are difficult for investors to understand value and invest in.
• Risk: needs to be understood by all parties, it will exist. It may be perceived differently, academics may be blind to risk, universities overly averse to it and investors mitigate risk in valuation and by market research.
• Exploitation: academics like the idea but perhaps are not knowledgeable on the process that leads to success, universities want to see this happen (metrics, to make money), and investors want to see innovation but also focus on money.

This divergence of view can be frustrating to all parties, and a holistic view is needed. I think groups need to be more aware of this problem and agree what success will look like it could for example be at the extremes of:

• To make money e.g. a trade sale, sale of company wholesale, licensing, listing and sale of shares.
• To see a profitable company employing many in a few years’ time and /or a company listed on a main market with a strong future.

Nobody knows the future but it is important to understand each other to successfully form deals that lead to start-ups or IP transfer. An ex-oil trader friend of mine, the late Julian Walsh, once told me that good deals are ones with which everyone is happy. I leave the last word with him.