The University of Washington has significantly improved its processes for transferring technology to startups and established companies, but an advisory group says changes are still needed—including to the basic structure of the commercialization effort—to achieve the “entrepreneurial ecosystem” that university and technology business leaders want.
On Tuesday, the university started at the top, naming Vikram Jandhyala to the new post of vice provost of innovation. He will replace Linden Rhoads, who led these efforts over the last six years as vice provost for commercialization. Rhoads’s title will be executive director for commercialization through the end of 2014, and then she’ll return to the private sector, according to a university news release.
Jandhyala is a well-respected UW professor and past chair of electrical engineering. He’s also an entrepreneur whose 2006 startup, Physware, was acquired earlier this year by Mentor Graphics. He assumes leadership of a UW commercialization effort that has significantly accelerated the pace of new company formation and patent filings, particularly in the last three years, but faces challenges related to its structure and funding, and to the university culture.
As a major source of innovative ideas and talent underpinning the state’s IT, biotechnology, aviation, clean technology, and medical device startup companies, the way the UW does commercialization is crucial to the health of a major part of the economy.
UW President Michael Young convened a committee of technology and entrepreneurship leaders to make recommendations for improvement in this area. Its October 2013 report, obtained by Xconomy, begins: “For the UW to become an entrepreneurial ecosystem, the culture of the institution needs to change to encourage commercialization, and the systems by which the university operates need to change to encourage rather than inhibit commercialization.”
The undercurrent here—not mentioned in the report—is the expiration this year of a portfolio of patents related to genetically engineered proteins in yeast developed in the 1980s by Professor Benjamin Hall, recently elected to the National Academy of Sciences. Licensed to pharmaceutical companies, the innovation has generated hundreds of millions of dollars that helped finance commercialization activities at the UW, and through the Washington Research Foundation, for the last three decades.
That revenue stream is drying up in the midst of depleted state-level funding for the UW, causing commercialization leaders to reexamine their strategies. The Washington Research Foundation, for example, is embarking on an unprecedented grant-making strategy focused on attracting entrepreneurial researchers to the UW.
The expiration of the Hall patents “is creating pressure on what has been the revenue stream that supported [commercialization] activity for a number of years, and is forcing a rethinking of what really should be done there,” says Jeremy Jaech, a Seattle serial entrepreneur and UW Regent who chaired Young’s advisory committee on commercialization.
Other committee members included Tom Alberg, co-founder of venture capital firm Madrona Venture Group; Neal Dempsey, a leading alumnus and venture capitalist with Palo Alto, CA-based Bay Partners; Ron Howell, head of the Washington Research Foundation; and UW faculty and outside experts.
The advisory committee sees flaws in the current structure that puts responsibility for setting commercialization policy, executing licensing deals, and funding that work in largely the same hands.
There are many factors at play here, but the committee stated it this way in its report: “Don’t put the entities charged with carrying out policy in charge of defining that policy; that creates incentives to set policies to support operational goals rather than the other way around.”
The committee argues that this has contributed to the wrong set of priorities for commercialization.
“The goals of technology commercialization are broader than revenues from IP licenses and should primarily be the diffusion of knowledge and innovation developed at the university and the contribution to economic development,” the report says.
The committee examined 52 licensing deals between 2010 and 2013 from 28 universities including Stanford, MIT, and other leaders in technology commercialization, and found that the UW consistently offered licensing terms that were better for the university financially, but worse for the licensees—potentially creating a drag on new company formation. For example, the UW has required an average of 10 percent equity in startup licensing deals, compared to an average of 5.4 percent in the other universities studied. It has also required anti-dilution terms, which are “very unfriendly to company founders” because the same terms are demanded by later investors, ultimately shrinking the founders’ ownership stakes, the report says.
“Below some threshold, founders are no longer motivated to commercialize the licensed IP, defeating the purpose of the license,” the report says.
The committee found that licensees sometimes negotiate better deals with the UW, but this can require “hours of legal work.”
“The people responsible for licensing technology out of the university have had the ability to essentially negotiate whatever terms they want, depending on what they see as the opportunity for that technology,” says Jaech, CEO of SNUPI Technologies, which licenses technology from the UW and Georgia Institute of Technology. “If they see something that they think is going to be worth a lot of money, they try to get a bigger piece of it, put more effort into negotiating it.”
It took SNUPI 10 hours of legal work to obtain a license from Georgia Tech, according to the report. Obtaining a similar license to the same IP from the UW took about 100 hours. The drawn-out negotiations contributed to financing delays and cost increases, as they did for a half-dozen other companies mentioned in the report.
Jaech says he’s seeing signs of progress, however. “There’s been efforts made to increase transparency and predictability,” he says. “I wouldn’t say we’re there yet, but I think that we’re moving in that direction.”
And UW technology transfer is in a far better state than it was a decade ago, local entrepreneurs and investors say. Some 34 new companies have come out of the UW over the last two years alone—a record level. There was also a marked increase in patent filings through the Center For Commercialization (C4C), the hub of commercialization activities on campus. That’s an indicator of success in another aspect of technology transfer: the protection of ideas that could someday move from university laboratories into commercialization.
Also, the university’s Presidential Entrepreneurial Faculty Fellows program (of which Jandhyala was among the first) and Entrepreneur-in-Residence program have provided role models and education for faculty interested in entrepreneurship and connected seasoned business leaders with emerging innovations.
Rhoads “has created a great record of achievement at the UW,” says Provost Ana Mari Cauce in a news release. “She built a strong unit devoted to service and constant improvement.”
Rhoads did not respond to a request for comment.
If the report is fair, one wonders how many more businesses might have been founded upon or enhanced by UW innovations had the focus been on community economic impact and societal benefits first—as the committee recommends—and university revenue second or third.
“The committee believes that the UW ought to offer terms that are not only market-rate but are generous to entrepreneurs,” the report says. “If the university wishes to drive technology licensing and the creation of sustainable companies, then generous terms with low transaction costs advertise that intent.”
Licensing is just one step in the technology transfer process, and the committee found room for improvement elsewhere, too. Faculty members should be rewarded for their commercialization efforts, the report says, and leaders should better publicize that university licensing revenue is shared with inventors and their departments to help encourage more faculty entrepreneurship.
The committee also recommended the appointment of “a senior leader in central staff” with “broad responsibility for increasing commercialization of technology developed at the UW.” They weren’t the only voice calling for this kind of position, but they certainly had the attention of Young, who came to the UW in 2011 with a commercialization focus and a record of success as president of the University of Utah.
Requirements for the job, as articulated in the report, include credibility with faculty, commercialization professionals, and entrepreneurs. Jandhyala meets all of those criteria, Jaech says.
“If you’re going to get something done broadly across campus, like a commercialization effort, you’ve got to be able to reach across all those three groups, and across all the different colleges and schools and such in order to get common purpose,” he says. “I think Vikram is capable of doing that.”
Jandhyala says via e-mail, “I’m delighted that I’m going to be able work with Linden over the next few months, as well as closely with the Provost and President in taking everything C4C has accomplished already and integrating it further with the UW’s educational mission, as well as seeing how to continue to best serve the research and business communities.”
We’re planning to talk with Jandhyala later today to learn more about his aspirations for UW technology transfer and commercialization.
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