Startups, Jobs, Economic Impact: An Analysis of Commercialization at UW

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The Hall patents generated royalties of $39.5 million in the university’s 2013 fiscal year, or about three-quarters of the total revenue the UW received from technology commercialization, according to a C4C financial summary. That’s a relatively small sum in a nearly $6 billion university budget, which includes the health system, UW Medicine, and $1.2 billion dollars in federal research funding. The UW consistently ranks at or near the top among public university recipients of federal research money.

But these royalties—unlike tightly focused federal research dollars—are the primary source of financing for the patent lawyers, technology managers, grant writers, business incubator space, and other C4C employees and programs that help usher UW innovations from campus laboratories to companies through licenses and the formation of startups. A large share of royalty revenue also flows back to the researchers and departments that produced the innovations—providing an incentive for commercialization—and funds other university research. Money from the Hall patents may continue to arrive in the coming year as licensees sell off inventory made while the patents were still in force. But then what?

‘Enormous results, but not for free’

On a beautiful Seattle day in late July, Rhoads, who headed the C4C for the last six years, stood before hundreds of invited guests, including Gov. Jay Inslee, and explained how the fiscal 2014 startups benefitted from a suite of programs developed during her tenure and paid for largely by patent royalties.

“I want to share a few facts about these 18 startup companies for the benefit of other UW supporters here, members of our Washington legislature and their staffs, because it’s important that we all recognize that the results we’re here to celebrate, which are so important for our state, don’t spontaneously occur, but require investment by our university and our partners,” Rhoads said.

Two-thirds of the 18 startups counted in fiscal year 2014 received so-called commercialization gap fund awards that allow researchers to continue work on innovations beyond the scope of federal research funding. The awards enable researchers to prove concepts, design prototypes, and test markets in hope of attracting private investment. Four of the 18 benefitted from commercialization post-doctoral fellowships, a mechanism to allow PhD graduates to continue working on innovations with market potential after other funding runs out, Rhoads said.

Lab space in the New Ventures Facility.

Lab space in the New Ventures Facility.

Half of the companies are led by CEOs introduced to them through the C4C’s entrepreneur-in-residence or other programs. Six companies have been housed in the New Ventures Facility, a C4C-run business incubator in Fluke Hall, where they enjoy flexible leases on office and laboratory space as they make the transition from academic projects to stand-alone businesses.

The C4C now wants to expand the incubator. That will require “much more significant investments over the next couple of years if we are to create the kind of compartmentalized wet lab space, for example, that our life science and materials startups really need,” said Rhoads, who is now a special advisor to Jandhyala. (The UW’s fiscal year 2014 capital budget—PDF—pegs the cost of improvements to Fluke Hall at $31.5 million.) “We’re working with university leadership and many of you in the donor community, and among the legislators, to consider whether another building, in what is rapidly becoming the innovation district outside the university, is financially feasible. Incubation space close enough to our spinout faculty founders to keep them engaged is one factor that’s going to help our startup companies, our spinouts, not only be numerous, but be very impressively successful.”

Rhoads

Rhoads

Later that day, Rhoads stood in a New Ventures Facility room packed full of C4C supporters—members of the local entrepreneurship and technology community whom she credits with improving the quality of startups emerging from the UW, in addition to the quantity—mingling with startup founders. I asked her about funding for the C4C, which had a budget of $10.5 million in 2013, about 60 percent of which came from Hall patent royalties.

She pointed to the university’s equity in startup companies and its portfolio of licensed technologies. “We did see an uptick in non-Hall patent revenue, but it will still take some number of years to rebuild, so the community will have to think about the cost of commercialization,” Rhoads said. “I think the good news is that we’ve been able to show that even at the current level of funding, we’ve produced enormous results for the region, but not for free.”

New goals, new business models

Vice provost of innovation Jandhyala, a former chair of electrical engineering who spun a company out of UW, provided more nuance in subsequent interviews this summer.

He said that the UW has seen the end of the Hall patents revenue coming and has prepared. “It was planned for,” Jandhyala said. “There was money put aside for smoothing the transition. But it’s time to look for new business models. Honestly, whether we had the [Hall] patents or not, just in terms of the service we want to do, it’s time to look for new business models.”

In addition to continuing traditional tech transfer functions at the Center for Commercialization—which is likely to see a name change—Jandhyala’s job is to spread entrepreneurship and innovation across the campus beyond the traditional strongholds like business, engineering, and computer science, and to undergraduate and master’s students.

“Obviously, we know that the old way of doing tech transfer is going to change,” Jandhyala said. “Many universities are in a position where they had one or two amazing big hits, in our case the Hall patents, which funded a lot of what we were doing. And very often the tech transfer offices were formed to manage this kind of a windfall. The role is completely different now. The role is how do we educate students to think differently from, ‘I’m going to be a cog in the wheel of a big company.’ Now it’s about, ‘I’m going to do a startup. I want to be an innovator.'”

Specific plans are still taking shape, but ideas include … Next Page »

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