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

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He believes that a company should be counted in the year it was formed, and that licensing the university technology is a separate commercialization activity that should be counted as such in the year it occurs. By his count, there have been 13 UW startup companies in the last two fiscal years, not 35. “C4C cannot count past startups for FY14 just because they did some deal with those companies in FY14 and then claim they are out-performing most everyone else in startups,” Barnett said via e-mail.

Barnett also believes the AUTM licensing survey “is defective” in its reporting of national university commercialization activities, because the group does not appear to correct for the fact that multiple universities may count the same startup company, as in the case of TaggPic, as theirs. An AUTM spokesman said, “Ultimately it is up to the survey respondents—the research institutions—to provide the data.”

In addition, Barnett suggests that several startups counted by UW are merely stubs without substantial employment or operations, or repackaged research projects, or efforts to commercialize existing services the UW was already selling or providing free.He argues that the UW’s startup numbers have been intentionally inflated to meet Young’s challenge and to create the appearance of a big, successful commercialization operation.

“It appears that C4C is trying to puff itself up so that the University can justify funding it from sources other than its share of royalty income,” Barnett wrote in one of several stinging blog posts over the summer. “C4C is pitching the idea it is too important to dismantle.”

Young calls Barnett’s critique “nonsense,” noting that commercialization has been a focus of his throughout his career. “I’ve got a long track record of caring about this for all the reasons I’ve stated,” Young said. “It matters that we make the world a better place. And this is one of a number of vehicles for doing that… My history entirely belies the fact that the expiration of the Hall patents has anything to do with it.”

A natural tension

While there is no black and white conclusion to the debate over the numbers, the dispute does raise a fundamental question: Should university tech transfer and commercialization efforts be self-sustaining activities, or should they be subsidized?

The 2010 C4C strategic plan noted that until the Hall patents expired this year, it would “continue to be a ‘self-sustaining unit,'” one of “the relatively few” around the country to have that good fortune. The plan called for establishing “a sustainable model for UW C4C, covering C4C operations and providing revenues to the University,” by reducing costs and diversifying revenue sources. Two specific targets: “increased, earlier proceeds from equity liquidations,” which should result from the increased emphasis on startups, and increased licensing agreements with “terms more favorable to UW.”

But Young’s advisory committee on commercialization found that approach to be wrongheaded. “Don’t focus on maximizing licensing terms in favor of the university,” the committee wrote in its report last fall, noting seven examples of companies that experienced “delayed financing and higher costs due to the license negotiating process at UW.” A particular stumbling block was the UW’s anti-dilution terms, which ultimately serve to reduce founders’ stakes in their companies.

Instead, the committee recommended the UW aim to simplify and standardize its licensing terms with an eye toward making them “generous to entrepreneurs,” reducing transaction costs, and maximizing the number of funded companies emerging from the university.

“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 committee wrote, as Xconomy first reported in June.

(Committee members were: Jeremy Jaech, a UW regent and CEO of UW startup SNUPI Technologies; Tom Alberg, co-founder and managing director of Madrona Venture Group; Neal Dempsey, co-founder of venture firm Bay Partners and a major UW donor; Emer Dooley, a lecturer on entrepreneurship at UW and executive director of the Alliance of Angels Seed Fund; Sonya Erickson, a partner at law firm Cooley specializing in emerging companies and life sciences; Ron Howell, president and CEO of the Washington Research Foundation, which manages the Hall patents; and Matt O’Donnell, a UW professor and former dean of engineering.)

Clearly, there’s a natural tension between the need to generate revenue from university IP to pay for commercialization functions, and the goal of speeding the transfer of IP out of the university as quickly and smoothly as possible.

“I think getting the balance right is critical,” Young said. “Whether we’ve got the balance right or not, I’m not 100 percent sure.”

Young said that in his review of the data, the UW’s licensing fees and equity percentages—the commercialization committee reported that the UW takes on average, 10 percent of the startups it licenses to—“are in the ballpark.” He suggested that UW licensing fees and equity percentages should be flexible to accommodate different companies’ diverse technologies and capital needs. He said that “anti-dilution provisions need to be revisited.”

Young said he’d love to be able to subsidize commercialization—and will, to the extent possible—but the financial realities, including a dramatic drop in state support and strong resistance to tuition increases, means activities that can create revenue must do so.

“This is just one of a large number of university priorities, and where we can find sources of revenue to pay for important, useful things, we will look for it, and we’ll do it,” he said. “But whatever happens with respect to the amount of money made through the commercialization process, we are not going to let these services go away.”

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