UW President Young Talks Commercialization, Startups, Criticism

University of Washington President Michael Young, beginning his fourth year as leader of one of the foremost public research universities in the country, talked with Xconomy about university startups, technology licensing, and other ways the university can transfer knowledge into society.

The interview, conducted in August in Young’s Gerberding Hall office, informed Xconomy’s broader look at the UW’s commercialization efforts, which Young has championed. The following has been edited and condensed for clarity.

Xconomy: It’s an interesting time to be looking at how the UW is doing commercialization. There’s been a leadership change, a successful track record coming out of the last couple of years in particular, and at the same time some funding changes with the expiration of the Hall patents, which have been an amazing windfall or success—however you want to put it—over the last couple of decades.

Michael Young: Success. We like to put it as success, not a windfall.

X: At the same time, an outside commercialization committee’s report to you last fall paints a little bit of a different picture, calling the Center for Commercialization (C4C) harder to work with and seeking bigger financial returns for the deals it does than at other universities. The report 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.” Can you square that view with the results that the C4C has reported in the last two fiscal years in particular?

MY: Yeah, a little tough, huh? So who’s wrong? The truth of the matter is nobody’s wrong. I mean, I’ve been pretty passionate about commercialization for a long time. The principal reason isn’t money. I mean, it’s great if we hit a Hall patent or a Gatorade or a Google or something and that’s terrific. But you never know that’s going to happen and you don’t plan around that. What you plan around is doing what is core to the university’s mission, which is doing good. Having an impact. And there are a lot of ways a university has an impact.

The dean of our College of Education has his professors out in 100 different schools in 20 different school districts around the state, basically helping to develop curriculum, training teachers, taking data, and trying to understand better how kids learn and then applying that in a real-world, concrete way. Two thousand of our kids every year are part of the Dream Project. They go out and mentor young students in high school, the kind of overlooked kids who have a lot of promise but the counselors don’t really have time for to help get them transitioned to college and things like that. Lots of ways a university has impact.

One of the ways is the commercialization process. If you cure cancer and it stays in the test tube, it’s great cocktail party conversation, I hope you’ll write a great story about it. But nobody gets better. I want to get it out into the lives of real people to make a difference, and to me that’s what the commercialization process is about.

I think in the last few years we’ve made real strides. You can’t help but look at the data and say anything else. When you lead the nation in the number of licenses and active technology under license and when you’re in the top handful of universities in terms of spin-off companies, you’ve got to be pleased. But my view is you never should be so pleased, you’re not looking to improve. Let’s build on this great base that [former vice provost of commercialization] Linden [Rhoads] created and figure out what the next steps are. And what you find is when you do something well, you find ways to do it better, and you also find things you didn’t know about.

If you don’t have any efficient processes for getting the intellectual property protection, you don’t get to a point where you can ask anybody to buy it, and if you don’t get to a point where you can ask anybody to buy it, you don’t know whether you’re asking too much or too little. So at an earlier stage, a lot of the things that committee helped identify were not things we could have even known, because, you know, we just, we were pretty bad at it. I mean not terrible at it. If you look at the number of companies over a two-decade period produced, it’s a healthy number, but obviously could be better. We’ve shown it could be a lot better in the last couple of years, and that gives us a foundation to now know what we didn’t know before and fix it.

I view the report as very helpful, and the opening sentence, I think, is reflection of a desire on the part of the community to help us identify how to move to the next level. And that’s what we’ll be able to do. I’m wildly and inextricably optimistic, and I’m pretty sure that good things will happen.

X: You challenged the university in February of 2012, about seven months after you arrived here, to double the number of startup companies produced each year over the next three years, and you’ve lately touted the record number of startups produced in each of the last two years as leading the nation.

MY: They did in a year what I asked them to do in three. It’s a little hard to complain about that.

X: Why is startup formation such a high priority?

MY: It’s as much as anything else a barometer of the way in which you are providing services to support the faculty and students who want to commercialize something. It’s easy to start up a thousand companies if you don’t care what the content is. And so, the other challenge I keep giving them is make sure these are companies that we have real reason to believe can be successful. Now that doesn’t mean they’re all going to be successful, because I’d be Warren Buffett if I knew that. It’s a shots on goal thing to some degree.

But it’s not a bad barometer for helping us understand, are we providing the right services? Are we linking our professors up with the venture community in an appropriate way? Are we helping our students develop the skill set they need to interact with the technology on the one hand and the business community on the other to get it out? Are we providing services that help with the IP protection? Are we creating a smooth enough glide-path out of the university that the transaction costs are not so debilitating that you can’t do it?

Frankly, if I could get everything out by starting companies, that’d be great. If I could get everything out by licenses, that would be great too. It turns out it’s some combination of all that. You make as many pathways out as possible. And startups are just a kind of good surrogate for being able to understand a little better on how you’re doing.

X: What are the key ways you measure the return on the university’s investment in commercialization?

MY: If we’re getting a lot of stuff out there, whether it’s companies or licenses, whether those companies are on the whole—not each individual company, but on the whole—beginning to create jobs. And do the professors and students feel like there is a place to come that can provide the services they need to do it. And if that’s all happening, I’m a pretty happy camper.

X: Is the UW doing a fair job of communicating that economic impact of the startup companies it’s producing?

MY: Well, I, yeah, a fair job is probably the description. We are very Northwest in the sense that we’ve been gifted. We’re biblical. We keep our light hidden under a bushel, more than I think is probably appropriate, but I think there is a buzz now around what the university is doing, with people beginning to understand: Wait a minute, the university’s really open to this kind of engagement, as long as we, the business community, come with the right attitude.

If their attitude is, We’re looking for something quick and cheap and easy, and we’re going to get it out there and then we’re going to sell it to somebody who’s going to take it to Palo Alto, ah, I’m less interested in that.

I’d like to see the ecosystem develop around here in the Puget Sound area, but I think the buzz is good. I think there’s a lot more to come. But I think you want to be a little careful about advertising what we’re doing until we are comfortable that we really can deliver what we say we think is happening here. And I think that’s happening.

X: Taking a closer look at the 18 UW startup companies of this latest fiscal year, the largest one I’ve found has 10 employees—

MY: Really? That many?

X: Most of them just have a handful, usually the company founders. And some of the communications that have come out, including a blog post you wrote earlier this month, say that UW startups average 60 employees per company. Is that a fair way to characterize the job creation?

MY: Oh absolutely. If you look longitudinally, we’ve been doing this for a long time—not with the same number of companies over the years. These numbers are always a little squishy, because, is it a UW startup or not? But it’s probably around 250 companies. Of the ones that have survived and—if you do the average, of the successful and the failed ones, the numbers might look different—but of the ones that have survived, it looks like the average is about 60 employees.

It’s also a slightly squishy number. I mean, I don’t mean to make too much of it, because sometimes the company is acquired by a company, and then what you try to do is ask—it’s acquired by Amgen, you don’t sit there and say, Well, it’s got 10,000 employees. You try to say how many really are working in that space, with whatever that drug was that Amgen bought in the space.

So we try to give a little bit of a sense, but I think our sense is it’s around 50 to 60.

X: At least half of the 18 startup companies from fiscal 2014 were founded before the start of the fiscal year, including some several years earlier. In the parlance of university tech transfer, a startup is counted in the year it takes a license from the university. But that wasn’t obvious by reading the university’s communications on this subject. Do you think the public at large understands this nuance—that when the UW says: “University of Washington launched 18 new start-up companies in the past fiscal year based on UW research technologies,” it actually means 18 companies took licenses in fiscal 2014, but might have been formed before that?

MY: Well, what we look for is when they took the license, and is it their primary form of business. Little less concerned when they actually did the incorporation because there was nothing going on except the setting up of the infrastructure of the corporation until the actual business model kicks in.

We certainly don’t intend to be misleading about that. I think that the larger question is, again, a longitudinal question. If I’m saying 18 started this year, next year, say 18 start again, some of which may actually have been incorporated this year, what we’re looking at is that kind of trajectory. Over time, that smooths out. That is to say, if they started four years ago as a company and actually became a real business this year, four years from now there will be a company that started this year and became a real business four years from now, and I’ll count it four years from now, I won’t count it this year.

But what seems to me misleading, and I’ll tell you why I don’t count it this year as opposed to four years from now: A lot of companies incorporate and set themselves up and then never do anything. You can look at some universities where you’ve got quite a few companies, but they’re really, honestly speaking, still shells. Now maybe they’ll come to a business and maybe they won’t. I’m more interested in counting when there actually is a sense there’s a business there as opposed to a shell. And I don’t mean shell in a negative way—It’s not a scheme behind it. It’s just that often they’ll have set up some entity that won’t really get its technology, get its marketing plan, get the first product and stuff—that’s the point at which I care.

By counting it that way, what we really are doing is trying to actually be conservative, not particularly aggressive in counting.

Who knows, maybe I had 24 companies start this year, but the only ones I really want to count are those that really have begun in some kind of business-oriented way.

X: There are also companies that look like they are UW startups—that may have been incubated in the UW’s New Ventures Facility—but aren’t counted because they don’t meet the criteria set out by the Association of University Technology Managers, which seem to make for less-than-clear communication on university startup activity.

MY: They do.

Frankly, we’re delighted to help the guy who’s going to start up a company using Carnegie Mellon [intellectual property]. I very much believe in the more kids in the playground, the more fun we’re going to have.

But it’s not entirely honest to say that’s a UW startup. It is in some sense. Sure, I could count it. But it doesn’t measure what I’m really concerned about, [that] the great work we do on this university campus does good. I’m not concerned about the money. I’m not concerned about who gets credit. I’m concerned about doing good. And that’s Carnegie Mellon’s stuff doing good. And that’s great. And if we can help facilitate that, I hope someday Carnegie Mellon will help create a company that will use our technology. And sometimes we have companies that use technology from a number of different places. And that’s all fine too. But what I’m trying to measure isn’t so much, have we provided some infrastructure for some guys to go out—although I do. I have a book full of metrics. What we brag about in terms of 18 companies is not by any stretch all I know about what’s going on, on the one hand. On the other hand, what the startups do measure—as the licenses do, actually—is something that I think matters, and that’s probably why we define it the way we do and measure it the way we do.

X: There are some critics who read the recent pronouncements about startup formation as the UW padding its commercialization resume a bit, at a time when it’s going to be needing to look for more money to support future commercialization activities in the absence of the Hall patent revenue, and also to fund capital improvements in New Ventures and things like the innovation district.

MY: I’m surprised there are cynics and critics. It shocks me.

I’m going to try to be polite about this—that’s kind of a silly criticism. And the reason I think I can say that with some confidence is that I worked really hard on commercialization and trying to get that ecosystem created at the University of Utah, and I’d never even heard of the Hall patents.

So I think to say that we’re doing this to pad our resume to get this is a little bit bullshit, just to be honest about it.

I’ve got a long track record of caring about this for all the reasons I’ve stated. 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.

So, God bless ’em, but it’s just nonsense.

X: Do you think commercialization and tech transfer activities—the doing good with the research that’s done here—should that be a financially self-supporting activity or should that be something the university subsidizes the way it subsidizes libraries?

MY: With what would I subsidize it? Tuition dollars? My guess is the students get a little antsy about subsidizing with tuition dollars. I think it’s a really good thing, and if I had world enough and time, I’d be happy to do it for nothing, but it costs money, and we’re in a time where we’ve had a 52 percent decline in our state funding. We’re 49th in the nation of state dollars per [full-time equivalent] student.

So I appreciate the notion that there’s a hell of a lot of things I ought to be subsidizing, and with world enough and time, I would. They’re all good things. But you know, we have to be cognizant of every penny we spend in every way.

So, are we going to let these operations sink when the Hall patents expire? Absolutely not. Do I hope that they produce a certain amount of revenue for the university? Yes. Do we do it for money? No. But, sure it’d be great to have it self-sustaining. Will it be self-sustaining? I don’t know. But it’d be great. And would I like to subsidize it? Absolutely. I’d like to subsidize everything. I’d like to have tuition free. I’d like to let everybody into the football games free. I’d love to do all that, but it’s a question of where the money comes from, and 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.

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.

X: The commercialization committee also addressed this tension between IP licensing revenue and the broader goals of technology transfer—diffusion of knowledge and university innovation, and the contribution to economic development—suggesting that the C4C was prioritizing the former.

MY: I think we need to have a more nuanced view, and maybe an industry-specific view of what appropriate licensing levels are and equity positions and so forth. It is important to get something, because the investigator—again, to some degree, isn’t doing it for the money—but you have to create some incentive for the department to allow them to do it.

We’re providing a lot of services. I would be delighted if somebody would come in and pay for all those services, but I’m still kind of waiting for somebody to come do that. So, I think getting the balance right is critical. Whether we’ve got the balance right or not, I’m not 100 percent sure.

My instinct, and I’m a country lawyer—if I were any good at this, I’d be running C4C instead of doing this job—but my instinct is our licensing fees are probably in the ballpark. Our equity requests are probably in the ballpark. Maybe our anti-dilution clause, maybe we’ve got to look at.

The other thing to remember is there’s always a tradeoff between equity and licensing fees. One of the things I’ve stressed is that a big goal is to get it out the door. And venture capital is tight in this community as it is everywhere, and in fact the venture capitalists are moving much more downstream because they are very big now and so they’re not investing in smaller stages they used to. The angel investors, therefore, have moved there. So this kind of period between conception and angel investors has widened. So getting this stuff out the door is harder than it used to be in some cases. That’s in part why the W Fund is important.

X: The committee also raised concerns about potential conflicts of interest—that the people responsible for setting commercialization policy were also responsible for implementing it. Was that a concern that resonated with you when you read the committee’s report?

MY: Not really, because it turns out, I happen to run the university. I don’t pound the table and I’m not autocratic and I’m not a tyrant, and people sometimes forget that I actually get my way most of the time.

[With] the change that was occurring during the period of that report, I think they’re right. I think there was some panic in C4C about what would happen when the Hall patents expired.

And, No. 2, Linden [Rhoads] and many of her staff are actually VCs. And lo and behold, you put somebody who’s a VC across the table from another VC and they both want the most amount of money. It took some time to say, ‘Yeah, look, let’s get our fair share, but no more. Let’s get it out the door. If that means taking a little less, if that means back-loading [licensing fees], that’s fine. Let’s get it out the door.’

I think the increase in the number of companies over time has been an indication that that’s beginning to catch on and be felt. I don’t see myself as un-influential in running C4C.

Where I do think we have an opportunity to do something, which is referenced in the report, is really getting a much more robust platform around the entire university for students to get involved.

Right now, all the students were involved often in the labs and things like that. But I want to create an opportunity for every school around the university to have the resources: if they want to run innovation classes and entrepreneurial-oriented classes or curricula, if they want to have competitions, if they want to have ways in which business students link with engineering students, link with law students, link with students from the college of environment—I want to create resources that help that happen seamlessly, so the students become much more the centerpiece of this.

I think, in the end, it will actually help get stuff out the door. Things that are powerful at a university are things that are really anchored in the core values of the university, and of course, our first and foremost core value is learning. And so creating more ways in which C4C and the entire entrepreneurial, innovation, commercialization world can be a central part of the instructional component of the university—that’s what Vikram [Jandhyala]’s job is. It’s not coincidental that he’s an academic. That’s, I think, kind of our next step.

X: Another avenue for technology transfer is allowing faculty to have joint positions in industry and at the university. I know at least one example of it happening here already. Do you support this as a more formalized policy?

MY: I really do. It’s tricky because on the one hand there are things here that need to be done. I can’t just let my professors say, OK, you’re a full-time professor and here’s your salary, but you don’t have to teach any classes when you’re researching over there, and you don’t have any labs or any students. Obviously, that doesn’t make any sense, on the one hand. On the other hand, there are a lot of opportunities for our faculty to have more seamless transitions in and out of the private sector—and both ways. Professors from practice as it were, coming here, parking for a year or two in between major projects. Frankly, younger professors like it. I think we’ll lose professors if we don’t have a more seamless way of doing that.

It’s an interesting set of ideas and we very much will be wrestling with those issues now in the next year or two. A lot’s going on already.

X: What are some of your goals for commercialization in the next three years?

MY: I’m afraid to tell them to double again in three years because they’ll do it next year. My biggest goal is to build on what we’ve done, take into account things that we’ve discovered that seem to be working really well, things that we can really drill down on and make better, and then, add into that a real expansion of the way in which this is connected to serve the academic learning mission. If three years from now we’ve got 6,000 students involved in innovation curricula and [business plan] competitions and things like that, I will consider this an extraordinary success.

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