The Bully Pulpit

University of Washington president Michael Young gave a brief talk on technology transfer as he opened Fluke Hall as a startup incubator. In the talk, among other things Young challenged C4C, the UW licensing operation to double the number of startups. Over the past two years, C4C and Michael Young have issued a string of press releases claiming great success. In July 2013, C4C claimed 17 startups; in June 2014, C4C claimed another 18 startups. A check of public records, however, finds only 13 startups, a number of which are paper shell companies without meaningful operations, leaving 2 startups in two years that have the profile of university-based startups with independent operations that might have some effect on the state’s economy.

This strategy is not new for Michael Young. Here is a description of the approach from an early account of the transformation of the University of Utah program (my emphasis):

a. Bully Pulpit:

One thing that always characterizes an effective entrepreneurial organization or an effective entrepreneurial community is that leaders make a visible effort to demonstrate their support for entrepreneurial activities. Vocal leadership is still more critical than generally recognized. What they say, however, and how they say it matters too. The new President of the University of Utah, Michael Young, made it a clear priority that the institution will drive economic development. He backed that statement up with a new organization structure that removed the commercialization office from under the VP for Research and aligned it with the Business School and its entrepreneurial programs. Business School Dean Jack Brittain, was promoted to run the new organization Technology Ventures, and given freedom to build a new and interactive program.

UW has put Michael Young’s vocal campaign to good use. In mid-July, UW announced that its business accelerator has been named the “emerging incubator of the year” by the University Business Incubators Global Index. According to C4C, the Index bases its decision in part on–well, here is C4C’s account:

In that short time, the Center for Commercialization has provided “exceptional quality to its clients, produced growth companies and high economic impact for the region,” said Dhruv Bhatli, co-founder of the global index.

“For these reasons it has been selected as the emerging business incubator of the year,” Bhatli said.

C4C makes it clear that its fabricated startup metrics continue to play a key role:

“On the heels of just announcing our record number of 18 new UW startup companies launched in 2014, we are delighted to be named global emerging incubator of the year after only two-and-a-half years of operation,” said Patrick Shelby, director of New Ventures. “We’re not only spinning out more companies, we’re creating stronger startups with higher survival and growth rates that, in turn, are providing jobs and boosting our region’s economic health.”

At the UBI Index website, we find that C4C received an award for the “Most Promising Incubator.” Perhaps that is true if “most promising” is construed to mean “promises the most.” C4C, however, does not rank in the top 25 on the UBI Index. The three US university incubators on the list are Rice, Georgia Tech, and Portland State. I wonder if the UBI Index fact-checks the information it receives.

So far, I have yet to see C4C document the “growth companies” or produced “high economic impact for the region.” C4C has also not produced any figures regarding the “strength” of its companies, or company survival rates, or jobs created in the state, or the impact of these startups on the “region’s economic health.” We see assertions but nothing to back them up, no public reporting of the backing data, no independent studies. The lcak of reporting alone should cause auditors to twitch.

Here are the figures on startups reported by UW to AUTM, and published in AUTM’s licensing survey:

  • 2004 – 7
  • 2005 – 4
  • 2006 – 10
  • 2007 – 11
  • 2008 – 9
  • 2009 – 10
  • 2010 – 7
  • 2011 – 9
  • 2012 – 9

We can add now, based on an examination of C4C’s published claims:

  • 2013 – 12
  • 2014 – 1

C4C started in FY 2010 (but used C4C for its last annual report, on FY 2009, when it was still operating as UW TechTransfer).  Michael Young started at UW in July 2011 and his challenge to C4C dates from February 2012. Thus, dates above in green are UW TechTrans, led by Jim Severson. Dates in purple are C4C before Young’s arrival, and dates in red are C4C with Young at UW. Do you see any trend? I don’t, unless 2014 is cause for concern.

Under C4C, if its figures can be believed, 38 companies started in 5 five years, or about 7 per year. Under UW TechTrans, 44 companies were started in 5 years, or better than 8 per year. Either way, starting a few companies is a decent outcome, provided the companies eventually create and sell product and don’t serve merely to separate investors from their money. But the figures say UW TechTrans did a better job than C4C has done with startups.

However, C4C actively rewrites its own history. Here is what C4C says in its “About Us” information:

Since 2005, C4C has supported the commercialization of more than 100 projects, provided comprehensive mentoring and over $4 million in grants, and helped spin out new companies. 

That is, C4C claims credit for the work of UW TechTrans, which C4C leadership and others at UW repeatedly disparage in public.

Let’s break down the shape of Michael Young’s argument then. Let’s take it slow and be clear about each step.

  • UW will drive economic development in the state.
  • C4C confirms this claim by starting many companies in a short period of time.
  • These startups show the commercial importance of UW research findings.
  • Thus, the state should support UW with funds to expand its research programs.
  • The state should also therefore support UW’s commercialization program, as the key link between the research the state subsidizes and the “economic health of the region.”

For Michael Young, the startup story is central. Startups are the rhetoric chosen to connect the dots between a bigger UW research program and the state’s economy. The claim is that the state’s economic future depends on UW research, so the legislature should pony up more money for “commercialization” and research both. The purpose of C4C’s startup rhetoric is to book this claimed impact before it has happened. The startups that C4C claims to have started, even the handful of legitimate ones, represent “potential.” As former Seattle Mariner outfielder Dave Henderson once quipped, “‘Potential’ means you haven’t done anything yet.” But for C4C, potential is all that is required to secure funding, get positive press, win awards, and get a free pass on the state’s ethics law.

A happy side effect is that other universities, full of envy, start copy-cat “commercialization” programs. Washington State University has just created an “Office of Commercialization.” Here is the WSU Office of the President’s take on it (my emphasis):

As impressive as those numbers are, we can – and must – do more to prime the pump for economic prosperity. The path from innovation to market can be long, bumpy and circuitous; smoothing the road to commercialization is critical.

A key first step in that process is creating the right organizational structure at the institution. To be frank, our current Office of Intellectual Property Administration sounds and operates like a bureaucratic relic of the past, regulatory rather than innovative.

That is why I have asked Anson Fatland, associate vice president for economic development, to oversee creation of the new WSU Office of Commercialization.

It is a strange but now conventional mindset–that somehow research “primes the pump” for economic prosperity when it appears that university research is only affordable when there already is economic prosperity, and there is enough left over to pour some down the research well. In any event, even if research “primes the pump” (more potential), it is not at all clear that the research at universities contributes significantly to the regional economy around those universities, other than for the expenditures made in research, which buys houses for university researchers, and perhaps pushes up real estate prices nearby. That is, government pork in the form of research grants does end up getting spent by the university–much of that in the region. That is a kind of economic contribution. But it is not a contribution based on the outputs of research.

That’s why “commercialization” has become so important. Without “commercialization” there is no public purpose for spending on research rather than on other things. Just as the state of Utah found, the economic contribution of spending $93M in support of university research for economic development is no different from spending that $93M anything else that disappears into the void–state web sites promoting fence construction safety. The state could *give the money away* and achieve the same level of contribution, but be ahead because it would not be saddled with expensive research buildings that it has to maintain and manage.

I put commercialization, then, in quotes to make clear the difference between the actual development of products based on discoveries, and the show of potential for such development, in which a university administration tries to make its mindset about innovation actually prove out in real life. That’s what is not happening.

For economic development, a critical metric is how many of those university startups operate in the state. AUTM, interestingly enough, asks this question in its licensing survey. Here are the figures reported by UW from FY2004 through FY2012 (with total startups after the slash):

  • 2004 – 4 / 4
  • 2005 – 7 / 7
  • 2006 – 8 / 10
  • 2007 – 8 / 11
  • 2008 – 8 / 9
  • 2009 – 8 / 10
  • 2010 – 3 / 7
  • 2011 – 6 / 9
  • 2012 – 8 / 9

For the C4C years 2010-12, that’s 17 in-state startups of 25 (68%). For the UW TechTrans years, that’s  43 of 51 (84%). UW TechTransfer was starting more companies in-state. If anyone was going to make an economic development argument, it would by UW TechTrans, but of course that unit is not around to speak up for itself. I guess I am a speaker for the dead. What about the FY13 companies and the FY14 companies? As near as I can tell, C4C is doing better recently:

  • 2013 – 12 / 12
  • 2014 – 1 / 1

That brings C4C’s percentage of in-state startups up to 78%–still not quite back to UW TechTransfer’s mark, but better. It may be, however, that these companies are in-state because most of them have never left UW, let alone had a taste of private investment. A number of the companies that C4C cites among its startups–but are not–have left the state, or never were in the state, other than for a touch of research collaboration. No matter, UW leaves the impression, and it appears UW intends to leave this impression, that the startups it claims are operating in the state, creating jobs in the state, driving the state’s economy.

There are indeed UW-related startups doing well in the state–MicroGREEN Polymers, say, with 54 employees or so and EnerG2, with 28 or so–but these are not C4C startups. Not that you would know this from C4C publications. Here’s C4C’s re-history about MicroGREEN (my bold):

The UW C4C led MicroGREEN through commercialization in 2002

Yes, that wasn’t UW C4C’s work. It was the old UW Office of Technology Licensing, even before there was UW TechTrans. MicroGREEN had nothing to do with C4C. Funny that. Here is C4C on EnerG2 (again, my bold):

UW’s Center for Commercialization (C4C) worked with Feaver and his colleagues to patent the technology and to obtain UW commercialization funding. As the technology matured, C4C licensed the technology into the start-up and assisted in securing venture capital. EnerG2 has raised $14.5 million in equity financing since 2003.

That’s 2003–seven years before C4C was formed. EnerG2 is another startup assisted by the old Office of Technology Licensing. Of course, EnerG2 is building its primary manufacturing plant in Orgeon, not Washington, so jobs creation will primarily benefit Oregon. There is a problem in rebranding and reorganizing a tech transfer operation. You can’t disparage the past operation as unproductive and in the next breath take credit for the past’s work. Well, you can’t if you are rational and honest. Otherwise, well–just saying.

The greater problem, however, is the misreporting of performance figures, apparently with the approval of the university president, apparently to dupe the state legislature and the public. If UW were a publicly traded company, the misreporting, confirmed as it is by the chief executive, would be securities fraud. But UW is merely an instrument of the state, and C4C is merely a rogue unit of UW tasked with constructing the appearance of a connection between research and the state’s economy. C4C has been run as if it were itself a startup company for this purpose, desperately self–promoting itself for another round of investment, having used up the remaining years of the Hall patent, its reserve funds, its reputation. But C4C pitches its self-interest without any need to be concerned about securities law or need to be truthful with its investors–not the legislature, not the public, not the faculty, not the students. The attorney general’s division at UW appears to be asleep at the wheel, if not actively complicit with the effort. The C4C’s director has been by far the largest contributor to state politicians among UW senior administrators in recent history–in at least one case directly to a state senator serving on a committee overseeing C4C’s expenditure of state funds. That apparently had been enough to keep local politicians happy to carry UW’s water, however far UW wishes for this particular scheme to go.

University research is not a scam, and technology transfer is not a fraud, but UW leaders have worked diligently to make it appear to be just that. There may be, as Vannevar Bush believed, a connection between basic research and an endless frontier of new technology, but also as Vannever Bush believed, that connection is not one of forcing the results of research into commercial use by administrators. Rather it is the work of unexpected connections made by gadgeteers and scientists pulled out of their institutional roles, pitting against the status quo, focused on building something that status quo cannot imagine, does not think it wants. The university “commercialization” programs make it more difficult to follow Bush’s vision. Instead, we have a bureaucratized system, run by administrators, happy to be flattered by metrics, willing to outrun their mistakes if necessary for the next university enviously ready to believe in the dream they have to sell.

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