Feeding the 6,000

[Updated with new figures for the figure-challenged]

In his thoughtful interview with University of Washington president Michael Young, Benjamin Romano asked about what will happen to C4C now that the Hall patents have expired, something everyone has known was going to happen.

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.

UW has one of the largest budgets for non-instructional activities in the nation. Notice that Mr. Young does not tell us where UW ranks on actual spending for undergraduate instruction–the core mission of even a research university. What is UW spending on undergraduate instruction per undergraduate student? It may be less than $8,000 per student per year–but students are paying $12,000 (in state) and much more if non-residents. Throw in state support for instruction, and UW is making out like a bandit with student tuition! Maybe “bandit” is too generous.

If you want to see what high tuition/high financial aid approaches do for students from families with low to moderate incomes, read Chris Newfield’s recent article here.) Between 2006 and 2012, US public universities slipped their spending on instruction as a percentage of total budget–from 25.4% to 24.7%–nearly 3%. According to this report, Washington state is about at the average when it comes to state spending as a percentage of tuition. Here’s an article that explains where the universities have chosen to spend–on administration, which has grown at twice the rate of faculty and student enrollments. Universities might not be getting richer, but they are getting fatter.

Now for the 52% decline in state funding mentioned by Mr. Young. In 2010, according to UW’s Office of Planning and Budgeting (the numbers are budget allocations–actual expenditures–those are likely lost in the dark art of university accounting), the state provided about $321M. In 2014, the figure was $254M, a decline to be sure, but only 21%, not 52%. At the same time, tuition income increased from $331M to $557M, an increase of 68%. Add the numbers–the combination of state support and tuition dollars has increased 25% in only five years. UW has 25% *more money* per year now in 2014 than it had in 2010. So what is this about crying poor by Mr. Young? For 2015 UW is expecting $855M–another 5% increase or so. The state dollars per student may be down, but UW is not spending all its state dollars on students, so the comparison is inapt, if not misleading, if not deliberately misleading.

The rhetorical point Mr. Young would have us believe is that UW is poor, so it will be heroic if Mr. Young finds any money to subsidize C4C with. Yet Mr. Young has already poured tens of millions in subsidies into C4C over the past five years–when UW was poorer than it is now. Over $30M for wrestling Fluke Hall away from the state and the state’s industry to be used by C4C to incubate startups requiring two or three generations of technology to find something useful enough to society that it might be sold as a product.

More millions spent propping up the W Fund–state money pushed into a private for-profit company then run by a UW administrator “personally”–on the side, you know, but contracting with UW for all its services, to be provided by C4C staff, under the direction of, yes, the same UW administrator. Oh, and UW delegates to the administrator the authority to manage the UW employees’ conflicts of interest! Very sweet stuff! Funny how the state’s ethics law can blast a WSU scuba instructor renting equipment to students for thirty years with WSU approval, but can’t smell a big fat rat in the pantry eating all UW’s inventive seed corn. Why is that, exactly?

More millions–back to Mr. Young’s subsidies to C4C–from the Provost’s reserve fund, which ought to have gone to academics, not chasing after speculative investors UW hopes are too stupid to see that UW’s startup companies mostly have no value proposition.

So UW is richer this year than last, the state’s funding is about at the US average relative to tuition, and yet Mr. Young pleads poor and blames a reduction in state funding. Is the UW president chronically challenged when it comes to numbers? Is his big book of metrics mostly fiction? Oh gods of university karma, please–make the next UW president have a degree in physics!

How much is UW actually spending on undergraduate instruction? UW’s own report to the Regents says only 62% of tuition goes to the budget category “Instruction”–and you can expect that “Instruction” is stuffed with all sorts of charges, such as all the football scholarships. The University of California appears to spend only $6,000 on instruction per undergraduate per year, and charges $13,000 for in-state students (much more for others). How different is UW?

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.

This is a blustery answer, but it appears to be headed in the direction of “no, C4C won’t be subsidized by UW and will have to earn its own way, as it did in the past” (except it mostly didn’t because UW’s technology transfer offices rode on the WRF’s licensing income from the Hall patents, which UW’s tech transfer office had nothing to do with except to receive checks, take a cut, and distribute the rest of the money).

So, are we going to let these operations sink when the Hall patents expire?

This is a different question than the one that was asked, but it is also important. The Hall patents expired in April 2014. They have expired.

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.

Do they do it for the money? The C4C four-year strategic plan from December 2010 C4C [now removed from the web, thankfully] lists four goals (with the incompetent prose quoted exactly):

1. Help recruit and retain the best faculty, staff, and graduate student researchers. We will focus on those in high-demand areas of research, where research outcomes are most likely to be of importance to society.
2. Spin-out of more high-value, success-bound start-ups that leverage UW technology. 
3. Generate revenue that significantly exceeds the cost of C4C operations to contribute to a sustainable business model for the University. Start by architecting an interim plan for sustaining UW C4C while building a practice and pipeline of IP that will meet our longer-term revenue objective. Establish an understanding of “total contribution” (e.g. gifts from founders as well as licensing revenue).
4. Raise the visible impact of UW discoveries regionally, at the state level, and globally.

. . .

Note: Ordinarily, we might not place emphasize revenue, but in the current fiscal environment, the university must focus on generating sufficient revenue to support its operations and initiatives. Without adequate funding, UW will not be the best anything. Commercialization is one of the few identified potential new sources of badly-needed funding.

The goals are to promote the impact of discovery (whatever that means), “help” recruit faculty (why?), start companies, and generate revenue, and a lot of it. The Note makes it clear: the rationale for the transmogrification of UW TechTransfer into C4C is to start companies that can be flipped for big bucks: “increased, earlier proceeds from equity liquidations. The emphasis on higher volume and higher quality start-up companies should lead to more and more profitable equity liquidations.” Well, yes. Why should more volume lead to more, or more profitable equity liquidations? Why wouldn’t higher volume lead to more companies competing for limited venture funding, spreading thin UW resources, defocusing attention? No matter: where are those exits now? There aren’t any–if there were, surely UW would have reported them.

Instead of making money for the university, C4C embarked on a program of spending way more of UW’s money:

Two years ago the then-Provost and then Vice Provost – Research agreed to place the Provost office portion of the Hall royalties in a reserve account to be used in largest part for future funding of UW C4C, and last year agreed that C4C could begin drawing on that account now in an effort to increase activities to a level that will accomplish C4C goals including
generating revenue so that outside support is not needed.

That Provost royalty account was not for C4C–it was for the Provost to spend on the rest of the campus. Instead she held it as a reserve fund for C4C, in addition to the millions C4C was already taking from the Hall royalties, apparently just in case the C4C strategic plan that promised so much did not work out. But there’s more–she let C4C spend down that reserve account early, too. C4C was confident:

We are investing now in initiatives which will drive revenue and diversify its sources.

There is nothing substantive about service to the faculty in the C4C strategic plan, nothing about service to industry, nothing about how to do good in the world through transfer of IP managed by the university. The plan pivots around C4C promotion of its activities and making money from startups. Whatever Mr. Young wants the public to believe, the C4C’s formal plan, and the justification for its spending, has been to make money. Mr. Young cannot change that by saying otherwise, later.

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.

This has been Research Enterprise’s expectation. No one expects UW to fold its technology transfer program–though that would be wonderful news, would make UW a national leader, and would surely stimulate innovation and regional economic development like nothing that C4C has ever managed. The challenge will be how UW finances whatever is left of C4C after the last Hall check has been consumed. C4C’s strategic plan proposes an endowment, or taking a portion of the indirect costs from industry research, or begging more money from the state, or getting grants. If C4C wanted an endowment, it was available in the C4C share of the last four years of the Hall patent royalties. If C4C had scaled back operations, as Stanford did in anticipation of the expiration of the Cohen-Boyer patents, C4C would have a nest egg to support a smaller operation. But no, C4C spent more rather than less.

How many patent applications now will be abandoned? How many licensing managers and other staff laid off? How many programs and services reduced or eliminated? Mr. Young would love to subsidize everything.

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.

Yes, of course. C4C should have about $3M a year in operating budget from licensing income post-Hall. That could fund a decent operation, properly restructured.

So while Mr. Young does not know whether C4C will ever make money, he appears to lump C4C into that bin of “important, useful things” for which he will look for funding. Mr. Young is the beneficiary of $100M or so of spending to create a self-promoting and largely ineffective organization. C4C operated like a startup, not like a venture investor. It spent the investor’s money. It is understandable that Mr. Young does not want it to go away. C4C spent Mr. Young’s UW money. But there was no exit for C4C. Unlike companies flipped to gullible investors in the dot com bubble, there was no one to sell C4C to, even having plumped up its numbers and suppressed the rest. If C4C was to succeed, it would have to produce in the area that it has a university franchise to manage–making money from IP licensing. Mr. Young apparently does not realize that he has been taken, played on for his good intentions by folks willing to say what they think he wants to hear. Now he dismisses folks who try to help him see the truth.

Perhaps I have some insight, having listened to people trying to do business with C4C, and having had numerous exit interviews with people on their way out of C4C, having been fired or having quit in, well, dismay. My assessment is that C4C has been run with a rare combination of arrogance, ignorance, and incompetence. There are good people there, but sadly they were not in leadership positions. When Jeremy Jaech, one of Seattle’s veteran entrepreneurs, comes out with the comment that UW took 100 hours to do what Georgia Tech did in 10, then you know C4C is a mess.

C4C’s leadership has run through the money that past deals had produced, eating every green thing, and the leaders are readying to move on. Mr. Young must decide, and quickly, what of C4C can be saved. C4C’s patent spend rate is presently over $4M. Can that continue? Instead of working through these issues, Mr. Young moves to a new vision of “commercialization”–students working on innovation:

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.

The scale is breath-taking. Six hundred students would be plenty! But if the new goal is to create innovation courses, then why does UW need to own faculty and student IP? Why not let the IP go? What is the point of C4C playing at venture capital if there is no money in it, and the president of the university cannot even say if there ever will be any money in it? Teaching students about innovation can be a wonderful thing. Innovation is a complex, changing concept–and for much of its existence “innovation” has been a roundly negative word. Mr. Young’s ideas sound a bit like the Technology Enterprise Institute, which almost started at UW in 1999:

The institute will be unique within the higher education community. It will combine many activities and disciplines that already exist on campus in a structure that will integrate all the elements necessary for creation, development and study of new commercial enterprises.

Among the institute’s functions, it will specialize in helping to form startup companies that are too small to attract attention from venture capitalists. The companies would be at a very early stage of development, when their products or processes are at a concept stage, but they have consolidated their rights to key intellectual property. Most of the companies would be based upon ideas of UW faculty and students. Refinement of the ideas would occur in a facility managed by the institute, with students working as interns in the companies.

Meanwhile, students from a variety of disciplines would be engaged in helping the fledgling company — with market analyses, business plans and intellectual property issues.

But the university’s IP management has to start with IP management. A university does not claim ownership of most everything faculty produce from their research simply to feed it to 6,000 students as a learning experience. There has to be something about transfer of the IP–making assets available to the public, to other researchers, to industry–not just to be the playful bathtub of would-be speculative investors.

This is where Mr. Young could do great things for UW, not by prolonging the painful mistake that was C4C, not by worrying about his track record, not by dismissing concerns as bullshit and nonsense, but by fundamentally changing how a major public research university goes about its IP management. If it is not about the money, but rather about doing good in the world, and helping students learn, then there are some wonderful opportunities to let go of the expensive, ineffective, bitterness-creating, collaboration-destroying, liability-building compulsory institutional control of faculty and student intellectual property, scholarship, and knowledge.

If Mr. Young wants assistance to set UW on a productive path with its intellectual property policies and practices, all he has to do is ask. There are people who would step up to help.

 

 

 

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