A friend sent me a link to this article by Steve Blank that shows how venture backed start ups have moved from IPO to acquisition as the primary exit. If the primary purpose of starting a company is selling it to big companies, then one is in the business of making krill not new whales. Sure, there is money in making krill, too, but as Steve Blank points out, life after an acquisition is not likely to be the same as after an IPO. Management changes, the culture of the start up changes. The start up may simply be shut down to get it out of the way. That was the value of its purchase price. The value it had was the bother factor to the status quo.
We can take this state of affairs to the current university effort to start companies. A decade ago, starting companies out of a university was an iffy thing. A lot of universities couldn’t take an equity position, and when they did, they didn’t have a good way of handling the stock, the possible board seat, the conflict of interest with regard to research sponsored by the start up or the conflict of interest with regard to whether to enforce the contract to develop the licensed invention or to play for the success of the company and its equity value, regardless of the fate of the invention. Now, there’s a lot of talk about start ups, and talk of the need for gap funds to cross the “valley of death”, to go where private investors are generally unwilling to go (and that in itself should give folks pause, but it does not). Universities that claim a lot of start ups are the object of envy. And it truly is impressive to see a concerted effort to start companies using university resources, assets, and talent. Impressive like Cirque du soleil. It’s a great show.
But I can’t help feeling like the universities are getting it badly wrong. That they are offering incentives to start companies that never should be. And even if they still wanted to do that, they are a decade late on the mark (or maybe a decade early). At any rate, it’s terrible timing to be throwing everything but the kitchen sink at start ups. That these start ups serve as shells for research IP exclusively licensed with only tiny bits of reserved rights become moribund vessels that restrict opportunity and a broader commons of access to research findings. Where collaboration across organizations and fields is necessary to create a new platform for technology, placing each invention into a patent-holding start up is like encasing a chewy nougat in cement. That appears to be what has happened in nanotech. Research spread out everywhere, and every university rushed the bowl to file its patents, creating such fragmentation that few can afford to try to gather up sufficient rights to practice and not be trolled–and stopped by the sheer bureaucracy of licensing–by the rest. It’s like a mountain road controlled by tribal warlords. Every few miles, a new warlord, and a new demand for payment for safe passage. At some point, it is not worth being on the road in those mountains, because one cannot make it through without being picked clean. The warlords by their nature–they are warlords, after all–don’t get along with each other. So it’s not like one can pay off the first warlord, and get safe passage the rest of the way, with the first warlord sharing in a warm and fluffy way with all the other warlords along the route. No warlord is going to go for that!
So we have university warlords setting up their patent munitions to guard the road to innovation. That’s essentially what determining “commercial value” of an “early stage invention” arising from “fundamental research” is all about. Are we near the road? Can we block it? Will someone pay to go past? It’s like a neurotic passive aggressive patent assert program ironed into abstract rationality by bureaucrats. A organized process-bound transparent troll with warm fluffy public mission feelings that get easily hurt if corporate travelers won’t pay. Starting companies rather than offering licenses is a new development. Instead of blocking the road for others, the strategy is to block the road with one’s own travelers, at least for your part of the road. It’s like a denial of service attack in the internet world, but instead it’s a denial of research access attack. An exclusive license for research says to everyone else: you can know but cannot act. What’s the point of that? For the university warlords, it’s a leverage point–if you won’t license research IP to make commercial products for a royalty, then we will license our technology to our own start up companies, compete for venture funding, and make the products ourselves. Or, do the paperwork that makes it appear there will be products, but everything good anyway so long as we get paid. It’s a road that you can’t even get on unless you do business with, infringe the rights of, or buy out our start ups.
Where does this get to? Right now, it gets to feeding krill to the status quo for money. That’s where the current school of university start ups is headed. Sold to venture to sell to the bigs. The bigs, as likely as not, strip off the talent and toss the licensed technology. Well, not toss it exactly but rather keep the license and shift resources to other things. Since the university gets paid, it keeps mum–money=success in warlord shakedown thinking. This doesn’t happen all the time, but as the article we led off with indicates, it’s happening an awful lot of the time now.
The effect of the heavy emphasis on university start ups to “commercialize” research technology is to dry up available investment resources for entrepreneurs not taking licenses from universities (the universities rely on their reputation and access to “gap funds” to competitively “de-risk” possible investments). Then these start ups are fed to the status quo based on their bother, salvage, and uncertainty value. A service might be retained, or some data, but for the most part the intangible assets that make the start up generally valuable–brand, customer base, development team, management team, technology, vision, even relationship with university–are the things that get shed in an acquisition with a major player. It’s a fact of life. I’m not bothered particularly. But if this is the case, then the current university start ups are not an index into innovation but much more directly a measure of the cleverness universities are coming to to capture government money for their operations, and to make money feeding university inventions to the status quo. University tech transfer folks are entrenching the status quo through research innovation. Not what they say, or say they are doing, and not everywhere, but it’s the consequence of preponderance of their actions.
Companies going to IPO, private investment, or mergers among small companies to fuel growth and market reach, even sales relationships between a start up company and one or more large companies–these are measures of innovation vitality. Big companies swallowing small ones is a measure, more often than not, of an entrenching of the status quo, not a transformation of it. It’s an odd thought, isn’t it? That all the university talk is about how research fuels innovation which changes the world for the better and creates jobs. Yet the result of the actions taken by university bureaucrats amounts to deepening the hold the status quo has on the economy.
Now, I dearly love the status quo. It greets me when I get up and the sound of its distant train whistles and ferry boat horns lull me to sleep at night. In between, there is wonderful work done by big companies and small, governments and non-profits, and with all the natural people that work the formalities to animate these fictional corporate “people” that carry the status quo. Without the status quo, why, it would be chaos and night and monsters eating their children and then the next moment not even being the same monsters. Shudder. But the status quo also needs change agents. And one thing that status quo is absolutely no good at is proposing significant change and the executing on it. Jon Stewart’s bit on presidential calls for oil independence comes to mind. It’s the chamber of commerce dilemma. All the companies in the chamber are for progress, economic development, and prosperity, just that they would like it most if it came about without changing their positions at the table. It’s not like they are going to advocate for bringing in a new company so popular and successful it puts half of them out of business. No, they want change that is socially invariant.
Here’s the thing. The universities depend on the status quo and contribute to it. They are remarkably conservative things. They are like cockroaches. They survive in the harshest of environments. But their extramural research activity is expected to be progressive. This is the vision of Vannevar Bush in Science the Endless Frontier. Even more so in As We May Think. The applications of science have built us a “well-supplied house”. The challenge now is to avoid becoming “bogged down” by the complexity of things or “perish in conflict” by creating weapons rather than things for good. The role for universities, as a primary seat of science (and other good things), is to offer the status quo–no poke the status quo–with what the status quo cannot propose for itself, and that is transformational change, change that creates new social and economic opportunities outside the immediate reach of the powers that be.
Let’s repeat: the greatest economic thing the management of university research assets can do is to poke the status quo with the possibility of transformational change. Unexpected, unwanted, unplanned transformational change. Cures rather than making a business of turning acute conditions into paying chronic ones.
This poke is sometimes mistaken for confrontation, a mere antagonism, a lulz, by which university harbors activists who derive pleasure disrupting things others value. But we don’t need to conflate things this way. Research discovery opens up new things in the world. It turns out that the choice is not so much between weapons and fluffy comforts but rather between things that feed and entrench the status quo and things that would extend and transform it.
In this, it is not that the university creates companies, lots of companies, krill in a cold sea to keep whales happy–but what role these companies have with regard to the potential to change lives, to provide something new in the world that can transform the status quo. Like the telephone did, or the airplane. Instead, universities don’t report that kind of thing. It’s enough that they have started companies and they are making money doing so. But they appear, increasingly, to be selling to the edges of the status quo, so that things get more entrenched rather than more ready to change. The status quo, especially a status quo served by a collection of large companies, like an informal–even unplanned–monopoly, has its own ideas about when and how to change, so that change is properly timed, efficient, signaled to others, and taken on only after the return on past investments is adequately covered to justify moving on.
If universities are starting companies just to sell them out, for the most part, to the status quo, then what’s the point? Having no technology transfer function is just as fine to do that–maybe even better. The whale eats the krill, and the krill conveniently and inconsequentially disappear. The only issue is the cost to the whale. We don’t need any help leaving things for the status quo, and there is no point trying to make a buck doing that, especially in universities where for the vast majority they have *no meaningful plan for why they want to make money licensing patents*. I’ve read a ton of university IP policies. Not there. No meaningful reason to make money. At best, it’s public benefit=more money for us. It’s simply terrier behavior. They chew the sofa because they chew. The warlord demands protection money to travel the trail because that’s the life of the warlord. They try to make money because money is supposed to be made when licensing patents. Making money makes them look good. It doesn’t matter what the money comes from–it is as fine to sell out to the status quo as to challenge it. Doesn’t matter where it goes. Presently, it appears there is a good business in selling to the status quo, so that is what university technology transfer offices are doing. That’s what “commercialization” means.
The current tech transfer view of “commercialization” has nothing, really, to do with the innovation that universities, distinctively, should be about. This is why there’s academic freedom and tenure. This is why research is mostly extramural–outside the management control of bureaucrats and “managers”. This is why governments have a reason to seek out individual faculty to lead efforts outside of government labs and controls and direction. This is why there should be faculty investigator and faculty inventor choice in management agents. To keep transformation innovation from being sold off to the status quo simply for money. All this, to do what on behalf of the status quo what it cannot do for itself. Propose and execute on transformations led by technology that are not socially or corporately invariant.