The Road to Redemption

Here’s a story in today’s Seattle Times about AnswerDash, a company formed by students and faculty at the University of Washington’s Information School (my emphasis):

The company, founded in 2012, has raised more than $5 million, including a $2.9 million round led by Voyager Capital last week. The company plans to use the funds to hire sales and marketing staff and continue updating the product, Colleran said.

Here’s what the University of Washington’s tech transfer office claims, in its press release about setting a record for startups in FY 2014:

FY 2014 UW Start-Up Companies:

AnswerDash – Has developed contextual Q&A technology that provides website and web application users with instant context-sensitive answers right when and where they need them. As users ask new questions over time, an “answer layer” builds up over a site or application, enabling future visitors to find answers easily without having to ask again.

Clearly, the University is wrong about when AnswerDash (formerly Quazzow) was started. It’s like this, company after company, among those 18 record-setting startups.

AnswerDash looks like an interesting company. Pity that it is still housed at UW, given that it has raised $5.4M in venture financing. It’s also interesting that the W Fund, a creature of the University of Washington and the Washington Research Foundation, is investing in AnswerDash along with the Washington Research Foundation. It’s hard to distinguish between UW helping out its entrepreneurs and serving up state welfare for wealthy investors. At what point does AnswerDash have enough money to move out of its subsidized public housing?

And, of course, the other questions: why does the University of Washington allow its tech transfer office to continue to deceive the public about its startup record? And why does the interim president play along? Is it that lying about startups brings recognition and hey the University has to do anything to pump its reputation? Or is it that the cost of removing all those startup company names from the wall in Fluke Hall just too great?

Fraud is fraud, and all the worse in a public institution. Here, the fraud plays a role that’s greater than simply trying to get the state to subsidize a wasteful IP licensing operation that just burned through over $100M and has nothing much but bluster to show for it. The fraud also supports a more general University claim that it is a significant source of economic vitality for the state through “innovation.” Those startup numbers are a proxy not just for the Center for Commercialization (now CoMotion, previously TechTrans), but also for the University’s research and instructional programs. The tick has found itself an artery. If the legislature and the public can be led to believe that the University is producing prodigious numbers of startups (like, 18 say), then the state surely has a mandate to subsidize the research and instructional programs of the University.

Now, here we are dealing with a rhetorical argument that’s deliberately tangled. There’s no question–at least to my mind–that the state should support university instruction, and even some–departmental–research. But if the state is going to also subsidize research that is supposed to be fully paid for by external sponsors of research–companies, nonprofit foundations (the Gates Foundation, say–which declines to pay full indirect costs), and the federal government–then the public should have a fair accounting of how much we as taxpayers are paying out so that these sponsors have access to the University’s research facilities and faculty talent. Money the state pays to subsidize sponsored research could support instruction–meaning, lower tuition, more full-time faculty, and more courses. That in turn means less money for bankers and administrators running financial aid, less intrusion of banking into academic decisions, and greater focus on learning rather than on working to afford to learn. We can see right off who won’t like this line of reasoning.

At the University of California, a set of campuses similar to the University of Washington’s main campus, it has been shown that extramural research runs a shortfall of about 20% of its budget–that is, the University of California has to come up with an additional $700M or so to subsidize the sponsors of research, even though the University has a long-standing policy that external sponsors must fully pay for the cost of their research, both direct and indirect costs. Not the case. Given that the University of Washington runs a remarkably similar program (all the way down to copying University of California research policy statements), we can expect that the University of Washington also loses money on its research programs–losses in direct cost budgets (when sponsors cancel a grant or otherwise fail to pay), losses in indirect cost budgets (inefficiencies or waste in administration, failure to negotiate appropriate indirect cost rates or to charge the full indirect cost rate).

One might hypothesize that a reason for the University of Washington’s billion dollar plus annual extramural research budget is that the University keeps its indirect cost rate below its actual cost to appear attractive (“competitive”) to external sponsors of research. Since that supplemental money is not coming from the state directly, and not from the University’s $3B endowment, then it appears that the University is shifting money from tuition and state subsidies for instruction to the administration to backfill the losses in extramural research (and, perhaps, other activities as well). The cover for this is to use in public discussions the “cost of higher education” rather than the “cost of providing undergraduate instruction” when justifying tuition rates. NACUBO, the national organization of university business officers, has devised accounting procedures to ensure that no university will ever show a profit from tuition–the “cost of higher education” will always be calculated to be greater than the tuition received. Students and state legislators alike are led to believe that the public is subsidizing instruction and that the debate should be whether such subsidies should continue as a public good, or whether students pursuing degrees should be considered a personal investment.

Again, at the University of California, undergraduate tuition fully covers the cost of instruction–and more. Yet students (and the public) are told their education is being subsidized by the public. What’s actually happening is that external sponsors of research are being subsidized by money that should have gone to instruction or to keep tuition affordable without sending students deep into debt. More accurately, what’s actually happening is that university administrators are earning hundred thousand dollar plus salaries doing eighty thousand dollar a year jobs, and creating more such administrative jobs for themselves every year. From 1987 to 2011, the University of Washington’s professional staff increased 666%. For this administrative gravy to keep happening, research has to expand and exceed both the facilities and administrative capacities of the university. There’s never enough research, apparently. And to finance the growth of research facilities, universities need more students. The University of Washington in its tax-free bond offerings commits tuition as collateral against the risk of default–that is, the bond holders come before students in the financial way of thinking at the University. Yes, the University cleverly gets a lower interest rate on the bonds, but it does so by formally corrupting its public mission. That is, getting a cheap rate on debt to finance expansion of research facilities is more important than keeping students out of debt. For research to expand, the public needs to believe that there’s innovation a-happening: startups, inventions, economic vitality from the results of all that research. And there is *some* economic activity from research–people spend money to do research, pay salaries, buy stuff, lease space. But there’s not nearly enough innovation activity in technology transfer to justify the expansion of administration to promote that activity.

The administration for startups at the University of Washington has grown at a much higher rate than the actual number of startups, and without any significant effect on the economic vitality of the state, the region, or the city of Seattle. University of Washington faculty produce roughly the same number of startups as they did a decade ago, but UW has spent twice as much in recent years trying to force more companies into existence. So what was once personal consulting becomes a university startup. Nonprofit organizations become startups. Board games become startups. Web sites become startups. Research projects become startups housed in special research areas now called “innovation zones” or something. Call it rebranding or repositioning if you like–but the purpose–and the effect–is to deceive the public with regard to innovation, and to compete with the local entrepreneurial community for resources.

The University of Washington claims 18 startups launched in FY2014. And it claims this is a record. And it won an international award for so many startups. And Reuters justifies the University’s top ranking in its silly “innovation” index because the University has so many startups, and the University’s senior administrators broadcast press releases that conflate the Reuters methodology (patents, citations to patents, ratio of patent applications filed to patents issued…) with their own fraudulent startup numbers. The reality is that the University launched only 1 company in FY2014, according to its own list (and its lists are, recently, wildly inaccurate anyway). The rest were earlier–way earlier in a number of cases–and a number were not launched at the University and were not launched to take a license to University-owned IP. The University may have done business with each of them at some point, but it did not launch them, they were not formed to commercialize University discoveries, they mostly have not commercialized University research discoveries, and when in the few instances they have developed product, they have moved out of state or moved their manufacturing out of state, so any economic vitality that has taken place has largely not happened in the state of Washington.

It is easy to object to the critique of University of Washington-claimed startups: startups take a long time–check back in two decades; investments often fail seeking one huge hit; this is anti-UW rhetoric; of this gets around, the state won’t restore its support for UW; there’s no evidence (though there is) that UW research loses money; and the state should be supporting such research anyway, so it’s okay if UW is deceptive (er, lies) to the public to nudge legislators to do “the right thing.” The University of Utah fostered such a culture of “untruth and lies” to induce the state to allocate hundreds of millions to build research facilities to foster innovation. At the end of one five-year, $90M dollop of funding, the University could find only four companies with a total of thirteen employees. Essentially, nothing. The entire economic impact was the effect of doling out the $90M. The state could have given the money away to people on the street and got the same effect.

There is a role for faculty-led, university-hosted research. There is a role for a university to provide people to help those who invent, or author, or create with managing intellectual property and with how commercial interests move into university laboratory and instructional spaces. There is a role for universities to play in economic development, too. And there is a role for a state government (or even city government) to support a university in all these roles. But the accounting must be true. Research carries uncertainties. Ideas are easy. Even patentable inventions are easy, too, once you figure it out. Pushing change into an established order can be hard. When a state government (or a public university operating as an instrument of state government) decides to push change on its public, one expects that the government’s decision is subject to question by the voters. Yet voters cannot get at a university other than to withhold funding–and that appears to be what they are doing. If a public university wants to win back public support, fostering a culture of lies and untruths about innovation is not the way to do it.

Instead, public universities need to get out of the business of partnering with speculative monopoly investors to force change on anyone–citizens, businesses, markets. Even more so, because they don’t force any change, but rather make a show of appearing to be on the brink of creating the potential to force change. Public universities should hold intellectual property arising from research when they are asked to, and then only when doing so will allow broad access for all. That can be done with publication agreements, open source distributions, FRAND licensing programs, consortia, standards, membership organizations–all sorts of ways to make things available without seeking to “commercialize” all research findings as a default.

The road to redemption begins with a single step. Stop lying about the number of startups. Correct the public record.

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