Research to Revenue

A Practical Guide to University Start-Ups

Don Rose, Cam Patterson

• Publisher: The University of North Carolina Press
• Year: 2016
• Print ISBN: 9781469676777, 9781469625263
• eBook ISBN: 9781469625270
• Topic: Pedagogía
• Subtopic: Emprendimiento

University start-ups are unique in the world of business and entrepreneurship, translating research conducted at and owned by universities into market-ready products — a complex process that requires a combination of scientific, technical, legal, business, and financial skills to be successful. Start-ups have the potential to generate revenue for universities, enhance faculty recruitment and retention, create jobs, and create investment opportunities for venture capitalists and entrepreneurs. Research to Revenue presents the first-ever comprehensive guide to understanding, starting, and managing university startups. By systematically describing the process of translating academic research into commercial enterprises, Don Rose and Cam Patterson give a thorough, process-oriented, and practical set of guidelines that cover not only best practices but also common — and avoidable — mistakes. They detail the key factors and components that contribute to a successful start-up, explain what makes university start-ups unique, delineate the steps of building and managing them, and describe how to foster and maintain start-ups at a university. Written for faculty and staff working on campus, tech-transfer officers, university administrators, and venture capitalists unfamiliar with university structures, Research to Revenue ensures that any reader unfamiliar with technology commercialization and entrepreneurship will understand the fundamentals of the process, including intellectual property rights, fund-raising, and business models. This work is an invaluable resource for the successful formation and well-managed operation of university start-ups.

Chapter 1: Commercializing University Technology and the Role of Start-Up Companies

Universities are a rich source of knowledge, ideas, discoveries, and innovation. A major role of the university is to disseminate these resources to society in a way that can have beneficial impact. The traditional methods of dissemination have been either through the education of students, who leave the university to make their mark on the world, or through faculty publications of scientific research. In the last several decades, a new channel has developed: commercialization of university research, inventions, and innovations. Although the commercialization of university research has been happening for centuries, the university’s role in it began in earnest in the 1950s with the establishment of the modern research university. That role increased significantly starting in the 1980s with the passage of the federal Patent and Trademark Law Amendments Act, better known as the Bayh-Dole Act, which gave universities title to inventions derived from federal funding and an imperative to commercialize these inventions. More recently, commercialization has changed again as entrepreneurship has begun to play a more defined role in it.

The following are several groundbreaking, impactful products and services that can be traced to university innovations.

Insulin. Insulin was discovered in 1922 by Frederick Banting, a Canadian surgeon working at the University of Toronto, along with his assistant, Charles Best. Crude extracts from the islets of Langerhans in the pancreas of laboratory dogs were injected into other dogs that had been rendered diabetic through the removal of their pancreas. Injection of this substance (which Banting and Best named “insulin,” from the Latin for “islet”) lowered the diabetic dogs’ blood sugar. In 1923, the Nobel Prize was awarded to Banting and John James Rickard Macleod for the discovery. Banting sold the patent for insulin to the University of Toronto for $1. The university went on to use the income generated from the production and sale of insulin to fund new research. The pharmaceutical company Eli Lilly began large-scale production of the extract in 1923.

Gatorade. In 1965, at the bequest of the Florida Gator’s assistant football coach Dwayne Douglas, Robert Cade, who was then the director of the University of Florida College of Medicine’s renal and electrolyte division, began researching the athlete’s body’s response to excessive sweating. Cade, along with research fellows Dana Shires, Jim Free, and A. M. deQuesada, concocted a drink containing salts, sugars, and lemon juice and had student athletes drink it during their practice sessions. They called this drink Gatorade. In 1967, Cade and his fellow inventors sold the rights (but retained a percentage of royalties) for Gatorade to Stokely–Van Camp, who began mass production. In 1983, Stokely–Van Camp was taken over by the Quaker Oats Company, which subsequently launched an aggressive, international marketing campaign to increase the sales and marketing of Gatorade. In 2001, Pepsico bought Quaker Oats, further increasing the revenue from Gatorade sales. The University of Florida has invested the royalties from Gatorade sales in further research in exercise physiology and other biomedical areas.

Recombinant DNA pharmaceuticals. In 1972, Stanford medical professor Stanley Cohen and the University of California, San Francisco, biochemist Herbert Boyer used their respective molecular biology skills to create recombinant DNA, a hybrid DNA strand made up of two different DNA molecules from separate plasmids. This innovation is often cited as the birth of biotechnology. In 1976, Boyer teamed with venture capitalist Robert Swanson to set up the world’s first biotechnology company, Genentech. By patenting recombinant DNA technology, Stanford and the University of California system earned $255 million from licensing revenues, which the schools subsequently used to continue to develop research endeavors. While under patent, recombinant DNA was licensed to 468 companies worldwide, resulting in over an estimated 2,400 new technologies.

Improved hypertext searching. Google began in 1996 as a research project of Sergey Brin and Larry Page, two Ph.D. students at Stanford University. At the time, both were working on the Stanford Digital Library Project. As part of his dissertation project, Page developed a web crawler called BackRub that could explore the relationship between a single web page and all the back links associated with it. In order to analyze the data they were accruing, Page and Brin developed a search engine designed to identify linked pages based on their importance to the originating web page. The search engine, with the domain name google.stanford.edu, was run off the Stanford website. In 1997, Page and Brin registered the domain google.com, and in 1998, Google Inc. was incorporated as a company. Google went public in 2004. Page and Brin’s development of this highly efficient program for hypertext searching revolutionized the way people used the Internet. The Google algorithm has brought over $331 million to Stanford University, much of which has been channeled into the school’s department and program funding.

Liquid crystal display (LCD). The physicist James Fergason, the inventor of LCD, first started experimenting with liquid crystals while he was working at Westinghouse Research Laboratories in Pittsburgh. Westinghouse was interested in liquid crystals as thermal sensors, but Fergason was more interested in the idea of applying liquid crystal technology to displays. This interest prompted Fergason to move to the newly established Liquid Crystal Institute at Kent State University in Ohio. As part of his research at Kent State, Fergason discovered the principle of twisted nematic structure (TN), which would prove to be an essential component in LCDs. In 1970, Fergason left Kent State University to form his own company, ILIXCO. When he applied for a patent for TN LCD technology in February 1971, however, he learned that in December 1970, two Swiss researchers, Martin Schadt and Wolfgang Helfrich, from the company Hoffmann–La Roche in Basel, Switzerland, had published a paper on and filed a patent for TN LCD. A long legal battle ensued between Hoffman La Roche, ILIXCO, and Kent State University (who claimed intellectual property on some of Fergason’s TN LCD research). Eventually, Hoffmann–La Roche bought Fergason’s patent.

Pacemakers. In 1952, Dr. Paul Zoll at Beth Israel Hospital in Boston used an external device to electrically stimulate the heart of a patient suffering from heart block. Zoll’s device, which was large and bulky (and had the potential to electrocute the patient), was improved upon in 1958, when electrical engineering graduate student Earl Bakken designed and built a hand-held external device that delivered electrical impulses to the heart via myocardial leads. This form of the pacemaker also had the advantage of being battery-powered, decreasing the risk of electrocution and giving patients the ability to move about while undergoing treatment. In 1958, this model of the pacemaker was improved even further due to the work of Wilson Greatbach, an electrical engineer in New York, who set about designing an implantable device. In 1960, the first successful human trial of an implantable, battery-operated pacemaker designed by Greatbach was achieved. In 1961, Greatbach signed a license agreement with Medtronic, Earl Bakken’s company, and together Greatbach and Bakken continued to work on improving the reliability and wearability of the pacemaker.

Technology Commercialization

None of the aforementioned innovations would have had their impact on society without technology commercialization, an activity that is unique within universities since it typically involves both public (government funding) and private (industry, investors) entities. The majority of a university’s technology commercialization activities in the United States are made possible by the Bayh-Dole Act. Passed by Congress in 1980, the act gives universities title to any innovations or discoveries arising from research supported by federal funds (e.g., from the National Institutes of Health, the National Science Foundation [NSF], or the Department of Defense [DOD]). In return, the university has obligations to report inventions to the government, protect the IP through patents and copyrights, promote the IP for commercialization, and share any licensing income with the inventors. As a result of the Bayh-Dole Act, most research universities have established technology transfer offices (TTOs) to comply with the legislation. The number of TTOs has grown from fewer than 10 when the act was established in 1980 to hundreds today.

The goal of university technology commercialization, other than complying with Bayh-Dole, is multifaceted, with each university emphasizing different goals to different extents. The following are some common goals:

FACULTY RECRUITMENT AND RETENTION. Although it’s often overlooked, a robust technology commercialization program at a university can be used to keep talented faculty or recruit new faculty. Many younger faculty who are considering academic positions are interested in how their research will have impact or how they can create wealth through commercializing research.

UNLOCKING INNOVATION. Translating innovative research into impactful products and services, such as curing a disease, creating safer drinking water, or reducing waste, is seen as benefiting society, and is aligned well with the mission of a university.

RETURN ON INVESTMENT. From a financial perspective, technology commercialization can return revenue to the university based on its investment—that is, its funding of the research infrastructure (e.g., buildings, labs, core facilities, IT services, etc.) as well as the cost of running the TTO operation (e.g., personnel, patent costs, etc.).

EDUCATIONAL IMPACT. One of the ancillary benefits of a strong commercialization effort is teaching students about how research is translated into commercial products. Courses in technology commercialization provide students with an understanding of the business side of science, better preparing them for research and development (R&D) jobs. Entrepreneurial education equips students with the tools necessary to embark on their entrepreneurial efforts after they leave the university.

ECONOMIC DEVELOPMENT. Many start-ups start locally and grow locally (i.e., near the university whose innovation is being commercialized). As such, they tend to hire locally and spend locally, making them engines for economic development.

A survey of over 100 TTOs shows the multifaceted nature of technology commercialization.¹ Respondents ranked the following as the number one driving factor for their technology commercialization activities: faculty service (39 percent), translating research results (35 percent), revenue maximization (12 percent), other (12 percent), and research support (3 percent). The authors noted that economic development was not a choice in the survey and could have accounted for the large response to the “other” category.

Start-Ups versus Licensing to Established Companies

For a university-derived technology, there are two major paths for bringing the technology to market (fig. 1.1). The first involves the university licensing the technology to an established company where the company incorporates the technology into its product development, manufacturing, and sales processes. The other path involves founding a start-up company to commercialize the technology. In the latter, the new venture is more closely associated with the university because of involvement of the faculty member with the start-up and the “care and feeding” required to launch the start-up, an activity being taken on by more and more universities....

Table of contents

• Cover Page
• Research to Revenue
• Copyright Page
• Contents
• Figures and Tables
• Foreword
• Acknowledgments
• Abbreviations
• Introduction
• Chapter 1: Commercializing University Technology and the Role of Start-Up Companies
• Chapter 2: The University Start-Up
• Chapter 3: Key Steps to a Start-Up
• Chapter 4: Case Studies
• Chapter 5: Stakeholders’ Perspectives
• Concluding Remarks
• Index