Viewing the start-up realistically
If a project is pitched as perfection but delivers great, the project fails. If the project is pitched as good but delivers great, the project succeeds. Start-ups need to reign in how much perfection-pitching they perform. Investors, partners and acquirers need to view start-ups more realistically than their perception of a start-up’s ability to make overnight transformations.
Aligning definitions of success and support at the stages of technology progression is critical to achieving positive outcomes. Mission alignment needs to continually improve. An increasing amount of research is being performed by universities and government so, as a result, there needs to be a protocol developed upfront to allow for alignment with established companies and any start-ups that ultimately commercialize the technology and discover marketing positioning for an output product.
Terms and agreements are also critical components for Technology Transfer because with investment in research, costs occur immediately yet revenue is future and uncertain. Any licensing terms need to share this inevitable risk, and provide the freedom for the licensor to pursue other licensees in cases where a commercialization effort does not meet certain financial goals.
What kind of regulatory/mandatory changes need to take place?
Federal laboratory scientists are often willing to help companies adopt their technologies, as evidenced by the success of the Argonne Laboratory’s Executive in Residence Program, as well as MITRE’s first-hand experience of partnering with them to develop and nurture opportunities. It takes a team to deliver Technology Transfer successfully.
However, federal labs have limited funding available to support engagements with private sector companies unless incorporated directly into the license itself. Mandating availability of increased funding of this kind, as well as reducing the administrative burden associated with accessing those funds, would drive greater private sector engagement with the federal laboratories, and thereby increase the commercial impacts of federal laboratory research and development.
In terms of mandatory changes to facilitate the delivery of and derive benefits from new innovative products in healthcare, for example, supported by a connected Digital IT architecture, investment in a standard interoperability framework would be highly significant. Currently, the landscape is diverse, and pointedly so in healthcare, where hospitals each operate individually with different system installations that limit the ability to interface seamlessly across institutions. Under these circumstances, it is impossible for any new innovations to be easily accessible by all points of the domain due to lack of an interoperability mindset. In addition, encouraging a more patient-centered architecture would lead to an increasingly robust innovation environment for healthcare. In fact, it has been shown that having patients involved in their healthcare improves results and lowers costs.
What can government agencies do to enhance opportunities?
Federal laboratories are ultimately driven by the goals and objectives of their funding agencies and offices, and they remain the bedrock for delivering outcomes for national defense as well as national safety and security. Technology Transfer Offices can help companies access the innovations and capabilities of the federal laboratories by increasing the programmatic value they place on such engagements, and actively encourage or support the interactions. In effect, this approach will benefit their needs, too, by making a product or service readily available, in a robust way, at economically viable price points.
There are also more likely to be further and future advancements of the technology available in due course driven by the product development efforts of the commercial company. This outcome would undoubtedly reduce sustainability costs for the agency as their needs would continue to be serviced directly from private funds. As noted earlier, extending and expanding programs such as SBV and TCF would likely increase private sector engagement with the federal laboratories.
Government agencies also can help with mission alignment. A good example of this approach was the space race in the 1960s. There are also several other examples where the government has been the catalyst for successful technologies that generate commercial breakthrough opportunities. Agencies should be setting goals and metrics and providing financial incentives for academia, federal labs, and the private sector to work together to meet these goals. Nevertheless, the government needs to avoid picking winners and losers because only the market can determine the future value of any technology. Once the “macro” level goals are set for alignment, individuals (scientists, innovators and engineers) need to be trained on the behavioral science of how better to understand the “micro”’ level needs of the others in the chain.
The NSF (National Science Foundation) I-Corps and the Fed-Tech program deliver value by helping innovators and entrepreneurs understand product market fit through experiential training in discovering needs. Similar programs, designed to align fundamental research to commercialization, would go a long way towards improving the situation. The Innovation Research Interchange (formerly known as the Industrial Research Institute) is helping to support match-making initiatives through its Federal Laboratory Activity Group (FLAG). Specific areas of focus are: Energy/Sustainability, Advanced Materials/Manufacturing, Cyber Security/Data Analytics and Robotics/Automation.
The government makes a good partner because it is a natural convener of new discoveries, can sustain much longer term strategies compared with industry, and is not under the demands of shareholders. Rather, it is often neutral and can enable even typically competitive organizations to collaborate for the greater good of society. While governments are not expected to over-regulate, their ambiguous guidelines can sometimes lead to fragmentation if the industry does not reach consensus, as evidenced by the lack of interoperability in the healthcare segment. If the government actively engages industry, then further fragmentation would be avoided and the associated longer term problems likely minimized.
What can and how can we help entrepreneurs to aid the process to success?
To support the entrepreneurial process, federal laboratories are encouraged to focus on some new approaches, namely:
- Increase visibility of their capabilities and ensure innovations are readily available
- Provide clearer guidance on what the laboratories can provide and, equally important, what they cannot provide
- Host a series of technology focused workshops to raise awareness of available programs and opportunities
- Award grants to entrepreneurs to support their programs
- Create more opportunities for innovation bridges, so that challenges are solved together from the onset
Supporting entrepreneurs to quickly achieve a “Yes/Go” or “No/Go” pitch to future investment is critical. For example, a start-up entity often has 12 to 18 months of runway, during which time it needs to quickly succeed or fail (and pivot, if appropriate). With limited resources, the team is unable to spread itself thinly and therefore must remain focused on its target goal. A “maybe” response is a killer; it results in burning resources and does not help entrepreneurs to understand clearly if their product is providing true value. Being harsh but factually quantitative enables a better outcome for all.
Entrepreneurs themselves fall into distinct groups as determined by their efforts. Entrepreneurs focus on target-market fit and sustainable advantages of their products to attract investors. They need exclusivity yet have limited funds for licensing. For many start-ups, future equity is their only currency, so they need financial resources to help solve the problem.
What can well-established companies do to improve interaction, integration and chances of success?
Investing time with the federal laboratories to learn more about ongoing research activities and outputs is one way to improve outcomes. Most research results are complex and are “works in progress.” While it is relatively rare to find a nearly commercially-ready technology solution in the laboratories, the laboratories have deep expertise and capabilities and can help companies quickly solve complex challenges.
Additionally, there is the need to resist the urge to negotiate the terms and conditions of collaboration agreements with federal laboratories. Most laboratories can quickly implement standard agreements, yet must seek multiple levels of federal approval for non-standard agreements, significantly increasing the time required to put an agreement in place. Furthermore, federal laws and policies limit the extent to which partnering agreements can be substantively changed, so that lengthy negotiations rarely result in significant changes in agreement terms.
Defining success at the stages of discovery, development, deployment and distribution are key to having projects reach positive outcomes. Without this expectation setting, project timing will be misaligned and it will be challenging to realign the stage-appropriate support to achieve real business value.
Again, the three conditions associated with barriers to success apply—namely, alignment of mission, resource needs and time to market, together with company exclusivity. However, where a start-up may be heavily dependent on IP as a sustainable competitive advantage, large companies have other factors contributing to that competitive advantage, for example, brand, supply chain, scale, and channels. Large corporations will tend to “engineer” around patents in their commercialization process. Acquisition of IP will occur through licensing if it is core and foundational, and they cannot overcome the barrier. They will also only buy/license IP in times of disruption or transition. Generally, this outcome is achieved by acquiring a start-up that has commercialized a proven product market fit. In effect, established corporations are looking for products, not research, when they need technology.
How can the VC communities and start-ups take advantage of outcomes from federally funded programs?
Interactions between venture capital (VC) communities and start-ups present several areas for improvement. For example, enabling them to interface and work routinely with universities and other programs would increase their familiarity and comfort level with federally funded initiatives. However, it is also important to note that writing a successful grant application is very different than preparing a strong business pitch deck.
Encouraging portfolio companies to visit and engage with the federal laboratories to learn about available technologies and collaboration opportunities would certainly drive enhanced relationships leading to technology transfer. Allied Minds is one such company that routinely interfaces with several federal entities with the primary objective of accessing and gaining exposure to early stage IP. In the main, Technology Transfer offices are always happy to coordinate visits from prospective collaborators.
VCs are essentially risk managers and are unlikely to accept more risk to increase the flow of IP. VCs need to see their investments explode—or fail fast. Return on investment from Technology Transfer extracted from federal labs would undoubtedly increase if the lab can define the path to commercialization, even if they cannot execute that path due to their mission. Quantified data linking research to customer will attract VCs. As such, NSF I-Corps, Fed-Corp and DHS TTP initiatives are helpful programs. If technology has an assessed product market fit through a customer discovery process using scientific methods, in addition to the science of the invention, there is less risk. VCs will take advantage of this type of program in their investment decisions.
Conclusion
There is currently a mass of untapped technical potential and IP sitting on shelves within the federal laboratory ecosystem that has been funded by federal agencies. We know that those concepts which do make it to market, such as laser technology from the 1960s, have compelling impacts, solve national and global problems, provide a catalyst for greater success by industry alone, and drive the economy and GDP of the country. The laser is only one such technology, the Internet is another—it started life at the Stanford Research Institute (SRI). And there are also many technologies we rely on today that emanated from the space race.
The results of all these programs are generally clearly visible, as compared with private investment where only those making the investment typically benefit and the outcomes are less visible to society. The advancement and discoveries of industry, therefore, have only limited impact as a result, compared with when the outcomes are delivered from government funded programs. Recommendations to further support unlocking the potential from federally funded R&D are as follows:
- Increase funding to support the transition of technology to entrepreneurs
- Enable federal laboratories to better understand business world needs
- Engage teams with market positioning early on so that modifications can be built in accordingly
- Create more programs like DHS and TPP to showcase early, impactful technologies
- Encourage and find ways to showcase opportunities at all of the federal labs
With these modifications and implemented changes, there will likely be:
- Increased technology transition to entrepreneurial and well-established companies
- New opportunities generated for discoveries that make an impact on the national and global landscape
- Economical and viable options delivered to support widespread government use of a technology
- Technology advancement at private expense that will be available to government
- A return on the initial investment by enabling economic development from growth of a new industry
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