Mary Good began the roundtable by inviting Rob James, Secretary General of Canada’s National Research Council (NRC), to offer some insights.
From his own personal bias, Mr. James said, science and technology policy is just as important as fiscal and macro-economic policy. “We aren’t quite there yet, but these kinds of discussions are helping us move down that line, and that is tremendous for all of us,” he said.
Canada’s National Research Council has been engaged in developing clusters for around a decade. “We have yet to get it right. We’ve had some successes and failures, but we’ve learned a number of things that position us to continue the strengthening of these initiatives,” he said. “Many of the points taken today resonated very strongly.”
The council defines clusters as “community-based partnerships seeking competitive advantage in research and innovation.” Canada’s private sector is the economic engine and at the heart of the model, Mr. James explained. The Canadian NRC plays a catalytic role. The Council also is changing its internal culture. Not all veteran scientists agree with the shift toward applied research and commercialization. “It has been an internal barrier for us in some instances,” he said.
The Canadian NRC has learned that engagement with the community is absolutely essential. If some kind of community cluster board is not in place, cluster initiatives tend to lag, Mr. James said. In Canada, these boards consist of representatives from government, industry, and universities. They typically meet quarterly to address gaps and challenges facing that cluster, discuss marketing and branding, and keep the momentum going.
The Canadian NRC also learned the value of technology roadmaps to these initiatives. While plans themselves can be relatively useless, the act of planning
is indispensible, he noted. It is important to get members of the supply chain and community around the table on an ongoing basis. Technology roadmaps are important to accomplishing that.
The Council sees several big opportunities to serve as a catalyst. One is by promoting domestic integration. For example, a cluster is developing in Vancouver around fuel cells that can be linked with the automotive cluster in Ontario. The challenge for the Canadian NRC is to “bring the knowledge, expertise, and skills in Vancouver to bear on the Ontario situation,” Mr. James said. “That is just one example of many. Domestic integration can be an absolute game-changer.”
Canada’s NRC also is trying to build on the concept of international twin cities. Ottawa, for example, has been twinned with Amsterdam for many, many years. In this same vein, there could be an opportunity, for example, for the Vancouver cluster to twin with a Shanghai cluster. The goal is to get clusters linked “scientifically, technically, culturally, and as well as from a business standpoint in a sustainable manner,” he said. Such bridges could give clusters access to international markets, which is very important for Canada.
Mr. James said the term “clusters” remains problematic when it comes to persuading legislators to back an initiative. Many people in economic development have different ideas of what the term means. Therefore, the Council is considering different tag lines that better convey results, such as “centers of technology advantage,” he said. Such a term “would give a bit more of a reason for the existence of these things and gives groups and parties a real reason to come on board with a better understanding of why they are there.”
A national advisory body called the Science, Technology, and Innovation Council of Canada is now assessing cluster initiatives over the past decade, Mr. James noted.72 That body will suggest government policies for the next 8 or 10 years.
Dr. Good thanked Mr. James and added her own observations of the day’s proceedings. She said she is “extremely optimistic about the activity that seems to be going on.” The message of government representatives seemed to be that instead of just discussing and planning, agencies actually are starting to act. “We can plan the rest of our lives and do nothing, so it’s important just to go out and do things,” she said.
Dr. Good noted that a meeting the previous day attended by Secretary of Commerce Locke discussed the role of universities in economic development. “It really was an extraordinary exchange,” she said. “We expect a lot out of universities these days, and they are some of the real jewels that the United States owns” and where it still enjoys leadership. “They will have to help with job creation and many of the issues we are discussing,” she said.
Some university cultures oppose that direction because faculty is not rewarded
for applied research, Dr. Good observed. “If you want people to respond, you have to reward them,” she said. One way is to make it easier for researchers to get funding to continue their work long enough to develop a working prototype, she suggested. Another is to alter the tenure system. “If that reward of tenure, advancement, and promotion is based just on the number of papers in the best peer-reviewed journals, we won’t get there,” she said. “There has to be something else attached to that.” She said she believes many university researchers would embrace such change because they “actually like to see something useful come of what they do.”
Dr. Good said she was very encouraged by the activities discussed at the day’s symposium and described it as “one of the better ones we have had. It really was on topics that are timely.” She then opened the session to questions.
Jim Hurd of Green Science Exchange observed that many other nations “are more command-and-control than we are.” While it is difficult to discuss industrial policy in the United States, he said, “countries like China are happy to throw hundreds of millions of dollars and millions of people at a goal.”
William Harris of Science Foundation Arizona responded that the nation has reached a stage where it is not having a discussion. “We have an important issue to discuss, and we make it a Democrat or Republican issue. I think that’s a tragedy.” The United States lives in a kind of cocoon where it thinks it is exceptional and its universities are the best. “You can imagine the same things being said by GM in 1973,” he added. “Right now, the entire system is somewhat at risk because (America) is not having the same kind of serious discussion we are having here and agreeing to solve problems.” Mr. Harris said he shares Mr. Hurd’s concern that the United States has a political problem in that it is not addressing the opportunities that universities and industry can provide if they work together.
The innovation model that worked for the United States during the Cold War may not be optimal in today’s situation, Mr. Harris continued. “Instead of talking about basic and applied research, which are archaic terms, let’s talk about world first-rate research and world-class research.” He contended that a lot of time is wasted discussing the wrong words. “We are putting a lot of money going into research. Doubling or tripling it is not the right idea unless you have some kind of objective that addresses the needs of society. Just throwing money at it won’t do it.”
Dr. Good said one of the biggest issues is how to go forward and have a conversation that really affects the country as a whole about what is happening in the rest of the world. “We’re losing the middle class at a very, very alarming speed,” she said. If that continues, she added, “what we have thought about for last 50 years in this country will change dramatically.” Americans still believe our technology is the best, so the country still protects technology other nations already have. “We are still working pretty much under the Cold War regime,” Dr. Good said. “That is not where we are, and it is not where the rest of the world is. We have to get a whole lot more realistic.”
Jim Jaffe, CEO of the National Association of Seed and Venture Funds, noted that his group’s members include small seed funds, state investment funds, and organizations such as national laboratories and university research parks. “I want to bring this down from the 50,000-foot level,” Mr. Jaffe said. “One of the dilemmas that our members see is that, if they are on the technology side, they find that they cannot get the word out and appropriately communicate what they have to the people who have money. It’s a communication, marketing, and branding issue.”
On the other hand, Mr. Jaffe explained, when the association asks venture investors where they get their technologies from, they say they are in great shape because they have universities in their area. Many such investors have told him that they are not aware of the federal laboratory system. “How do technologists better communicate what they have to the money people?” Mr. Jaffe asked. “And how do you make the money people more aware of what the technology people have?”
Dr. Good agreed that the people with the money and the people with ideas often don’t talk with each other. Venture capitalists often think there are only two or three spots in the country that are worth mining. Another problem, she said, is that faculty at universities don’t think they should be communicating because that is the job of a licensing office. She added that the STEP board should explore this issue.
Michael Borrus of X/Seed said there are really two issues. One is how to get technology out of places around the country doing interesting research. The other is how to finance the resulting start-ups until they can become self-sustaining. Mr. Borrus said the principal way to move technology out of research sources is through entrepreneurs. “Once you have entrepreneurs, you can usually find capital,” he said.
As to the question of why it is so hard to commercialize technology from national labs, Mr. Borrus said he thinks one reason is that those institutions are “pretty self-selecting.” They attract people who want to do research, as opposed to people who want to build businesses.
Mr. Borrus said he spends most of his time hanging out at a handful of universities, all of which are close to his office in Silicon Valley. That isn’t because venture capitalists are opposed to travel, he said. It is because his firm interacts intensively with the companies it funds, “and you can’t do that over great distances, despite modern communications and information technologies.”
Linking entrepreneurs to more interesting sources of technology is indeed a very hard problem, Mr. Borrus said. There have been small experiments with establishing entrepreneurs in residence at national labs. “But you need a lot of experimentation to figure out what can work and what cannot work in that context.”
Another problem, he added, is that traditional capital markets have moved away from very early-stage company building. Mr. Borrus said he established X/Seed after being at a large Silicon Valley venture firm because the traditional
larger venture firms were largely moving away from seed-stage funding. “I can find entrepreneurs and good technology and bring them to a certain point,” he said. “But now I’m discovering that to get them even further, there is another growing gap in the capital markets.” For certain kinds of difficult technical innovations, it is now getting difficult to find funding at the post-seed level, the so-called Series A funding round, where larger venture funds would typically invest $3 million to $8 million.
Programs such as ARPA-E can help to bridge some funding gaps, he said, but other barriers exist. The crisis in the capital markets in 2008 and 2009, for example, has made many classes of venture capital investors more risk-averse, as has their drift to putting more capital under management and deploying it later after early risk has been removed. The crisis also created a structural problem finding financing for large-scale capital investment projects like scaling up a new solar or bio-fuel production process. Mr. Borrus said he thinks the adjustment period for the problems facing the venture capital industry will last for perhaps a decade.
In the interim, measures are needed to fill these funding gaps, he said. “I am actually quite encouraged,” Mr. Borrus said. “I think most of the pieces exist. It’s a matter of marshalling the will to apply them systematically to this problem.” There does seem to be a will at the local level and growing support at the federal level, he added. If government works together with industry, “I think we can accomplish tremendous things.”
Cathy Swain, who heads the research commercialization office for the 15 universities in the University of Texas system, explained that the MD Anderson Cancer Center in Houston has a fund for proof of concept. It took four years for that fund to break even, she said. The long payback should be expected because the fund deals in life sciences. Ms. Swain noted that her office also started a proof-of-concept fund for nine academic and six health institutions in the UT system. In 18 months, it has produced 15 start-ups. Moreover, it has leveraged the initial funding many times over with private funding. “We are staggered by those results,” she said.
Of course, the funds could be performing well because they have chased low-hanging fruit, Ms. Swain pointed out. But on the other hand, “our tech-transfer offices are telling us that, without exception, researchers are coming out of the woodwork now that the money became available.”
Proof-of-concept funds can be a critical link in the chain and fill an important niche in bridging the Valley of Death. She noted that the first prototype typically is not the one that goes to market. Product development often means the next nine prototypes. “So you don’t really rescue a piece of research with a prototype,” she said. “More is needed in the development stages.”
Market input also is essential. The commercialization program for the UT system is considering making market research part of research grants, she said, such as by requiring applicants to allocate $3,000 to $5,000 of the funding for that purpose.
The UT system has three incubators, Ms. Swain noted. These incubators run into problems stemming from policy, such as private-use restrictions. “I don’t know what policy changes can be made to address them, but that is where the rubber meets the road,” she said.
Dr. Good noted that these kinds of issues were discussed in the February 24 meeting on university commercialization programs. She said she agrees that are many such impediments, and recommendations should be made to fix them.
Richard Bendis, CEO of Innovation America, offered several suggestions. He noted that several states have had innovation strategies for several decades now and update them regularly. He suggested the federal government study some of these state efforts and learn from them.
Mr. Bendis also noted that other nations, both developed and developing, have long-term innovation roadmaps. “What I hear today from the Administration is that there are a lot of programs,” he said. “I see some collaboration, but I do not a long-term integrated roadmap or plan for America that takes us 20 or 30 years out.” Somebody has to take the lead in doing that, and a federal leader has not emerged, he said.
Regarding the Valley of Death, Mr. Bendis said, a new funding paradigm is emerging. “It is not just about proof of concept. It is about proof of relevance,” he said. In order to raise risk capital, one increasingly has to go beyond proof of concept and show that a new product is relevant, which means that there is a large market, that it can be profitable, and that it can have paying customers already. “I honestly believe we have enough money in the various federal government agencies today,” he said. “If we repurpose some of those funds, where we could get a better return on investment, we could deal very adequately with the Valley of Death.” For example, SBIR should double the level of funding it offers and increase investments for Phase III commercialization. “How do we impress upon this Administration, which is trying to stimulate the economy and grow new high-paying jobs, that there is a need to proactively address the Valley of Death right now and increase investment in innovative, entrepreneurial small businesses that have led job growth in America for the past five decades?” he asked.
Jo Anne Goodnight, a program manager for NIH, noted that the NIH has developed a program called “pipeline partnerships.” This is a way for companies funded by SBIR, the Small Business Technology Transfer program, and licensees to put technologies they develop into a database. Research projects are arranged by disease category and stage of clinical testing. “This allows them to showcase those technologies to an audience of investors and strategic partners,” she said. It also helps agencies share information. This year, the NIH is working to expand the program’s reach, such as by including technologies developed at universities.
An audience member suggested other issues that the government should study. She complained that the Bayh-Dole Act has had a chilling effect on universities and that its provisions should be reviewed. She also said a lot of federal programs are outmoded and should be re-thought. For insistence, Small Business
Development Centers still focus on mom-and-pop businesses and doughnut shops, rather than technology start-ups and mentoring, she said. The EDA needs more flexibility, she added. “It still basically is about public works, and it is still focused on laying sewer lines instead of really stimulating technology.”
Dr. Wessner concluded the proceedings by thanking the panel and Mary Good for her leadership.