The newsletter and publication covers the technology transfer profession and interviews Mikael Totterman and Rich Glaser, two of the founders of Innovocracy.
Bob Dole’s 89th birthday on Sunday got me thinking about the significance of the Bayh-Dole Act of 1980 and the history (and future) of university-based innovation commercialization. My first job after law school was working as an aide to the Director of Policy of Bob Dole’s 1996 presidential campaign. It was in that position that I first heard about Bayh-Dole and the simple idea behind it: give universities, rather than the federal government, the intellectual property and commercialization rights that result from federal research funding.
The impact of this bipartisan legislation has been transformative for American innovation and economic progress over the three decades since its passage. At the time Bayh-Dole was enacted, the US government held over 28,000 patents, with less than 5% of those ever getting commercialized. Since then many thousands of new products and companies have been created based on university research, including numerous critical healthcare advances such as synthetic penicillin, the hepatitis B vaccine, and key therapies for cancer and Crohn’s disease.
By one estimate, 30% of the value of the NASDAQ stock market is rooted in federally-funded university research, and the Economist has written that Bayh-Dole was “[p]ossibly the most inspired piece of legislation to be enacted in America over the past half-century,” and that it “[m]ore than anything…helped reverse America’s precipitous slide into industrial irrelevance.”
Yet as much as Bayh-Dole can be credited with tremendously accelerating the commercialization of university-developed innovations, many studies have also demonstrated that this commercialization can still be done much more optimally. In particular, while tens of billions in federal funding is spent on university research, there are comparatively few resources available for building prototypes or conducting proof-of-concept activities to translate university research into potentially commercialization-ready inventions.
The dearth of this so-called “gap funding” has become a critical bottleneck in research commercialization. And at Innovocracy, we are working with universities and inventors to see if the new simple idea of our time – the power that can be achieved from harnessing the wisdom and resources of a “crowd” – can help ameliorate this significant shortcoming.
In some ways you can think of what we do as providing a platform for micro-gapfunding, which enables each one of us to play a role in bringing into existence the university-originating technologies and solutions that we believe would be most useful to society. We hope this may be another example of a simple concept having a historic and life-enhancing impact, and we look forward to working with all of you to turn this vision into a reality.
[Note: This is the entire version of a white paper previously only available via download. To receive the downloadable PDF visit this page]
This white paper covers how crowdfunding is an opportunity and challenge for academic research institutions. Issues such as intellectual property, proper use of university resources, and tech transfer policy guidelines need to be addressed. Most crowdfunding platforms are not designed to accommodate the special needs of research universities.
What is Crowdfunding?
Crowdfunding uses the Internet and other forms of digital communication, such as social media, to connect donors with individuals seeking financial support.
Project Donor Systems
Crowdfunding sites like Kickstarter (creative and design projects) and PetriDish (scientific research), among others, use a donation model where a project with a specific fundraising target is promoted on a website. There is usually a finite time period when donors may contribute. They are often charged only if the fundraising target is met by this deadline. Project owners are usually responsible for most of the promotional burden and often offer incentives for donating at various levels. In many cases, the crowdfunding site has become an opportunity for artists and innovators to pre-sell products like musical CDs, DVDs and gadgets. Crowdfunding for equity was recently passed into law and will be available after the SEC clarifies its regulatory framework by the end of this year. (This will be addressed further in the paper.)
Other crowdfunding sites like Kiva.org use a microloan model, whereby a donor can loan a small amount of money to a microbusiness owner. These loans started in third-world countries where access to even tiny amounts of credit is limited for entrepreneurs. The movement has expanded globally and loans are now made in many countries, including the US. Loans are expected to be repaid and are often recycled into another project. The incentive is altruistic.
Innovocracy: Crowdfunding for Gap Funding
Innovocracy.org is a donor system website, similar to those mentioned above, with critical features to address the specific challenges associated with funding innovation within a research university. We partner with top universities and work with them to ensure that the necessary steps are followed when their faculty, students and researchers post projects:
- Clear commercialization objectives. Innovocracy’s mission is to help commercialize promising academic innovations. Thus, our project submission process focuses on helping innovators define a concrete time-scoped project that increases the likelihood for commercialization. While traditional funding sources often do not encourage further commercial pursuit, Innovocracy is specifically focused on this. Upon completion of the project, the innovation is expected to be much closer to being licensed or spun out into a startup. Our submission process helps the innovator think through a market lens, differently form a researcher seeking grant funding. This often leads to redefining the project in ways that will favor a successful outcome. Innovators whose projects are not accepted receive constructive feedback to increase the probability of future posting.
- Protection of institutional brand image. With crowdfunding, universities need to determine how to leverage their “brand,” while protecting it. Unlike other crowdfunding platforms, Innovocracy provides a web page for each partnering university. All projects go through a formal curation process to maintain consistency of quality. Only projects that have been approved by the university are posted. Unlike other sites, we do not allow “rogue” researchers or students who may seek to post inappropriate projects and use the university name.
- Clarification of intellectual property (IP). Intellectual property considerations are important for innovators who are seeking commercialization opportunities. Innovocracy works with a designated technology transfer officer at each university to ensure that appropriate provisional or other patent filings have been completed and that no current licensing discussions are compromised. At the outset of the relationship, Innovocracy develops a process and reporting system in conjunction with the university that satisfies the institution’s needs and adheres to its policies.
- Standardization of fund flows. Innovocracy uses two mechanisms to deliver the funds raised through our website. In the research funding model, we work directly with the university department responsible for research funding administration. Upon a successful funding, we provide an award letter with a budget that had been previously approved. The funds are transferred into an academic research account from which the researcher can make withdrawals, ensuring that the funds are spent appropriately. At the conclusion of the project, the researcher prepares a one-page summary of the results, which Innovocracy forwards to the financial sponsors. With the gift funding model, the funds are forwarded to the development office. A similar process to the research funding model is followed thereafter.
- Integration with accounting and over-head allocation processes. Innovocracy bridges the gap between classic research funding and funding to take a potential product to prototype or proof concept. The amounts in question generally range from $3,000-$15,000, although more may be raised. At these levels, ensuring that virtually all of this funding is used for the project is a critical element of the model. As a result, institutions generally waive their over-head allocation as long as the institution-wide over-head rates are not impacted.
- Tax deductibility. Innovocracy’s intermediary role in the fundraising process, allows the sponsors to obtain a tax deduction since the funds are transferred directly to the university. We have worked closely with our university partners to assure full compliance and reporting.
- Support of downstream commercialization objectives. Innovocracy provides additional support programs to selected teams requesting them. This may include introductions to manufacturing partners, venture capital firms, as well as potential customers. Presently, these services are offered ad hoc and there is no requirement to partake.
Designed For The Unique Requirements of the Research University Environment
Innovocracy’s model was designed for research university environment. Meanwhile, researchers have become aware of crowdfunding and some have been attracted to unaffiliated sites. When a researcher, working in a campus facility or on a project that has a connection to research funding through the university, decides to “go it alone” and raise money through a crowdfunding platform, serious problems may arise. The inventor may be violating agreements with the university, facilities funded for other purposes may be used inappropriately, intellectual property may be compromised, and there may be issues about correct use of funds. Our model provides an open, transparent platform that works for the researcher and the university.
Getting Products to Market: Technology Transfer and Crowdfunding
Because the funds raised through Innovocracy are used with commercialization in mind, the outcome of a successful project is often a prototype that moves the concept closer to marketability. The identification and development of businesses and licensing opportunities around these products is the goal of university technology transfer departments. Innovocracy enables this process by encouraging inventors to self-identify, articulate their projects, request funding and, then, use that funding to bring that product closer to a marketable state.
Gaining Early Traction
When a project is funded on a crowdfunding site, more is accomplished than the basic raising of money. A highly motivated early adopter constituency may form. It is a group that could provide an initial market assessment and create what is often referred to as “traction in the market.” This may increase the perceived value of the product to potential partners and investors, increasing the probability of successful commercialization. Even at an early stage in Innovocracy’s development we see this traction forming for our projects. While it is too early to judge whether this can be expected, we have seen that public access to information about new products coming out of academia does increase the likelihood of accelerating the tech transfer process.
Raising Equity With Crowdfunding
With the recent passage of the JOBS Act, restrictions on the ability of startups to raise equity from the public were loosened significantly. Crowdfunding sites are being organized to facilitate raising equity (up to $1 million) from small investors. While it is too early to determine the value of this movement — the Act is subject to the SEC producing regulatory guidelines by 2013 — it is a development that can have an impact upon university innovations. It would seem to be a natural progression from donor-based funding for product development to seed or start-up funding via crowdfunding for equity. This could complete a financial loop and close a gap that is often difficult to overcome for campus entrepreneurs and inventors.
Crowdfunding is a rapidly evolving and growing movement. Crowdfunding in a university environment, however, has complexities that put the university at risk. Innovocracy reduces this risk by working closely with universities to ensure that funds reach inventors while satisfying the requirements of the institution. If deployed correctly, crowdfunding may be ideally suited to address the needs of university technology transfer programs. It offers access to modest amounts of capital, potentially mitigating the gap funding problem, and exposes commercially promising opportunities to the marketplace.
This is a guest post from Phil Ross, senior Bioengineering student and founder of the Innovation & Entrepreneurship Club at Binghamton University.
At BU I recently helped found the Innovation & Entrepreneurship Club. Members of the club come from various disciplines but they all have one thing in common: they’re looking to make a difference.
So with that said, I think students like myself should take full advantage of the opportunity Innovocracy provides. And that naturally, student projects should become a growing source of inventory for the platform. It goes without saying, more students have to be made aware of this opportunity. They also have to realize that while research tends to be very expensive, prototyping does not have to be.
For example, take a look at Mono-Mano Cycling Control System. A project led by five undergraduate Biomedical Engineering students from the University of Rochester, they only needed $6,000 in order to move forward with the production of their prototype. This is a small amount of money compared to the amount usually granted by the NIH or NSF when it comes to funding research.
Connecting student entrepreneurs with contributors that come from outside the university they attend can without a doubt increase the innovative capacity of any institution. I believe Innovocracy will be most effective when communicating this opportunity to other undergraduate senior design students and the various entrepreneurship groups around the country.
More than 25 contributors helped fund Enabling Stroke Survivors, Amputees and Others with Use of Only One Arm to Cycle by Travis Block, Sara Hutchinson, Dominic Marino, David Narrow, Martin Szeto from the University of Rochester. They very much appreciate your support and team member David Narrow has asked us to share the following words.
“Our team is thankful for all of the support over the last two months as we continue to work to transition a classroom project out into the real world for proper use. We’d like to extend a special thank you to all contributors who pledged $400 or more for one of the devices to be sent directly to a program of their choice that specializes in assisting riders with unilateral weakness. Behind the scenes, we have been working to finalize our manufacturing plans and are excited to produce our first batch of cycling systems over the next couple of months. Now that the MonoMano system has been featured at SportsNet’s Monday night cycling sessions here in Rochester, we are hoping to provide the device to even more riders as we scale up operations!”
The Innovocracy team has been meeting with the MonoMano founders regularly over the last couple of months and has assisted and provided guidance on the filing of a provisional patent, an intellectual property strategy, the creation of a corporate entity, and planning around manufacturing.
We look forward to keeping you posted on the progress of this project and hope to bring you more projects like this one in the future.
Today Pando Daily, a tech news blog, has written that it appears that the SEC will not will not complete a regulatory framework for the JOBS Act until 2014 at the earliest. This Act, among other things, clears the way for crowdfunding to be used by companies to raise equity from individual investors who are not accredited, up to a million dollars. However it is subject to SEC review which was expected in early 2013.
(Note: I’m taking this with a grain of salt until I see it confirmed by a more reliable news source)
Though Innovocracy is not built on the assumption that this would take place (we’re really about commercialization of products in academia, typically prior to company formation), we are seeing many crowdfunding start-ups appearing whose business plans are based on SEC review of the Act. A big delay like this would likely be catastrophic for them as a two year or more delay in the early life of a start-up is an eternity.
My observation here is that crowdfunding is only a means. The end game is the value we offer to Innovators, our university partners and those who monetarily support our Projects. In our case this includes membership in an expanding network created to streamline funding while ensuring that the funds go to the Innovator efficiently and that the universities retain benefit from that Innovation. We are also increasingly seeing Innovocracy as a platform for helping successful Projects move on to the next step, whether that is business formation or partnerships for commercialization. Perhaps most important, we focus on Innovation that materially improves lives whether it is medical devices, energy efficiency projects or technology easily utilized in impoverished areas, among other things.
Would we utilize Innovocracy as an equity-raising site, given SEC finalization? It’s possible but that is not integral to our business model.