Presentation of the
Hawaii Innovation Council Report

Moderator:
M.R.C. Greenwood
University of Hawaii

Dr. Greenwood thanked Senator Inouye and welcomed the members of the Innovation Council, inviting them to join her on the platform for the presentation of their report. She said she would first offer some context for the report and explain why it was important to release it during this meeting on innovation. She described “a clear need” in the minds of science and technology innovation specialists for a changed approach to economic stimulation and innovation—not only in Hawaii, but throughout the country and the world. She said that a summary of this new blueprint provided an appropriate context for this joint meeting with the National Academies Board on Science, Technology, and Economic Policy (STEP).

She acknowledged that while it was not easy to attend meetings on the East Coast from Hawaii, “we are the state closest to Asia, where many of the world’s most dynamic economies are located. So we have an opportunity to distinguish Hawaii in the way that East Coast universities distinguish themselves—by being partners with the institutions, organizations, and businesses that will be significant in the future.”

Dr. Greenwood began with a brief history of the STEP Board, which, she said, had influenced major policies in the United States over the years. This has included a major study of best practices in public-private partnerships led by Gordon Moore, co-founder of Intel, and continues through the study of state and regional innovation policies. She reviewed additional issues that have been examined by the STEP Board, including a report on U.S. patent policy that has the potential to change significant aspects of patent policy. The STEP Board, she said, is also discussing the impact of copyright policy on innovation in the digital era and is studying the impact of the Bayh-Dole Act and the management of



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Presentation of the Hawaii Innovation Council Report Moderator: M.R.C. Greenwood University of Hawaii Dr. Greenwood thanked Senator Inouye and welcomed the members of the Innovation Council, inviting them to join her on the platform for the presenta- tion of their report. She said she would first offer some context for the report and explain why it was important to release it during this meeting on innovation. She described “a clear need” in the minds of science and technology innovation specialists for a changed approach to economic stimulation and innovation—not only in Hawaii, but throughout the country and the world. She said that a sum- mary of this new blueprint provided an appropriate context for this joint meet - ing with the National Academies Board on Science, Technology, and Economic Policy (STEP). She acknowledged that while it was not easy to attend meetings on the East Coast from Hawaii, “we are the state closest to Asia, where many of the world’s most dynamic economies are located. So we have an opportunity to distinguish Hawaii in the way that East Coast universities distinguish themselves—by being partners with the institutions, organizations, and businesses that will be signifi - cant in the future.” Dr. Greenwood began with a brief history of the STEP Board, which, she said, had influenced major policies in the United States over the years. This has included a major study of best practices in public-private partnerships led by Gordon Moore, co-founder of Intel, and continues through the study of state and regional innovation policies. She reviewed additional issues that have been examined by the STEP Board, including a report on U.S. patent policy that has the potential to change significant aspects of patent policy. The STEP Board, she said, is also discussing the impact of copyright policy on innovation in the digi - tal era and is studying the impact of the Bayh-Dole Act and the management of 21

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22 BUILDING HAWAII’S INNOVATION ECONOMY intellectual property at universities. The current study, being led by Mary Good, concerns economic competition in the 21st century, including best practices in state and regional innovation initiatives. STRENGTHENING EDUCATION, BUILDING A WORK FORCE Further, she said, some of the work of the STEP Board had been consistent with major objectives of the University of Hawaii (UH). She said that the many programs of the university could be described under three major themes, and that these were relevant equally to community colleges, research universities, the busi- ness community, and the legislature. One was the Hawaii Graduation Initiative, which seeks to increase the “educational capital of the state.” While it was not the subject of the current meeting, she said, it was one of the university’s central objectives and the subject of an education summit. She said that the second UH objective, “creating a 21st century workforce for a $1 billion research industry,” was on the agenda for the meeting. The third objective, she said, was directly related to innovation: “Project Renovate to Inno- vate,” a strategy to renew, rebuild, and advance the local infrastructure. She then turned to the UH Innovation Council, which she had appointed the previous year for the purpose of delivering a full report on the state’s competitive- ness. She emphasized that the committee’s report was being released that day and had not yet been widely read. “It is the best advice that a group of experts can give us,” she said, “and we will now present it, talk about it, and post it on the Univer- sity of Hawaii Web site where it will be open for comments until Feb[ruary] 1.”1 She began by introducing the members of the committee who were seated near her on the stage: • Dr. Carl Bonham, executive director, University of Hawaii Economic Research Organization and associate professor of economics, UH at M ānoa; • The Honorable Daniel Goldin, president and CEO, Intellisis Corporation; NASA administrator during three successive Presidential administrations; • Katharine Ku, director, Stanford University Office of Technology Transfer; • James Lally, partner emeritus, Kleiner Perkins Caulfield & Byers; • Dr. Brian Taylor, dean, UH at Mānoa School of Ocean and Earth Science and Technology; • Barry Weinman, chair, University of Hawaii Foundation Board of Trustees, and managing director and co-founder of Allegis Capital, a venture capital firm; 1 A key objective of the Dr. Greenwood was to “continue to contribute positively to the workforce and the economy by appointing a presidential advisory council of experts to study the successes, challenges, and opportunities for a high-value economy in Hawaii. This council will advise on the steps the university should take to create a 21st-century capability for innovation and technology transfer to support a multi-billion dollar industry for Hawaii’s research spin-off and related services.”

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23 PRESENTATION OF THE HAWAII INNOVATION COUNCIL REPORT • Dr. Mary Walshok, associate vice chancellor of public programs and dean of extended studies at the University of California at San Diego; • Dr. Hank Wuh, founder and CEO, Cellular Bioengineering and Skai Ven- tures, surgeon and entrepreneur. “We’re not alone in trying to reframe and move ahead with what we want to do,” she said. “The Council on Competitiveness, one of the influential groups in Washington, said the new normal for effective regional leadership starts with a combination of business, business association leaders, and regional economic developers.” She seconded Dr. Good’s remark earlier that no single group can do it alone. “We have to have a new connected partnership to make it work. Effective regional leadership requires an ongoing intermediary organization that keeps regionalism or, in our case statism, moving ahead. Innovation is a national priority, which the President has said consistently. This must be accompanied by measures that promote competitive markets, spur entrepreneurism, and catalyze breakthroughs for national priorities.” This thrust was not unlike that of the new administration of Governor Abercrombie, she said, as described in the campaign document “A New Day in Hawaii.” A key point of this document is that support should go to the entre - preneurial professor to facilitate innovation and technology transfer, as well as to support premiere education and research projects. “Our state priorities echo national priorities.”2 RECOMMENDATIONS FROM THE INNOVATION COUNCIL She said she would summarize the ideas in the report through its “four simple, straightforward recommendations.” The first was to identify and clarify the status of research as an industry in the state of Hawaii. The university had grown from having a couple of hundred million dollars in extramural funds to nearly $500 million this year, with some uncertainty caused by the lack of an FY 2011 budget. “That puts the University of Hawaii and the state of Hawaii in the national ranking with respect to our faculty’s competitiveness, our institution’s competitiveness, and our state’s com - petitiveness for advanced projects,” she said. “UH wants to create world-class researchers in emerging or strong fields.” The university cannot be strong in all areas, she acknowledged, and needs advice about the best focus. It had gone through a similar exercise almost two decades earlier, when it decided to improve 2 In highlighting the importance of research to the state, the council recommended that “UH put forth a strong recruiting effort to attract world-class researchers in special opportunity areas in which Hawaii has a strategic advantage over anywhere else in the world...such as astronomy, oceanography, and vulcanology. . . . Research is an industry and may become an economic sector in Hawaii, with UH as the R&D engine.”

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24 BUILDING HAWAII’S INNOVATION ECONOMY its expertise in the ocean sciences, astronomy, and some engineering fields. This decision, she said, had changed not only the university but also “the lives of people around the world and in the U.S.” She urged continued collaboration with other research entities in Hawaii, and on the mainland, and in the Asia-Pacific Economic Cooperation (APEC) region. “We want to use the opportunity of the APEC meeting next year to begin to concretize and develop partnerships with the Asia-APEC area in a much more strong and formalized fashion.” Recommendation two, Dr. Greenwood continued, was to establish a new way of developing technologies in the state of Hawaii and with partners on the main- land and the APEC region. Within this recommendation is a specific suggestion that the university pursue a new innovation model around an organization called HiTex, the Hawaii Technology Exchange. This mechanism would reallocate and redefine resources and build more academic-community partnerships. It would also develop programs within the university to foster entrepreneurism and iden- tify a physical location for such an institute. She then showed a slide depicting the development of a small technology- based company, featuring the familiar valley of death when many firms struggle financially. “This slide is used frequently to show what is wrong with the U.S. approach to moving intellectual property and ideas toward commercialization.” Along this spectrum of activities, she said, the nation provides good public sup - port for basic research, but still invests less in basic research as a percent of Gross Domestic Product (GDP) than any other developed nation. For the next stage, of translating the results of research into useful products, there is some public funding available, but private funding is not available in significant amounts as 100% 100% Start up ventures Valley of Death--Chasm pri vate public Basic Research Transl ational C ompanies R esearch licensing FIGURE 1 Current model of innovation and technology transfer. SOURCE: M.R.C. Greenwood, Presentation at January 13-14, 2011, National Academies Symposium on “E Kamakani Noi’i (Wind that seeks knowledge).” Hawaii PROC Figure 01.eps vectors

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25 PRESENTATION OF THE HAWAII INNOVATION COUNCIL REPORT a firm enters the critical early stage of commercial development. Private funding begins to be interested only after proof of concept. “So this area in the middle is where start-up ventures need help, in the Valley of Death. I think everyone in the country would like to change that, and here in Hawaii we would like to be a model through an organization that promotes start-up ventures, proof-of-concept centers, regional innovation centers, and this HiTex organization.” A possible structure for HiTex, she said, would begin with an advisory board of not only university people, but also representatives from federal, state, and industry groups, as well as students and post-docs. In addition, it would include several programs called “Come-in-and-come-home,” which identify people who have an attachment to Hawaii and who have developed careers elsewhere. “We’d like them to come back,” she said, “and develop their ideas here.” Additional strategies would be to include the best practices in intellectual property development and to involve the University of Hawaii Foundation. “The vision is that we get the ideas, we have the workforce, and with HiTex we develop the infrastructure and capital for the future.” Recommendation three, she continued, was to identify areas for commercial- ization opportunities. Topic areas already identified by the committee included (1) security and sustainability, (2) energy and agriculture, and (3) enhancing energy independence and food sufficiency. “We know that these are major goals for the citizens of Hawaii and for the executive and legislative branches of the Hawaii government,” she said. Another area, she said, was data analytics. “There’s an insatiable need to accumulate and analyze data, and we have some of the largest data sets in the world here in Hawaii. If we were able to master this new and emerging field, we would be a leader, not a follower.” Finally, the new UH Cancer Center places it in a position to build expertise in cancers that are prevalent among the populations in Hawaii and the APEC region. Recommendation four was to become an entrepreneurial university: to inte- grate entrepreneurism into the curriculum, create a fundamental curriculum in entrepreneurism, execute the curriculum, and create an entrepreneur certification process. “As president,” she added, “I would like to say to our chancellors and our faculty that I would love the University of Hawaii to be the first university to announce that we will require entrepreneurial experience of every student. We can’t do this today, or tomorrow, but we can do it over a period of time. This can change the way we are seen, both in the Asia-APEC region and nationally.” She closed by thanking the committee for its hard work on the report3 and for its “four concrete recommendations” which would be taken to the university chancellors and faculty and the business community. An implementation plan would be developed, she said, based on feedback from the community and from the current symposium. 3 Available online at .

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26 BUILDING HAWAII’S INNOVATION ECONOMY DISCUSSION In response to a question from an MBA student, Dr. Greenwood noted the report’s suggestion that the university should encourage the business school to teach entrepreneurship and also develop introductory entrepreneurial concepts at the community college level and in multiple fields. Dr. Walshok, a member of the Innovation Council, said that in southern California, digital media artists, storytellers, illustrators, and others used the Web, contributing to “a huge industry peopled by small, entrepreneurial companies.” These companies, in turn, found contracting opportunities with the military, the movie industry, corporate training offices, and others. “There’s a huge opportu - nity in the arts and in literature related to digital media arts,” she said. “I think the intent of the committee was to emphasize that entrepreneurship is not confined to business schools, but is found in schools of engineering, the sciences, the arts, the social sciences. When you think about new social ventures, demographic trends, and innovative ways to deliver human services, entrepreneurism needs to be everywhere.” Dr. Hinshaw, chancellor of the University of Hawaii at Mānoa, added an example from the arts and humanities department. Students had given a theatre production on sustainability, with the students and audience both learning about the materials they used and the messages they wanted to send. “It does extend to a lot of areas that you might not think of,” she said. Katharine Ku of Stanford University said that the engineering ventures pro- gram was “probably the most popular at our university.” The program was entre - preneurial, with many start-ups developing from computer science and physical sciences. One “really active” entrepreneurial course, called Bio-Design, tasked medical students with finding a problem, reaching a solution, filing patents, and writing a business plan. She also mentioned a program called SPARK designed to educate faculty on how to be entrepreneurs. Carl Bonham, of the University of Hawaii at Mānoa, added that the Council talked at length about how best to encourage entrepreneurial activity among fac - ulty members. “One of the goals in high-tech areas is to bring together faculty who have been successful entrepreneurs and have them spread their experience throughout the university,” he said. Daniel Goldin, of Intellisis Corporation, agreed that the common perception of entrepreneurship was limited to high-tech activities from the physical and biological sciences or engineering. “But if one takes a look at this incredible growth of Facebook,” he said, “and the whole cottage industry forming around social networking, we see the growth of network analysis and predictive analysis based on human behavior and social skills. In that sense the technologists support the social scientists. So I strongly recommend, as we did in our report, that we support entrepreneurial activity across the whole university, and across all profes - sions. I have a home in Los Angeles where there’s a very deep arts community.

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27 PRESENTATION OF THE HAWAII INNOVATION COUNCIL REPORT There’s a spirit of entrepreneurship among the artists and those that support it. We have to look across the board.” Learning to Accept Risk Hank Wuh, of Cellular Bioengineering, Inc., said that if Americans really believe that innovation is key to our nation’s competitive strength, the same holds for the state of Hawaii. “Every city, county, and state in the nation is looking at this issue. There are numerous hubs and creative centers for biotechnology, the life sciences, and social media. But it’s really a culture, a mindset. And when it is, young people can feel a sense of fearlessness, that it’s okay to take a risk, it’s even okay to fail. Coming from an institution of education, that’s a critical and difficult message we have to deliver.” Barry Weinman, of Allegis Capital LLC, said that in Silicon Valley, the motto is “Failure is what you learn from.” He said that in Hawaii, there is “a bit of a fear of failure. I think that’s something the University could help us get past. The venture capital model is ready, fire, aim—because we are ready to take risks before we know what we’ll do with whatever we have. When I walk around the campus at UH, I sense a desire for safety. I hear, ‘If we’re going to transfer tech- nology, let’s not do anything that would risk our technology or our grants.’ We have to overcome that, or I don’t think we will be innovative and commercialize our intellectual property with success.” Brian Taylor, of the University of Hawaii at Mānoa, said that the local mind- set about success is shaped partly by traditional federal and other funding sources that expect success. The exception to that is the Defense Advanced Research Projects Agency (DARPA), he said, where they understand that about two-thirds of the ventures they fund will fail. “It’s this model of acceptable risk-taking that we have to embed at all levels in the university to make this initiative work.” The Importance of Speed Mr. Goldin emphasized the importance of entrepreneurship and its close rela- tionship to speed. The university must move beyond its old ways of doing things, he said, which are too slow for entrepreneurship. Many studies of innovation have shown that it does not happen with one individual who has abundant time to ponder. It generally springs up quickly in multiple places at the same time. “So as we go forward here in Hawaii,” he said, “we need new ways of doing things quickly without regard to how it fits the old ways of academia. For innovation, four years is unacceptable. It must happen in months rather than years.” Warner Kimo Sutton, an entrepreneur with Diamond Head Renewable Re- sources, thanked the board for its discussion of entrepreneurship. He added that the process could be accelerated by the presence of a national laboratory in Hawaii, similar to Ames Research Center in California, which would provide a

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28 BUILDING HAWAII’S INNOVATION ECONOMY focal point for research and attract more venture capital that was prepared to deal with risk. Dr. Greenwood agreed, and said that the university was in fact moving to enhance some of its partnerships with national facilities, notably the National Renewable Energy Laboratory (NREL) in Colorado. Susan Yamada, Executive Director of the Pacific Asian Center for Entrepre- neurship at the University of Hawaii, voiced her excitement about the Council’s recommendation on entrepreneurship. She said that she herself would go even further, asserting the relevance of entrepreneurship “to the individual worker— the student, the employee. We all have to think entrepreneurially; that is the new skill set I believe students need when they’re going into the work force—to think innovatively, to see how we can do things more effectively.” She noted that even 10 years previously, the university did business in ways very different than today, and it would be still more different in five years. “My question,” she said, “having been at the university for a couple years, is, “How do you do entrepreneurship?” You get the big idea, but how can we get to the level of budgeting, of changing mindset and culture? I think that is going to be the biggest obstacle.” Mary Walshok, of the University of California at San Diego, suggested two programs described by the Kauffman Foundation that could serve as models. One was the Deshpande Center for Technological Innovation at the Massachusetts Institute of Technology (MIT), and the other was the Von Liebig Center at UCSD. “What is critical to both of these programs is they engage successful entrepre- neurs from the community in the teaching, mentoring, and coaching of students and faculty,” she said. “So as Dr. Greenwood, Dr. Goldin, and others have said, it’s about a partnership. This is not textbook entrepreneurship teaching—that is doomed to failure. There has to be engagement with real entrepreneurs, and my impression is that there are networks of entrepreneurs across the islands, and there are also very successful entrepreneurs from Hawaii all across the United States, especially in California. They need to be invited into the university, they need to co-create the curriculum and create the opportunities with the students, because they can connect the students to real money, real opportunities, and real markets. And that doesn’t cost very much money.” New Criteria for Promotion and Tenure Dr. Taylor noted that a strength of the university’s entrepreneurship center was not only that it invited good speakers and generated an interactive culture but that it also looked system-wide to reach its students. It places students from the com- munity colleges in company internships and in the community. “That’s the sort of model that I think works,” he said. “I’d say as dean that we’ve got to change the way we evaluate faculty and how we measure student success. For promotion and tenure, you’ve got to have entrepreneurship as a criterion. So it’s a whole system of things.” Dr. Greenwood agreed that the Council was advising the university not only

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29 PRESENTATION OF THE HAWAII INNOVATION COUNCIL REPORT about how to plant the seeds for the next big industry or set of companies, but also about how to help small business people become more entrepreneurial, to make the family business more successful. “Innovation can be small ideas that work, as well as big ideas that transform an economy.” Mr. Goldin added that in a broader sense innovation should be considered to occur within a kind of ecosystem. He suggested that the university’s task was not to be the center of this system, but to help build it. He said he selected San Diego to start his company because that region already had a business ecosys- tem. He had met most of his employees when they were undergraduates at the university. He brought them into his company, and then some professors naturally followed. The university and the business community, he said, were part of the same “natural ecosystem.” Removing the Regulatory Barriers Charles Wessner of the National Research Council suggested that if the uni- versity intended to take entrepreneurial risks, it should work with legislators to remove regulations that hamper risk-taking. “I think if you want the university to be a research business,” he said, “then you need to give it some of the freedoms of a research business.” He cited the new College of Nanoscale Science & Engineering near Albany, New York, which had emerged more quickly without the restrictive State University of New York (SUNY) regulations, and the Chalmers University of Technology model in Sweden, where freedom from Ministry of Education re- strictions opened the way. The second question, he said, related to the challenge of “feeding” an innovation ecosystem through early-stage financing. “It’s one thing to say that you’re ready to start a company, but having the idea is not enough. You need private equity in order to grow.” Barry Weinman said he had found a widespread misunderstanding of the term “private” and of the responsibility to use private equity. Private organiza - tions, he said, include not only venture capital funds and companies, but also universities, trust funds, and endowments of many kinds. Such organizations, he said, tend to invest in organizations that support entrepreneurship. In Hawaii, however, he noted the presence of a large capital base that tends to invest pri- marily on the mainland and could play a meaningful role in promoting Hawaii- based innovation with more of a local focus. He mentioned the example of the Kamehameha Schools,4 whose endowment is comparable to leading tertiary institutions in the United States, and the employees unions, both of which could contribute to innovation and commercialization in Hawaii. “We have great talent in Hawaii,” he said, “and some great research at the university. We can compete 4 Kamehameha Schools, founded in 1887, is supported by a trust created by Princess Bernice Pauahi Bishop, now valued at $6.2 billion. The school system, which supports K-12 and preschool education throughout the state, is the largest independent school system in the United States.

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30 BUILDING HAWAII’S INNOVATION ECONOMY anywhere in the world. But we don’t have capital, and that makes it very difficult to build small or help them become national or global.” Hank Wuh echoed Mr. Weinman’s comments, adding that even if Hawaii is able to create young entrepreneurs, they will have to “follow the money. What we don’t want to do is create a society of great entrepreneurs only to see them leave because there are insufficient resources to support their business.” A sec - ond essential question, he said, was how to motivate young people for careers in business. At Stanford, where he was a surgical resident, “we had a joke that you can’t get tenured unless you’ve started two companies. That was the whole mindset. You have to make it a badge of honor to be an entrepreneur. They have to be treated like rock stars. And the key is success, so there is a tangible goal for them.” Mr. Weinman added that “it’s a mental state. We can achieve that in Hawaii, because we have the technology and the talent, but we have to change the thinking.”