Panel Discussion: Academic Session
Ned D. Heindel, Lehigh University: Can you give me a feeling for how widely positioned equity ownership by universities and start-up companies is?
Richard K. Koehn: I cannot, because it is not a statistic that is made public by most institutions. I know many institutions do not hold equity positions because they have no mechanism to do so. In fact, we hold equity for the University of Utah through a subsidiary corporation, of which I am the president. The university had overcome the problem of taking equity, but when I arrived they had not overcome the problem of selling it.
And you can understand why. Taking equity in a new commercial venture is not nearly as politically charged as selling that equity. People would want to know why you sold it today, when the stock doubled in price the day after. We had to put into place a mechanism by which we could divest ourselves of a portion of the equity we held. There was approximately $8 million sitting there, doing nothing for the university. We are not in the real estate business; we are not in the brokerage business. We are in the research and education business, and we needed to turn those resources into strategic investments. That is how we generated those resources in the first place.
There are two programs at the University of Utah that are funded exclusively from the revenues generated by the divestitures of our equity positions: one provides $500,000 a year for a program called the Technology Innovation Incentive Grant. This program provides grants to university faculty for concepts with economic potential. The second program, which totals $1 million a year (on two cycles within each year, at $500,000 each cycle), provides seed money. These awards average $30,000 to $40,000 and are for new, innovative projects that will enhance our competitiveness for federal funds. As you know, the most successful people are always on the lookout for additional funding. The burden is on them to establish that whatever it is that they are seeking funds for represents a new direction.
Francis A. Via, Akzo-Nobel, Inc.: Focusing on the issues of metrics in the field of chemistry and chemical engineering has been a major challenge for most of us who are participating in university-industrial programs. The metrics for these programs are similar to those for internal industrial projects.
In addition, we have found the most useful metric has been one of knowledge, training, and recruiting. With this metric, most of the programs are successful. There are, of course, many outstanding successes. Crest toothpaste is a direct result of a university interaction, and our largest-selling home pregnancy test kit came from a university-industry program. DuPont's success in changing from fluorocarbons to hydrofluorocarbons (HFCs) was reportedly accelerated through an association involving 10 universities and national laboratories in combination with DuPont's internal capabilities.
Despite these outstanding successes, we have found that we cannot always justify external programs based on new products and jobs alone. However, we can do so based on knowledge integration and increased productivity. Often we have used these associations to explore a high-risk research area and have gained knowledge that has affected internal research but not always led directly to new products. This effort continues to provide knowledge, people, flexibility, and high-risk program leverage. The secondary factors, as were mentioned yesterday by Dr. Jasinski at IBM and Dr. Mitchell at Lucent, are motivation and "lustre." Motivation is important for our scientists, who, because of globalization and decentralization, have moved to research programs with shorter time horizons.
Finally, we are very pleased to pay royalties to universities, but we are concerned about the emphasis in this area. A recently published listing for the 1994 top 50 U.S. research institutions and their top 10 patents demonstrates that only 2 of these were associated with chemistry. There was, as you would expect, a heavy concentration in electronics and biotechnology. Dr. Jack Yost, who is director of research at Pennsylvania State University, had been quite aggressive in working out intellectual property details on contracts with industrial programs. He now reports that the track record over the last 10 years at Penn State shows that royalties are primarily developed from their own research funded from other than industrial sources.
Richard K. Koehn: You have covered a lot of ground. Let me make a couple of very brief comments here. One is on the economics of royalties. No university ought to think about this in economic terms. The University of Utah receives $175 million a year in research funding. Our royalty is about $2 million! And we actually rank around tenth among the universities in royalty income. Basically, the university would be better off putting its money in CDs. By the way, our largest royalty generator is a chemistry patent.
Royalties aren't the reason to foster university-industry interactions. You encourage such interactions for other reasons, not for economic ones. And there are substantial other benefits. As you may know, Netscape was founded by one of our graduates, Tim Clark, after he left SGI. Netscape is doing well and, when they recently visited the university, we discussed a possible partnership. Do you know what Tim wanted? He wanted to hire all of our computer science graduates this year! That is an undeniable benefit—not just to the university, but to its graduates also.
We must be careful when establishing metrics for university-industry interactions. Use whatever metric seems appropriate; the main metric is that the partnership be beneficial for both parties involved.
Charles G. Moreland, North Carolina State University: My comments are a follow-up to the last question. When you talk about start-ups, especially start-ups that come directly from the universities, I would contend that industrial funding (especially large industrial funding) is a detriment. If the universities, in early-on negotiations with industry, give exclusive license to the large company, it will not be possible to form a start-up directly from the university. Then the question is, where is the start-up company coming from? Is it coming from the company to whom you licensed the technology, or is it coming directly from the university? One of the criticisms that you may have read in the report recently published about the Research Triangle area is that we have been overwhelmed by large industrial
funding. The end result is that there are not a lot of start-up companies in our area, not nearly as many as you will find in Boston and Silicon Valley and so on.
Industrial funding can be a metric for economic development, but not necessarily the number of start-ups spun off, although depending on how the university structures its partnership to begin with, it may be possible to count start-ups. The real question is, How do we interact with more small companies? How do we provide incentives for them to interact with universities since they generally don't have much money to support their research base?
Richard K. Koehn: You have discussed two very different issues. One issue is contract research. The way Research Triangle has evolved has attracted a number of large corporations. The result is an opportunity for the companies and the universities in the Research Triangle area to interact in unique ways.
The issue of start-ups is a different issue. I like to joke—and I shouldn't because Professor Peter Stang is here, and he will go back and report to the faculty that I said this—but one of the reasons I think the University of Utah has been so successful in generating start-ups is because it underpays its faculty. There are very few research parks in the United States that are successful. The University of Utah research park turns out to be one of them, economically and programmatically. But unlike Research Triangle, virtually 90 percent of the companies that originated in that spot are from the university.
It is just a very different dynamic, and the way in which we as a university set up our policies and our interactions, our cultural incentives, is going to be different than it will be for an institution imbedded in large multinational corporations, which are looking for very different kinds of things than a small company starting up.
