Enabling the Virtuous Cycle

Identifying and removing barriers to entrepreneurial activity by health and medical researchers in the higher education sector

Executive summary

This study addresses the Wills Review’s finding that there may be institutional barriers to the involvement of university researchers in new business enterprises, specifically in relation to holding equity, directorships and moving between academia and industry.

This study finds that policies towards research commercialisation are largely common across Australian universities, and in general, any formal institutional barriers to research commercialisation are few, and in practice can usually be bypassed:

while holding equity is still relatively rare, there are few if any formal prescriptions against it;
the holding of Directorships generally requires the approval of the Vice-Chancellor, but is normally granted; policies however do not address the specific situation of start-up companies;
there is little explicit consideration of facilitating mobility between academia and industry to support research commercialisation, though general policies permit this;
the financial incentives for commercialisation activities largely rest in the prescribed royalty return to the inventor;
intellectual property policies are largely based on the assumption that the predominant mode of commercialisation will be via licensing; they do not specifically address the issues of start-up companies; and
there is a paucity of information available to university staff about opportunities for involvement in business enterprises and the detailed business processes involved.

However there are significant variations in the practice of research commercialisation, leading to serious impediments arising from business process inefficiencies in the way in which research commercialisation arrangements operate. A generic business process framework has been developed to provide a basis for universities to analyse their performance, and develop more appropriate approaches.

These business process inefficiencies can, to a large extent, be attributed to the relatively recent growth of research commercialisation activity in Australian universities—in other words to a lack of cumulative experience in handling these complex processes. As learning increases, particularly in launching start-up companies, the business process efficiency can be expected to increase, thus adding to the virtuous cycle sought in the Wills Review recommendations.

However, this study has revealed that the natural process of learning-by-doing is severely impeded by shortages of funding for ‘proof-of-principle’ and for subsequent investments that produce commercially viable propositions.

The government’s announcement of the Biotechnology Innovation Fund specifically targeting the proof-of-principle funding problem in the bio-medical area is therefore an important step forward in enabling the virtuous cycle. The question is whether it needs to be supplemented by alternative schemes such as loans or an overdraft facility that reduce the level of uncertainty over funding for the commercialisation process.

In addition, the lack of time available for researchers to engage in research commercialisation is a major constraint. There is a challenge to Government to provide adequate resources to allow this crucial activity to proceed, and to universities to seek to arrange their constrained resources in ways that support those researchers capable and active in research commercialisation.

It is difficult to provide an adequate scorecard of Australian university performance in research commercialisation. With regard to start-up companies, it would appear that about one-third of technology start-ups in Australia in 1997 originated directly from universities. The only reliable conclusion is that the rate of formation of technology-based start-up companies arising from university research is increasing.

However, assessment of the performance of Australian universities in research commercialisation needs to recognise the very considerable extent of experimentation and change which has occurred over the past 1–2 years.

These can be seen as a response to the new conditions of the global knowledge economy, the emergence of global markets for research, the dramatically growing value of technology-based companies, and the greatly increased availability of venture and other forms of capital to invest in research-originated technologies and companies.

This experimentation includes:

a greater emphasis on commercialisation through start-up companies;
decentralised mechanisms for scanning, reporting and facilitating research commercialisation;
transfer of ownership from the institution to the inventor;
abolition of monopoly in university commercial arm operations; and
direct provision of capital.

The outcomes of these various changes are yet to emerge. However, they clearly signal a recognition of the significance of new approaches to research commercialisation.

In order to address the issue of best practice, four different configurations of research commercialisation have been identified:

isolation—the traditional historical model of universities;
passive commercialisation—the model followed by most universities in Australia, until recently;
technology transfer—a model more common in the US where there is a strong industrial base interested in research output and highly skilled personnel; and
pro-active commercialisation—where the university actively seeks to encourage a higher level of internal research commercialisation and to modify its operating environment by creating a constituency of start-up companies able to interact more effectively with the university in the future.

The last of these is seen as particularly appropriate for the Australian situation, in which there is not a strong industry structure with which the universities can interact. Returns from a licensing strategy are ultimately limited by the dearth of potential licensors. Alternatively, a strategy to commercialise through new ventures, while carrying higher risk, offers the possibility of greater long-term returns and the gradual development of a cohort of young science-based firms able to interact far more effectively with the science base—the virtuous cycle in action.

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