University Spin-Offs (2): A Quick Primer

Harvard gates

This is part of my Series on University Entrepreneurship.

American universities serve as an enormous and profound engine of innovation for the US and the world. Many people are surprised to learn that many companies with household names originated in the academy. Google, Lycos, Genentech, Gatorade, Chiron, Hewlett Packard, Polaroid and many others are companies formed around university intellectual property. 

Each year literally billions of dollars in federal funding flow into universities around the country in the form of grant funding and provide the motor for the operation of countless labs and ground-breaking research in medicine, software, engineering, robotics, clean tech and biotechnology.

For many years, however, university technology often just “sat on the shelves” and was rarely commercialized throughout the 20th century. With the advent of the Bayh Dole Act of 1980 all this changed and universities were given ownership of this valuable technology. Many opened in-house technology transfer offices, the mission of which was to see these inventions commercialized and brought out for the benefit of society. The results have been nothing short of transformative. See these links below to learn more about what has been called “perhaps the most inspired piece of legislation to be enacted in America over the past half-century," according to The Economist. ("Innovation's Golden Goose," an opinion piece published in the Dec. 12, 2002, edition)”.

The bulk of this massive success has been driven primarily through straight licensing activities in which the universities have licensed IP directly to established companies (ie. big pharma, etc.) which has led on occasion to the development of life-changing drug development and enormous revenues flowing back to the universities in the form of licensing fees.

As I mention above, however, in the past 10-15 years, it has become more and more common to see universities spinning off start-up companies based on university IP, in which the university retains an equity stake and a royalty stream. In that university IP is “early stage” and often not commercial grade, it is often necessary and appropriate that a start-up be launched around this fledgling technology so as to be able to bring it through the proof-of-principle stage whether this be a beta version of the software, a prototype of a medical device or animal testing in the case of drug discovery projects.  This “gap” between laboratory IP and a commercializable project is known as the “valley of death” in the industry. It is essentially the job of the tech transfer office to determine what IP within the university is commercializable, to protect it when and where appropriate via the patent process, and then to help the technology across this valley either through straight licensing or through the start-up route.


For Part Three in this Series, click here

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