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18 November 2013

Institutions at the heart of the west coast success story

To assume that Silicon Valley is all there is to say about the US west coast would be far from the truth.

Author: Gregg Bayes-Brown, editor

In terms of technology transfer, university spin-outs and general start-ups along the west coast of the US, the name that spring to anyone’s mind is likely be Stanford, at the heart of Silicon Valley, San Francisco. In fact, such is the dominance of the Palo Alto tech cluster that this might be said of tech transfer across the world, with only the network of clusters along America’s east coast around Boston and New York, the UK’s Golden Triangle – London, Cambridge, Oxford – and Beijing, China, even coming close.

However, to assume that Silicon Valley is all there is to say about the US west coast would be far from the truth. Stretching from the University of California system across the whole state, to Seattle-based University of Washington (UW) and University of Alaska system in the north of the US, the whole coast is a vibrant hub of innovation.

It is in Seattle that we begin this month’s tech transfer regional analysis. The birthplace of Jimi Hendrix, and where the careers of Nirvana, Ray Charles, Quincy Jones, and Pearl Jam were all launched, Seattle is probably most famous for its vibrant music scene and

US comedy series Frasier. However, thanks to the efforts of University of Washington’s Centre for Commercialisation (C4C) and the state’s wider tech community, which includes Microsoft, Amazon, and even a town called Startup, Seattle is beginning to be known for innovation.

Since launching in 2005, and up to 2012, the C4C has helped launch 68 spin-outs, and has gone on in the latest fiscal year with a further 17. The recent drive comes from the appointment of university president Michael Young in 2011, who has highlighted the commercialisation of

Washington’s research as a top priority, and slashed bureaucratic red tape while supporting the expansion of the C4C.

A further boon to Washington’s efforts has been the W Fund, a $20m venture capital fund which is to be invested specifically in university spin-outs over the next four years. Currently, the fund has five companies in its portfolio, most recently adding the softwareas- a-service platform and Washington spin-out Qazzow.

It also works with other universities across Washington state, such as Western Washington University and Washington State University.

The state is also home to the Washington Research Foundation (WRF), one of the most prominent technology transfer organisations in the country.

Since 1981, the WRF has played a leading role in commercializing technology from UW and other research institutions, and has netted more than $350m for UW since its foundation. Through its venture unit, WRF Capital, it is part of the venture community in Washington. It closed 17 deals in 2012, ranking third behind Madrona Venture Group and Keiretsu Forum Northwest Region – both did 20 – and was fifth most active in terms of investment size, with $8.2m in total – Madrona again took the top spot with $52m.

From a venture perspective, Washington’s neighbour to the south surprised many earlier this year when Oregon surpassed it in terms of venture dealflow for the first time since 1993, beating Washington’s $100m for the first quarter of 2013 with $146m total invested.

However, it is worth noting that Washington outperformed in terms of the number of deals – 32 to 12 – during the period, with big deals in three start-ups in particular – Puppet Labs, Janrain, and Urban Airship raising $30m, $33m, and $25m respectively – doing much of the leg work, none of which originated from an Oregon institution.

When it comes to university tech transfer, Oregon does tend to lag behind both its northern and southern neighbours, but that is not to say it is well behind, and tech transfer figures across the state’s institutions are largely on the up.

Oregon State University (OSU) is a beacon of the state’s success in tech transfer. Since 2010, its revenues from licensing income have trebled from $2.5m to $7.5m. OSU, which has spun out 30 companies, also has record numbers of inventions passing through its tech transfer unit, the office for commercialisation and corporate development (OCCD), with 80 recorded for the fiscal year of 2013.

OSU is now capitalising on this recent success by opening up a new office of research development, which will seek to land funding for promising research and is to be headed up by Mary Phillips, the current head of the OCCD. OSU is targeting to create a further 20 businesses over the next five years and increase its industry funding of research by 50% – making up for shortfalls in the near future due to the US sequestration.

The University of Oregon (UO) has also put out growing figures for its tech transfer efforts in recent years. UO has ties to 17 spin-outs within the state, which now have a combined annual revenue of just under $40m, and for every dollar the UO receives in state taxpayer money, it pumps $32 back into the local economy.

A further development in Oregon is that both the OSU and UO will be working closer together, along with local cities, to pursue tech transfer as part of the Regional Accelerator and Innovation Network (Rain) legislation passed in June this year. With $3.75m in state funding, two incubators will be opened in an attempt to weave the two universities into one solid offering for university research commercialization through increased capacity to move ideas forward and giving them the infrastructure to get off the ground.

In stark contradiction to Oregon’s other southern neighbour, Nevada has little to offer in the way of technology transfer with both University of Nevada in Reno and in Las Vegas lagging far behind compared with neighbouring states.

Beyond Nevada, things are picking up, in particular, Arizona State University (ASU) and its tech transfer unit Arizona Technology Enterprises (AzTE). Of the 14 spin-outs launched over the past year by Arizona’s three universities, 11 came from ASU. And despite Arizona lacking earlystage capital compared with California, ASU’s spin-outs have been able to raise over $400m in external funding, most of it in the past five years, and $68m in the 2013 fiscal year. AzTE’s success is further highlighted by ranking in the top five universities in the US in terms of spin-outs created per $10m in research expenditures by the Association of University Technology Managers (AUTM) in 2012. ASU also recently launched Furnace, a state-wide tech transfer accelerator aiming to turn intellectual property (IP) from state universities into start-ups. Since opening last year, Furnace has helped launch 10 companies, each receiving a grant of $25,000 with further mentoring, training and start-up space with AzTE estimated to be worth $100,000 per company.

Augustine Cheng, AzTE’s chief executive since 2007, said much of the tech transfer unit’s success is down to having a unique angle on tech transfer. Following ASU’s president Michael Crow giving the unit the ability to refocus away from negotiating “the perfect deal” or achieving nearterm revenues, AzTE has changed its strategy.

Cheng said: “AzTE’s approach is based on maximizing dealflow. We work to execute rapid and efficient deals through licences to industry and investors on reasonable terms, with an emphasis on speed to market, flexibility and risk-reward-sharing.”

He also highlighted the importance of working alongside the industry’s accelerated timeline, and said that six months could mean all the difference between commanding market share and being left on the sidelines. Cheng said these timescales were industry-specific, with different sectors operating at different speeds with varying demands on the IP they require.

He added: “In the end, we measure ourselves by total impact. If we can spin out a company that attracts $40m in external funding and supports

dozens of well-paying jobs, that is going to mean more for the state of Arizona in the long run than whatever percentage we get on a line of products.”

At University of Arizona (UA), the institution has recently embarked on a campaign to pursue tech transfer with the launch of Tech Launch Arizona (TLA), its rebranded and reinvigorated tech transfer unit. Launching earlier this year, TLA has set out an ambitious plan to increase UA’s commercialisation presence to 2020. In 2012, the university received $1.8m in IP income, issued 15 patents, received 160 invention disclosures and started seven companies. Setting these four brackets as its metrics for success, TLA wants to see those figures rise to $3.65m in IP income, 20 patents issued, 210 invention disclosures and 14 new companies set up annually.

UA supports its start-ups primarily with a proof-of-concept fund. In the last fiscal year, it spent $700,000 investing in its spin-outs, and looks to pull off the same performance in 2014.

It also recently started conducting commercial feasibility studies, which are $5,000 investments to determine market viability.

UA differs from most universities as the vice-president of TLA, David Allen, holds a cabinet-level position within the university, indicating commercialisation is at the forefront of the institution’s mindset.

TLA has also pulled all the industry-related strings at UA together. A spokesman for the university said: “Through TLA, we have combined all the university’s industry-facing offices under one organisation. TLA includes Corporate Relations Arizona, focused on building meaningful relationships with business leadership, Wheelhouse Arizona, focused on creating new ventures, Tech Transfer Arizona, focused on licensing IP and moving technology out into the marketplace, and Tech Parks Arizona, focused on creating an environment where leading technologies are developed with the goal of moving them out into the marketplace.”

He added: “TLA is also focused on transparency. We make sure people know our plans and processes. We have licensing managers embedded in the UA’s highest IP-producing schools. Those schools pay half their salaries, so they are committed to tech transfer as a priority.

The licensing manager’s job is to understand the research and the researchers in that school and support the commercialization process from start to finish.”

The real jewel in the commercialisation crown for the western US is California. The economy of the state alone would rank in the top 10 largest countries in the world, and one of the driving forces of that economy is Silicon Valley.

The success of the tech industry in Palo Alto is such that most governments around the world have been scratching their heads attempting to duplicate it, often with the word silicon thrown haphazardly in front of another noun, such as London’s Silicon Roundabout, part of what is now called Tech City.

At the heart of Silicon Valley sits Stanford University, one of the top-rated universities in the world and just behind US east coast peers Massachussets Institute of Technology and Harvard. Graduates from the university have founded some of the most recognisable names in tech, including Google, Yahoo, Hewlett-Packard, Tesla and Netflix.

Through its tech transfer unit, the office of technol ogy licensing (OTL), Stanford makes

$76.7m in gross royalties annually (2012 fiscal year), 98% of which comes from licensing deals signed years ago. OTL licensed 115 technologies during the 2012 fiscal year. It boasts 660 technologies that generate income, 36 of which brought in over $100,000. It took equity in 17 start-ups, bringing its total to 124, and liquidated equity in four to the value of $1.23m. The OTL also takes on industry sponsored agreements through its industrial contracts office, and signed 139 for 2012.

So what drives success at Stanford?

It would appear to be a combination of attributes, similar to the model around the UK’s Cambridge hub. First, the prestige of Stanford goes a long way in building those links with industry, securing government money for research and attracting a high calibre of student. Talking of its students,

Stanford is deeply entrepreneurial in manner – getting involved in start-ups is on a par with the drinking culture of most other institutions. The location also helps, with Silicon Valley and the bay area in which it is situated a natural customer for Stanford technology.

It has also built the critical mass that feeds itself. For example, you will never hear “you can never get venture capital funding in Silicon Valley”. In fact, what you will mostly hear outside Stanford is “you cannot get venture capital funding because they all live in Silicon Valley”.

And this gravity keeps pulling all the pieces together for Stanford.

Stanford remains easily the most important academic institution for turning out globally-relevant entrepreneurs with disruptive ideas. Since Hewlett-Packard’s formation,

Stanford alumni and faculty have started close to 40,000 companies with annual revenues of $2.7 trillion, according to its survey published in October, while research this year into venture rounds tracked on database CrunchBase by blogger Max Woolf shows those affiliated to Stanford have raised the most by value and volume.

However, it is only this year that the university and medical school have used their budget to back an accelerator, StartX, targeting its students and and named Global University Venturing Fundraising of the Year last month.

Yet Stanford is not all that California offers. Chasing the heels of Stanford in the international rankings is the California Institute of Technology, otherwise known as Caltech.

Despite its relatively small size – Caltech had 2,231 students in 2010 – the university’s alumni and faculty have together secured 33 Nobel prizes.

Since 1995, Caltech research has translated into more than 80 spin-outs, and is one of the most aggressive pursuers of patents in the US, averaging 40 to 50 per year. It also has one of the most intensive start-up rates per student population of any university. For example, Stanford produces one start-up per 1,250 students and MIT one per 500, while Caltech produces one per 300.

Fred Farina, director of Caltech’s office of technology transfer, said: “In tech transfer, Caltech is recognised as one of the very best in the world, including in the number of start-ups created. The reality is that we are extremely effective at creating new companies and the numbers speak for themselves. An average of eight new companies are spun out each year, which is a high number in absolute terms, but if you consider our size we are off the charts.

No other institution comes close in the number of start-ups created per faculty member or per student.”

At the other end of the size spectrum, with nearly a quarter of a million students and 10 campuses, is University of California (UC). Unifying UC’s tech transfer units, of which UC Los Angeles (see profile) and UC San Diego are the biggest, is its innovation alliances and services (IAS) office. UC generates $46.3bn in annual economic activity in California, resulting in a $14 return for every $1 of taxpayer money invested, with roughly one in 46 jobs in California tied to UC, making it the state’s third biggest employer.

IAS reports that in 2012, UC launched 61 spin-outs, which is about average for the institution over the past five years. Last year, its total licensing income sat at $119m – a figure that has been declining in recent years, with the exception of 2011 when UC took an $87.5m prepayment of future royalty income, bringing its total to $206.5m.

As with Stanford, many of UC’s spin-outs feed off Silicon Valley’s resources and scale, with three of its campuses positioned around San Francisco’s bay area. Its spread also allows it to peel into the ecosystems of both Los Angeles and San Diego, where the remainder of its spin-outs generally operate.

 

Western US tech transfer offices

Stanford University Office of technology licensing

University of Nevada, Reno Technology transfer office

University of Nevada, Las Vegas Technology development and transfer

Arizona State University Arizona Technology Enterprises

Northern Arizona University NAU Innovations

University of Arizona Office of technology transfer

Oregan State University Office for commercialisation and corporate development

Portland State University Innovation and Intellecual Property

University of Oregon Innovation Partnership Services

Northeastern University Centre for Research Innovation

University of Washington Centre for Commercialisation

Washington State University Office of commercialisation

UC Berkeley IPIRA

UC Davis InnovationAccess

UC Irvine Office of technology alliances

UCLA Office of intellectual property

UC Merced Office of technology transfer

UC Riverside Office of technology commercialisation

UC San Diego Technology transfer office

UC Santa Barbara Office of technology and industry alliances

UC Santa Cruz Office for management of intellectual property

Humboldt State University Office for economic, community, and business development

California Institute of Technology Office of technology transfer

Drexel University Office of technology commercialisation

University of Southern California USC Stevens

 

University venture funds in the western US

Fund Associated institution Size

Osage University Partners Multiple $100m

The W Fund Washington state universities $20m

Washington Research Foundation seed fund Washington University Unknown

Stanford-StartX Stanford Uncapped

 

Stanford’s economic impact

Stanford is well-known for its innovative activities, but just how big an impact has the Palo Alto university had?

The 2011 Alumni Innovation Survey attempted to answer this question, and provided the following answers:

l 39,900 active companies can be traced back to Stanford, making the Stanford economy the 10th largest in the world.

l Stanford University graduates have created an estimated 5.4 million jobs since the 1930s.

l Its companies generate annual revenues of $2.7 trillion.

l Around 18,000 alumni-created companies are based in California, have around $1.3 trillion in aggregate sales, and employ more than 3 million people.

l Stanford alumni have created around 30,000 non-profit organisations.

 

US funding cuts

A major talking point not just on the West Coast, but across the US in the tech transfer sector is the impact that the US sequestration will have on university research, and therefore ultimately its ability to produce innovative new spin-outs.

A product of political fumbling over the debt ceiling in the US, the sequestration is a raft of automatic austerity measures which kicked in earlier in the year, and in which $95bn in funding for basic research is wiped off the federal budget.

The cuts are due to hit the current generation of rising scientists particularly hard, who will find it increasingly difficult to fund their research, prompting Francis Collins, director of the

US National Institutes of Health, to say: “I worry desperately this means we will lose a generation of young scientists.”

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