The Impact & Commercialization of Research
By
Mohd. Azwar Mahmud, CEO,
MALAYSIA VENTURE CAPITAL MANAGEMENT BHD
International Islamic University Malaysia
September 9 & 10, 2003
1
AGENDA
• Key Concept, Relationship and Relevance
• Benchmarking Indigenous Research:
• Commercialization: VC’s Perspective
• Conclusions
2
Key Concept, Relationship, Relevance
• Research
• Creativity
• Discovery
• Invention
• Technology
• Innovation
• Technopreneurship
• Commercialization
3
Taxonomy
Research
• Creative work
• undertaken on a systematic basis
• to increase the stock of knowledge
• to use this stock of new found knowledge
• for the betterment of man and society
Source: Frascati Manual, 2002, OECD
4
Creativity – accidental, art, diff to plan & predict
• We discover what before existed, though
to us unknown. (discovery)
• We invent what did not before exist.
(invention)
• Operationalising discovery & invention to
practical use (technology)
5
Innovation
Evolutionizing
technology
competitive advantage
to
create
Commercialization- process
• Taking innovation to market profitably
Technopreneur
• Enterprising soul that make innovation &
commercialization possible
6
Relevance - Creativity, Innovation &
Commercialization
•
Resources for Competitive Advantage
•
Key engine for perpetual “regeneration &
reinvention” of the US economy into the most
dynamic & competitive globally
7
Benchmarking Indigenous Research
8
5232 R&D projects implemented during 6 MP
and 7 MP revealed 14% (732) of these are
“potential candidates” for commercialization
while 5.1% (267) was commercialized.
Source: MOSTE
9
Examples of Local Research Success
Invention
Abstract
Putra J-58: The Grain
Maize Hybrid Variety
[14]
Putra J-58 is the first grain maize hybrid variety
ever developed and released in Malaysia for use
as animal feed.
White spot syndrome
(WSS) Detection Kit for
shrimp [20]
A rapid test kit, produced at UPM, is sold in many
countries affected by the disease. This novel
single tube method is the first in the world and is
patent pending.
Strength Measuring
Device for Hard Soil,
Weak Rock and
Concrete [15]
Diagnostic Kit for
Newcastle Disease
Virus [19]
Measures the indirect tensile strength of weak
rock, hard soil and concrete. It is protected by a
patent and won the Bronze Medal for
International Invention, Invention, Industrial
Design and Technology Exhibition (I.Tex’99).
UPM’s PCR technique is 100-fold more
sensitive, simple to perform; more samples can
tested, and takes less than 10 hours compared
with previous methods.
Source: UPM
10
Venture Capital backed Companies Spinning out of Local Research
Company
Product
Malaysian BioDiagnostic Research
Sdn Bhd (MBDR)
Commercialization of rapid diagnostic detection
for typhoid fever from USM School of Medical
Sciences. (Backed by MTDC)
Malaysian Vaccine and
Pharmaceuticals Sdn
Bhd (MVP)
Commercialization of Aujeszky’s Disease Killed
Vaccines formulated by Veterinary Research
Institute (VRI) (Backed by MTDC).
Malaysian Agri-HiTech
Sdn Bhd (MAH)
Malaysian
Electroplating
Technology Sdn Bhd
Commercialization of Arbuscular mycorrhiza
fungi to strengthen tree roots and provide
defense against pathogen. The invention
originated from UPM’s laboratory. (Backed by
MTDC)
Commercialization of electroplating technology by
UTM (Backed by MTDC)
Source: MTDC
11
Venture Capital backed Companies Spinning out of Local Research
Company
Product
Phytes Biotek Sdn Bhd
Commercialization of a standardized extract of
Tongkat Ali from UM & FRIM. (Backed by
MAVCAP)
Nusuara Technologies
Sdn Bhd
The technology for speech recognition and
natural language originated from Hong Kong
University of Science and Technology. Intellectual
property lies within the company. (Backed by
MAVCAP).
Fito Elegance Sdn
Bhd
Commercialization of aromatherapy using locally
extracted essential oil. (Backed by MAVCAP)
Source: MAVCAP
12
10. Feasibility
8. Innovation
Studies
Infrastructure 6. Reward &
Incentives
9. Diffusion of
New S&T
7. Industry
Linkage
5. Research
Focus
4. Manpower 2. Commercial
Awareness
3. Research
Management
1. Funding
Mechanism
WHY
COMMERCIALIZATION
OF PUBLIC
RESEARCH IS
MODEST
IN MALAYSIA?
13
Low Rates of Commercialization: Root Causes
•
Funding mechanism not conducive to commercialization
•
Researchers are not commercially aware of the potential of their
research findings
•
Impending lack of effective Research Management
Practices in universities and PRIs
•
Manpower issues constraint ease of translating research
results into commercial outputs
•
Research focus is largely publications-oriented with little
applications-oriented research
Source: MOSTE
14
Low Rates of Commercialization: Root Causes
•
Lack of clear incentives and rewards to stimulate
commercialization
•
Paucity of networking mechanism linking key parties to commercialize
research findings
•
Pockets of excellence exist in the Innovation Infrastructure, but
overall, it suffers from systemic weakness
•
Shortage of diffusion mechanisms to accelerate adoption of
technologies across different sectors
•
Pre-technical feasibility studies on marketable outputs or
tangible benefits are seldom conducted by researcher, since it
is not an institutional requirement
Source: MOSTE
15
Four main hypotheses affecting low rates
of commercialization
•
•
•
•
Manpower issues
Industry linkage
Innovation infrastructure
Diffusion of Science and Technology
knowledge
16
Manpower issues
• Lack of people with business building competence ;
• To attract world class talents to raise standards of research in the
country;
• To attract and retain overseas Malaysian S&T personnel;
• Lack of S&T personnel with the required skills in the country.
64% respondents agreed agreed statement suggesting the
Manpower issue is not just one of “capacity” but more so in term
of “capability”
World Bank report which ranked 128 developing countries based upon
their scientific proficiency, Malaysia was categorized as “Scientifically
Lagging” (World Bank 2002). Malaysia generates less than 5 S&T articles
per 1 Billion GDP (MOSTE, 2002:84)
17
Industry linkage
• “Marketing of my research findings to industry is not a
requirement in my job”
• Facing difficulty in finding partners for research collaboration;
• Pro-sharing of information with industry.
Innovation infrastructure
• 91% respondents agreed that Malaysia requires a critical mass
of research centers of excellence for various disciplines
• Malaysia’s share of worldwide scientific publications stand at
mere 0.01% (Indicators Report, MOSTE 1999)
18
Diffusion of S&T knowledge
• Do not know what technology transfer mechanisms
are available
• Do not have access to Technology Transfer
organization
• Lack of good Technology Broker in the market
19
Commercialization – VC’s Perspective
20
RELATIONSHIPS BETWEEN CREATIVITY, TECHNOLOGICAL INNOVATION & COMMERCIALIZATION
TECHNICAL
WORLD
COMMERCIAL
WORLD
TECHNO-PRENEURSHIP
BUSINESS CAPABILITIES
Results
INVENTIONS/DISCOVERIES/
TECHNOLOGIES
Activities
Research
Activities
Develop’ m
Activities
15 – 20 % of Commercial
proceed to be ploughed
back into R&D
TECHNOLOGICAL
INNOVATIONS
Product/
Process
Develop’m
Activities
Market
Develop’m
Activities
Tinkering/
Experimenting
Source: Technology & Strategy: A General Management Perspective
21
Commercialization
• Research universities are an “engine” for economic
growth and a source of new knowledge
• Fertile ground for new ideas
• Educate workers comfortable with new technology
• Focused on research involving revolutionary concepts
• Funded with a mandate to benefit society
• So if research universities are such a great engine, why
isn’t our Corvette smoking down the track?
• Engines must be properly designed and tuned
• My car needs more than just an engine!
The First APEC Incubation Forum
APEC
22
Corporate Spin-offs Versus University Start-Ups in the EU
Corporate Spin-offs as a
Proportion of All Start-ups
• Benefits of Corporate Spin-offs
%
30
25
20
15
10
5
0
• Greater business experience
• Better access to development capital
U
K
Sp
a
Sw in
ed
e
D
en n
m
ar
Fi k
nl
an
G
er d
m
an
y
Ita
l
Fr y
an
ce
• Better access to markets
• Better job prospects for employees
Failure Rate
%
50
45
40
• Hurdles of University Start-ups
• Grow slowly
• Commercialization hampered by
bureaucracy
• Less entrepreneurial approach
The First APEC Incubation Forum
Source: EU Study, 2000
30
20
15
10
0
Corporate spin-offs
University start-ups
APEC
23
Lesson # 1 - Chances of Success for a
High-Tech Start-up
On average, good plans, people, and businesses succeed only one in
ten times.
INDIVIDUAL EVENT
Company has sufficient capital
Management is capable and focused
Product development goes as planned
Production and component sourcing
goes as planned
Competitors behave as expected
Customers want product
Pricing is forecast correctly
Patents are issued and are enforceable
COMBINED PROBABILITY OF SUCCESS
PROBABILITY
80%
80%
80%
80%
80%
80%
80%
80%
17%
Source: Harvard Business Review
24
There are Lots of Players with Different Goals!!
Business incubator
Ideas
Cornered Markets
Commercialization
Profit
Government
Education of Students
Economic Development
Improvement of Life Jobs
Publication
Distribution
Reputation
University
The First APEC Incubation Forum
APEC
25
Decreasing Product Life Cycles
Drug
Food
Today
Tools
Fifty years ago
Toys
Cosmetics
0
10
20
30
Length of Cycle in Years
Source: A.D Little, 1992
26
Rapidly Changing Global Scenario
• Shortening life cycle of products and services: “if you
understand the technology, it is obsolete”
• Rapidly changing business environment: “it’s not the big that
eats the small; it’s the fast that eats the slow”
• Globalization of world economies, technologies and innovations
• Shift of emphasis from a decaying industrial economy composed
of large firms to a knowledge-based entrepreneurial
economy driven by innovative technology
The First APEC Incubation Forum
APEC
Source: 1000ventures.com
27
Gap Between Research & Commercial Application
Target Resources Where They Have The Greatest Impact On New Business Creation
Resources
Existing Research
Resources
Existing
Commercialization
Resources
“Valley of Death”
“Entrepreneurial
Zone”
“Gap Funding”
Idea
Patent
Practice
Product
Commercial Business
Product Development Timeline
28
Source: School of Venture, Hoseo University, Korea [itbi_kim]
Barriers to Commercialization
Industry
• Poor understanding of the nature of academe
• Poor understanding of its financial imperatives
• Funding for research
• Funding for commercialization activities
• Desire to overlook the importance of student education
• View of university as a “vendor” not a “partner”
•“Purchase” agreements for research
• University seen as a source of “contract research”
• Lack of “industrial” role in education
• Difficulty in funding early, risky stages of the
research/product process
The First APEC Incubation Forum
APEC
29
Barriers to Commercialization
Universities
• Poor understanding of the industrial environment
• Lack of understanding of the need for speed
• Unrealistic evaluation of the work of commercialization
• Need to protect education and discovery missions
• Susceptibility to litigation
• Lack of revenue to offset liability
• Deep pockets of endowments
• Lack of flexibility in the system
• Government regulations
• Protection of multiple, independent participants
The First APEC Incubation Forum
APEC
30
Venture makes sense for very few
companies
•
MOST successful companies are NOT funded
by venture
•
Venture Capital ONLY makes sense for very
few companies
•
Pre-Seed funding(cradle)- RM 50K
•
Seed funding- up to RM 2 million
•
Post-Seed funding- up to RM 40 million
•
Venture capitalists are not risk-takers, they are
risk managers
31
HIGH REWARD
A study, sponsored by the National Venture Capital Association
found the following;
Companies backed by venture capital generate 2X the sales,
pay 3X the federal taxes;
And invest far more heavily in research and development as
their traditionally financed counterparts,
VC backed companies generate $634 in sales for every $1,000 in
assets, compared with traditional companies, $391 in sales.
Venture-backed firms spend more money on R&D costs: $ 44
per
$1,000 in assets compared with $15 for others.
* Ciena Corp USA – IPO on NASDAQ reach valuation of USD 2.1 bil
Source: Dresdner RCM Global
Investors LLC, Ca
Lesson # 1 - Chances of Success
for a High-Tech Start-up
Idea to IPO
6 in 1,000,000
Plans to IPO
Funded to IPO
6 in 1,000
1 in 10
Source: Saratoga Venture Finance
33
Lesson # 2 - Scientist Versus Rainmaker
(Who makes the better Entrepreneur?)
Case 1:
Biotech early stage in neutraceutical)
- water soluble extraction technology
- Strong technology and academic grounding
- Commercialization fresh from the lab
- Over-promise & underperformed
- Difficulty adjusting to real-world practices
Case 2:
MEMS company design fabrication &
packaging of sensors
- Veteran Engineers in semiconductors
business
- Have strong contact with the industry and
understand the practicalities
- Under-stated & Over performed
Case 3:
EAI Software
- Freshie (bright young graduates)
- Naïve, gun-ho, stubborn and idealistic
- Over--promise & underperformed
34
Some Common Mistakes Entrepreneurs make:•
Mistakes #1: Hiring the Wrong Person to Fill a Key
Position
•
Mistakes #2: Thinking Small to Reduce Risk
•
Mistakes #3: Telling VCs What You Think They Want to
Hear
•
Mistakes #4: Believing Your Competition Is Incompetent
• Mistakes #5: Focusing Solely on the Money
Source: Dresdner RCM Global Investors LLC
Source: Dresdner RCM Global
Investors LLC, Ca
Conclusions
36
Commercialization is “risky” mainly because
so few of the so-called entrepreneurs know
what they are doing. They lack the
methodology. The violate elementary and wellknown rules.
37