The Role of Universities and Technology Commercialization in Economic Development

1. The Role of Universities and Technology Commercialization in Economic Development Don Smith Director, University Partnership of Pittsburgh University Director of Economic Development University of Pittsburgh and Carnegie Mellon University November 17, 2006

2. Overview • Why is this issue so important? • Tech Commercialization Myths • The New Technology Pyramid • The Role of TBED Intermediaries • Where we go from here

3. Why are the Universities playing a bigger role? • The economy has changed • Talent, Technology play central role • Universities are more important than ever • There is great interdependence with the region • A stronger region aids faculty and student recruitment • Local company partners improve the research and education quality • University leadership understand their roles

4. Why the focus on Universities andTech Transfer? • Unlike retail and local market services, tech generates new wealth in its region • Tech startups play important role in regional growth • Universities one of very few factors that consistently emerge as a competitive advantage for their regions • Perceived role of Stanford and MIT in Silicon Valley and Boston success

5. The Fundamental Paradox • EVERY great tech region has at least one great research university, BUT • Not every great technology research university results in a great technology region • Technology Commercialization can be a big part of the differentiation

6. University Contributions to the Regional Economy • Traditional • Employment and purchasing • Talent attraction and development • R&D funding attraction • Recent Add-Ons • Startup company generators • Business assistance services • Special initiatives and policy leadership

7. What do we know? • University research has strong regional spillovers (Jaffe) • Great research leads to great companies • R&D quality, Eminent scholars best predictors of venture-backed university spinouts (Zhang)

8. What do we know? • It takes time, with a consistent and focused approach. • RTP, SD took 15 years or more • Benefits of university excellence accrue over time • Harvard, MIT great for over a century – huge alumni base, residual buildup of talent and capital in the region. • Local ability to leverage universities differs – regional absorptive capacity may define success

9. Myths in TBED • Traditional university roles are diminishing in importance • MIT and Stanford actively created Boston and Silicon Valley miracles • Great tech transfer equals regional economic development • VC creates new companies • There is a “silver bullet” solution

10. Myths II • Research jobs “matter” less than private sector growth • Students + Entrepreneurial training = successful technology startups • Universities get rich on Tech Transfer • Self Sufficiency should be a goal of TBED organizations

11. #1 Traditional University Roles Less Important • Great Teaching and Great Research are still the highest priorities, and the activities of greatest economic impact for universities. • The talent is produced that drives all companies in the region/state. • Fundamental research breakthroughs are behind most homerun companies, and no one else is pursuing. • All the evidence suggests that the stronger the research and faculty, the greater the commercial impact

12. #2 SV and Boston Myths • Stanford and MIT set out to create tech clusters • Favorable tech transfer policies and startup biases led to SV and RTE 128 • State programs played a role • They were entirely VC driven • Vastly underplay role of experienced entrepreneurial management, and federal R&D funding

13. #3 Tech Transfer Proficiency Drives Economic Development • Columbia perennially at top of list, yet little NYC tech growth • Stanford and MIT policies less favorable than PA institutions • PA’s top institutions performing at top of startup pack already, yet Commonwealth lags • Pitt, Penn, CMU all hit top ten in startups or startups per $M in research in last 3 years (AUTM) • Less than 2-4% of startups are from universities (Lester, LIS Project)

14. #4 The VC Myths • VC creates companies • VC invests in and increases success rate of company opportunities • VC has regional gaps • Models show good efficiency at finding good deal flow • Seed, Pre-seed stages are possible exceptions • VCs won’t invest outside their region • Even SV VCs invest over half of their funding outside SV • Nearly all successful PA companies have attracted outside VC

15. #5 The Silver Bullet Myth • If we just had more (pick one) [ VC, Incubators, Tech Parks, Tech Transfer, experienced managers, lower taxes ] we’d be the next Silicon Valley

16. Tech Commercialization is similar • Research funding, seed funds, incubators, tech parks, cluster initiatives as THE silver bullet • Reality: all of these, consistently over time • Or, massive surgery • Austin – 32 chaired professors at UT for MCC, more for Sematech • NC – RTP + $3B for UNC, NC State infrastructure, 300+ acres for centennial campus • GA – 50+ eminent scholars, half at GA Tech • We need a new “food pyramid” for tech commercialization

17. Old Prosperity Pyramid • Cheap land • Physical Infrastructure • Cheap, Abundant labor • Low taxes • Low cost capital • Skilled labor • R&D

18. New Technology Pyramid • Skilled Labor • scientists, engineers, experienced entrepreneurial management • Technology R&D • University R&D, Corporate R&D • Specialized Infrastructure • Clusters, Labs, Tech Parks • Risk Capital • Pre Commercialization, Pre Seed and Seed Capital • Technology transfer • University-Industry Centers; Fair, fast and transparent tech transfer policies

19. Critical Mass is Everything • SV and Rte 128 work because they achieved clusters of scale • Agglomeration economies keep them going despite super high costs, taxes, congestion, etc. • Efforts that fail to target and achieve critical mass won’t create long term, sustainable success

20. Critical Mass • Talent is a key driver • Attracted to clusters of activity and cutting edge research and development • Universities are a key provider, but companies are important training grounds • Anchor companies attract and grow talent • Economies of scale for VC, services result in increased activity • Critical Mass/Clusters provide the absorptive capacity

21. University Roles • Technology • Tech Transfer • Attraction of Companies • Tech parks • Targeted Cluster Initiatives • Talent • Education programs • Executive and Continuing Education • Attraction of talent

22. University Roles • Entrepreneurship • Training • Technical Assistance • Incubation • Venture Promotion / Activities

23. University Partnership of Pittsburgh • Designed to make connections with the private economy • Lowering the barriers to industry-university interactions • The “friendly front door” to the universities • Coordination and communication vehicle for policy between the two universities • Sharpen focus on economic development • Focus on Oakland for physical development • www.universitypartnership.com

24. Universities Today • Primary driver of tech based initiatives • PTEI, Robotics, Digital Greenhouse, • Pittsburgh Life Sciences Greenhouse • Great expansion of tech transfer/ tech commercialization • Technology Commercialization Alliance(Pitt) • Innovation Network (CMU) • Driving real estate market • Collaborative Innovation Center I (II in process)

25. The Role of TBED Intermediaries

26. What is TBED about? • Trying to create synthetically, through policy and programs the conditions that developed organically in SV and Boston. • Can it be done? The jury is still out. • Best examples so far: • NC’s Research Triangle Park (25 year, focused recruiting effort with supporting policies and programs) • San Diego (CONNECT role, limited programs) • Austin (state support of UT was main policy, along with branch plant locations)

27. Differing Roles for Universities • Georgia Model • GA Tech as the delivery vehicle for state programs • ATDC, Venture Lab, MEP, Electronic Design Research Center • PA Model • Develop outside intermediaries to bridge gap • Life Sciences Greenhouse • Technology Collaborative • Innovation Works

28. Life Sciences Greenhouse • Four focus areas: • Drug discovery tools and targets • Tissue and Organ Engineering • Medical Devices and Diagnostics • Therapeutics for Neurological Disorders • Invest In Both sides of the equation • Academic research, academic faculty, • Linkages to industry, Pre-Seed funding, Incubation, Step up space, Executive talent, Marketing, Workforce • New 501c3 with strong university board presence

29. PLSG Mission and Programs People Capital Connectivity Space University/Research Startup Company Existing Companies PLSGStars PLSG Talent PLSG Executive Corps PLSG TechnologyDevelopment Fund PBDC PLSG Seed Fund University Development Fund PLSGSBIR Advance PLSG VC Outreach PLSG & PTC Biomedical Network PLSG Facilities PLSG Incubator

30. How can we make it work better? • Grow the scale • Great evidence that critical mass of research is key • Deal flow (quality and quantity) defines success • Define and accept our roles • Universities – TBED orgs – Market economy • Partner effectively • Both sides bring unique resources to the table

31. Conclusion • Continue to grow the research base • It all starts there • Build local absorptive capacity • Cluster based development • Anchor/Breeder companies • Entrepreneurial infrastructure • Facilitate the transition from lab to local market • Relationship building between universities and companies • TBED efforts to enhance quality and quantity of deal flow • Pre-market funding

32. Some Pittsburgh Data/Examples

33. R&D Attraction • Pitt and CMU attracted over $1 Billion in R&D to the region this year • The AAU estimates that 28-31 jobs are created for every million in R&D • 28,000- 31,000 research-related jobs • Space Implication: up to 1 Million sq ft of institutional research space may be needed

34. The Universities – the region’s #1 asset for company attraction Big name successes due to the presence of our universities Star faculty are the big draw Examples include RAND Renal Solutions Intel Seagate Sony Oki Electric Bosch Google Many more . . . Company Attraction Space Implication: Elmhurst, CIC, PTC Site all full – growing demand for R&D and office space in proximity to universities and UPMC

35. Technology Commercialization • 300+ University-related tech startups in region with over 7000 jobs in region • US 1 spinout per $87M R&D, Pittsburgh 1 per $56M • Pitt ranks 6th nationally in 2004 AUTM data with 10 spinouts (CMU spawns 14 in 2006) • Pitt and CMU in top 30 in venture backed startups (Zhang, 2004) • 68% of regional jobs in companies with over 1000 employees, are in companies that started here • Space Implications: Flexible incubation and step-up space needs are growing