This study also explored the experience of private investors in commercialisation. The most striking finding was that private investors were generally reluctant to invest in IP resulting from public sector research. From their perspective, the key issue in research commercialisation is not the lack of funding, but the lack of commercial opportunities that are worthwhile investing in. They typically found university IP has a lot of unresolved ownership and legal issues, and the transaction costs involved in getting the IP transferred over are quite high. A representative remark was:
Buy it from a pharmaceutical company, less transaction overhead because the technology is a bit more in a box where it can be transferred. At the university it is not so much a box it is a bit of a mess and there’s
a lot of details, IP issues, legal issues, technology issues that need to be solved. . . I think there is a lot of transaction overhead associated with university technologies.
Some private investors reported that they were not keen to invest in university IP through the TTOs because of the high risks involved. They found that some TTOs were trying to shift the risks to either the spin-off companies or the investors themselves, rather than facilitating the transfer of technology. To illustrate this point, an investor said:
They are not commercial. They don’t have a commercial view so that they are trying to push all of the risks, every risk item they are trying to push on to the investors, push on to the company. And of course that’s just simply not acceptable. I mean we had experience with major institutions where we simply say this: We can not do this deal with this risk transfer, where you’re trying to transfer all your risks on to a tiny company and that’s never going to survive those risks. We won’t make an investment because it’s not a reasonable thing to do. So enormous amount of time and enormous amount of cost get soaked up with that risk-shifting stuff that goes on.
Another possible reason for this general reluctance amongst private investors to invest in IP through the TTOs is the amount of time that is involved to make a deal. When the IP is owned by a university or a public research organisation, investors are not just dealing with the commercial opportunity per se, but also various representatives from the research institution as well as the TTOs. This can make IP negotiation a rather complex and long-term process. For example, an investor described the IP negotiation process as follows:
If you go to institutions something like the xxx, then typically you are dealing with at least four different breeds of people. You are dealing with
the scientists themselves, and you’re dealing with the division they happen to be in, you are dealing with the division’s business development manger, and you are dealing with the xxx corporate. So you tend to have, you know, a minimum of four different parties who supposedly are all on the one side. And that becomes a very complex and very long-term process. So if we’re dealing with an opportunity that is not within the institution, it generally takes around 4-6 months to get a deal done and finish it and document it and execute it. With institutions, it can take anything up to two years.
My interviews with private investors also showed that the internal communication within a research institution could be an issue during IP negotiation. The respondents reported that the various representatives from a research institution were supposed to be on one side, but in reality the interests of these parties were often not aligned. One example was that when the academic scientist or the inventor of the technology was kept aside by the technology transfer managers during the negotiation process, deals could potentially fall over:
We had experience where the research institution takes a particular line and negotiates the deal up to a certain point but hasn’t told the individual scientist that is the position they are taking or hasn’t got the scientist to sign off they are agreed to this. And you get to certain point of this and the whole thing falls over because the scientist says hang on a second, nobody asks me.
From a private investor’s point of view, the academic scientist or the inventor of the technology plays an important role in the research commercialisation process. Some investors remarked that they were not just buying the IP, but also the key individuals involved in order to get the technology transferred over. An illustrative comment was:
. . . whereas the university, the technology is very intimately tied to the inventor, to the professor. So you are not just buying technology, you have
to buy that person too in the sense that you need to interact with them to get technology transferred over. That can be a difficult process. Not so accessible.
When I asked the private investors the question of what would be their preferred approach in research commercialisation, some respondents said that they like to deal with the people who are behind the IP directly, rather than going through an intermediary. From their perspective, part of their due diligence was learning about the people. A typical comment was:
As an investor, the actual process you go through in terms of screening and negotiating with the deal all that style of things, it’s all part of learning about those people. And if you are not dealing with them direct, you don’t know what they are like. . . I like things to be really simple. And what I find is, if you deal directly with compassion, with appropriate thought and process, you get there much quicker than if you have multiple parties in the chain. So the more parties you put in the chain, the more complex it becomes and the longer it takes and the more it costs and the less likely you are to get a reasonable outcome.
In summary, the empirical data of this study show that private investors typically had very little interest in IP resulting from public sector research. The respondents found that most university IP was at too early a stage with many unresolved technical and legal issues. Moreover, the transaction costs in getting university IP transferred is quite high. From a private investor perspective, the TTOs facilitated the transfer of risk as supposed to the transfer of technology to industry. Negotiation with the TTOs was a long-term process, and it often fell over due to internal communication issues within the research institution.