IRISH BUSINESS funding for research and university technology transfer offices (TTOs) fails to give Irish start-up companies the support they need when they need it.

Instead, TTOs tend to take large chunks of company equity in exchange for funding, exactly when the companies are most vulnerable, or drown them in bureaucracy, according to UCD School of Business lecturer and researcher Dr Rory O’Shea.

But new models of operation could free up stale university intellectual property (IP), and rejuvenate how research is done and transferred into companies both inside and outside the university, to benefit society and the economy, he says.

O’Shea is co-editing a book of essays examining such issues, Building Technology Transfer within Research Universities, to be released later this year by Cambridge University Press.

“We’re still not obtaining any Irish high performance companies despite the efforts of funding research and technology transfer through organisations such as Science Foundation Ireland,” he says. “When you really look at the companies, most are lifestyle companies, add-on consulting companies, rather than high impact companies.”

He says Iona Technologies remains the only truly high impact technology company to emerge from Ireland, noting it generated jobs in Ireland and abroad not just within the company itself, but from the many spin-outs set up by former employees over many years.

A critical problem with Irish university TTOs, says O’Shea, is they are “largely pursuing a “revenue maximus” approach – what’s the best return for the university for every deal we can do – rather than turning it around and asking, what can we do to disseminate knowledge into the local community?”

Most of the IP developed inside of universities will never be utilised for university centred spin-outs, but could be productively used by entrepreneurs and companies outside of the university, he argues. This is a more natural role for universities already funded by taxpayers, as it would put what is in effect community-funded research back into the community to create jobs.

MIT, for example, has over 500 annual IP disclosures, but only a small number go on and become the basis for companies spun-out of the institute.

An alternative approach is an “open innovation” easy IP access model, philosophically based on the ideas of open source, community -driven software development, which is being spearheaded in Britain at institutions like King’s College London and the University of Bath. This makes university-generated IP available free of cost to outside entrepreneurs, who sign a single page agreement to put unused university IP to use in new companies.

“There’s a premise of job creation numbers rather than a quick book of revenue for the universities,” says O’Shea. He believes that within two years, the open innovation approach will be general practice across many universities.

Another current problem is that prospective researcher entrepreneurs are disillusioned by the structure in place in TTOs.

“The transaction costs of engaging with TTOs is seen as a disincentive and often are onerous for entrepreneurs and new firms,” according to O’Shea. In addition, he says Irish TTOs take 15 per cent equity in companies, which is a “massive amount” for any company, especially by international standards.

American universities that have successful technology transfer systems and a history of creating companies, such as Stanford and MIT, take only 5 per cent equity. Their offices also do not focus on a short-term return to the university, but aim to create an ecosystem of jobs and research through successful spin-offs, which will in turn bring money back into the university. A bonus for Stanford and MIT has been to receive large-scale individual and corporate donations from former students who become millionaires.

Another problem with the Irish system is how the environment that has been set up to supposedly help companies actually places further financial stresses upon them. For example, some TTOs require prospective entrepreneurs to attend a business academy at personal cost, while incubator facilities set up by the Government charge pre-revenue companies to use them.

As a result, many Irish companies fail to successfully cross over the so-called “valley of death”, the period when a company is developing a product or service for market and needs financial support, O’Shea says.

Company founders have to take on debt, while the drive to get payback for the equity holders typically leads to companies being sold too early for too little, rather than being floated as public companies that might eventually have higher impact, he says.

“But entrepreneurs, even if they are very ambitious, just don’t have the chance to bring their companies to flotation” because of the current system, he believes.

By contrast, the National Science Foundation’s SBIR (Small Business Innovation Research) programme in the US offers funding to companies to carry them through the “valley of death” phase and does not demand large equity stakes in return, letting many young technology companies launch on very solid ground, he says.

The NSF must also put 2.5 per cent of every investment into a university research project into funding “frontier” start-ups attempting to commercialise cutting-edge research. Funding also goes directly to researchers and their specific project, rather than – as happens in Ireland – to the researcher’s department.

O’SHEA ARGUES THAT the current system overlooks an important source of potential start-ups – the student population. TTOs are not geared to mentor and support students with business ideas, even though O’Shea regularly sees Irish students attending start-up events. “We’re totally neglecting this area. I see 10 to 12 business plans a year from students that are viable,” he says, but they fall through the net without any mentorship. Some have left for Silicon Valley and established companies there, he notes.

A final concern centres on the dearth of statistics produced on Irish companies and Irish innovation. Rather than coming from a neutral body, like the Central Statistics Office, the business data that does filter through comes from state agencies which have every incentive to put a positive spin on whatever figures they release. He points to statistics that have highlighted a significant percentage increase in research-based start-ups. “But what is the nature of the spin-offs?” O’Shea asks.

For example, in 2009 when the State was highlighting that the university system had produced 35 start-ups, only three of those actually fell into the most promising “high potential start-up” category.

Perhaps only 5 per cent of all high potential start-ups will ever be valued at a modest $5 million (€3.844 million) and very few will ever reach the point of seeking venture capital funds, he says.

So, citing lump numbers without any detail about the companies can give a misleading, overly-positive picture of the Irish university spin-off environment.

He does not blame TTOs for the existing problems in commercialising IP. Their remit has been driven by university policy at a top-down level, he says, where senior management wish for a faster payback. But the system needs to change if Irish research-based start-ups are to flourish and be given a chance to create jobs and boost the economy.

“We are arguing in the book that universities should take an entrepreneurial approach to commercialising IP, rather than a bureaucratic approach,” he says. “We all know there needs to be a step up in the process.”