As casual reading, the Presidential Memorandum “Accelerating Technology Transfer and Commercialization of Federal Research in Support of High-Growth Businesses,” released Oct. 28, 2011, is about as riveting as the Department of Defense Instruction No. 5535.11 (“Availability of Samples, Drawings, Information, Equipment, Materials, and Certain Services to Non-DoD Persons and Entities”) that followed in its trail on March 19, 2012. Which is to say, not riveting at all.
But as a window into the Obama Administration’s efforts to create jobs, both documents are revealing. And both help to explain a series of new investment partnerships announced today—almost a year after the aforementioned memorandum was released. Hey, no one ever said job creation was easy. At least no one not running for president.
The partnerships, billed as the first of their kind, reflects a series of agreements between the Boston investment firm Allied Minds and a slew of labs and research centers run and/or funded by the federal government. (They also reflect a similar arrangement AMFI completed this spring with the Army’s Edgewood Chemical Biological Center.) Through a new entity called Allied Minds Federal Innovations (AMFI), the parties hope to improve the process by which the U.S. allows private companies to license its (declassified) intellectual property. For while there have been notable occurrences of such “technology transfers”—GPS, the Internet, Tang—the process by which this happens isn’t much of a process at all. Nor is it efficient. In fact, most of the ideas developed by (or with the support of) the military, NASA, and other arms of government remain untapped by private enterprise. “The amount of ‘thought’ licensed out of these national labs is abysmal,” says Bill Aulet, who teaches entrepreneurship at the MIT Sloan School of Management.
The reasons are myriad, but a big one is that most people who work at federally funded research and development centers (FFRDC) aren’t commercially minded. “We’re not business people or entrepreneurs,” says Gary Pulliam, VP of civil and commercial operations at The Aerospace Corp., which runs an FFRDC in California and has already worked with AMFI to launch a new business. “We’re scientists.”
They’re also government workers, or quasi-government workers, anyway. That’s another reason for the poor record of public-to-private technology transfer: People who choose government careers are generally not big risk-takers. And it’s hard to imagine a bigger-seeming risk than okaying a deal to license a technology—for fees that are generally in the low six figures—that could result in great wealth for someone other than Uncle Sam. “It’s not logical,” says one source familiar with the process, “but no one is dying to be the person who gave away a billion-dollar idea.”
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The irony is that the U.S. government is not looking to generate riches from the transfer of its technology. To be sure, the expectation is that there will be a money transfer from the private sector back to the corner of government from which a piece of IP sprung. “Under the licensing agreements that the start-up companies will have with the DoD labs,” says Allied Minds CEO Chris Silva, “we do expect there to be substantial economic benefit to the labs as the companies grow and become substantial themselves. The amounts depend on the size and scope of each company, but we expect the benefits to be substantial.”
That said, Uncle Sam has bigger priorities, one of which is the need to generate commercially driven applications of its own research, which it can then procure for its own use. If a government lab develops a lighter bullet-proof material, for example, it needs a private company to make the vests that soldiers will wear. (The arrangement complicates matters for the less-government-is-more crowd, since the U.S. can’t outsource much of its R&D for security reasons but needs a public-private pipeline to turn knowledge into product.)
But another goal of technology transfer is to create companies that will create jobs, a purpose that has of course been given super-critical priority of late. Consider this language in the president’s tech transfer memorandum: “One of the goals of my Administration’s ‘Startup America‘ initiative, which supports high growth entrepreneurship, is to foster innovation by increasing the rate of technology transfer and the economic and societal impact from Federal research and development (R&D) investments.”
In this case, be assured, “economic and societal impact” equals “Jobs, and lots of them! Pretty please!”
Then again, few people understand the slow pace of progress within the federal government better than a frustrated president looking to boost employment figures. After all, it took nearly five months from the release of the president’s memorandum for the DoD to issue a note explaining the rules. That might explain why Section 3 of that memorandum is titled: “Streamline the Federal Government’s Technology Transfer and Commercialization Process.” And that’s where Allied Minds comes in, a year after they began talks with the first of the FFRDCs with which they’re now partnered. Essentially, the investment firm teams its commercialization experts with scientists from the various FFRDCs and other research centers. The goal is to identify promising government intellectual property that will be the basis of startup companies. Those operations will be run by interim CEOs supplied by Allied Minds, which will also fund every enterprise. (The firm says it is committing $100 million to AMFI projects.)
In exchange for its capital risk, Allied Minds gets a stake in each company it forms. The arrangement has already produced two startups—focusing on internet security and broadband efficiency—and Silva expects AMFI’s first year to produce 20 new companies. Beyond that, he thinks the size of the government and university research pie (upwards of $150 billion annually) will support 100 start-ups a year once the process for tapping the government’s IP is rationalized enough to spur other investors to knock on AMFI’s door.
In fact, Allied Minds would like nothing more than to become the clearinghouse for similarly minded investors and entrepreneurs. “We have perfected our model,” Silva says, noting Allied Minds’ agreements with more than 40 universities featuring a similar deal structure. In six years, the firm’s PR reps will tell you, Allied Minds has “provided funding and management expertise for the creation of more than 20 companies,” including SciFluor Life Sciences, a drug development company; Spins Transfer Technologies, a computer memory manufacturer; and SiEnergy Systems, which makes clean-energy fuel cells.
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All of which sounds impressive, but it’s tough not to be simultaneously hopeful, skeptical and practical. Hopeful because who doesn’t want all that untapped government research put to good use? Skeptical because any short-on-the-details agreement involving Uncle Sam and a bunch of private-equity types makes you wonder who will reap most of the benefits. And practical because whoever wins the presidential election in November can’t count on AMFI having any measurable effect on near-term employment figures: The number of jobs created by those 20 companies that Allied Minds helped start over the past six years? Around 200.