The Davis Funding Club’s mission is to be at the vanguard of the big change coming to the start-up ecosystem where everyone, no matter their income or net worth can now invest as little as $100 in start-ups due to the Jobs Act of 2012 that came into effect on May 16th, 2016.
The real potential and game changing opportunity resides with the “crowd” of 60,000 Davis residents, 55,000 U.C. Davis staff / faculty/students and the 240,000 U.C. Davis alumni allocating an average of $1,000 of their retirement IRA's or 401K's to backing start-ups coming out of Davis. This crowd funded pool of capital would represent more than $300 million dollars and potentially could seed 1,000 start-ups with the capital they need to launch.
These 1,000 new start-up companies could generate over 4,000 local jobs in Davis, based on the nationwide average which records that each new start-up funded with an angel seed round of $300,000 creates on average 4 new jobs. This seed capital pool would also help transform the U.C. Davis’ technology transfer process which would bring all the new technology currently residing in the university’s laboratories more rapidly to the market place and so greatly benefit all of society for the better.
The Davis Funding Club is the first pillar on what I hope will become “The Technology Transfer Framework”. This is a conceptual framework that would dramatically accelerate the pace of U.C Davis technology transfer and begin the process of reversing our societies’ declining rate of innovation if it were adopted.
The overall goal of the Technology Transfer Framework is to form start-up companies to commercialize U.C. Davis technology and incubate them in local Davis technology parks. If these companies grow and require manufacturing capability, they can transfer to local or area manufacturing parks. Once these companies grow into behemoths, they can transfer to west Sacramento and become globally successful organizations, with all the room they need to grow.
The 30,000 students attending U.C. Davis represent some of the brightest and most talented people in the country. After graduation, rather than staying in Davis and potentially starting their careers locally, most of these students leave Davis for all corners of the world. Instead of seeing student graduation as the end of their time at the university and relationship with the town of Davis, we should view this as just the beginning of their relationship with our magic little town of Davis by offering them the opportunity to work in our local start-ups.
Technology Transfer Framework Goals
The goal of the “Technology Transfer Framework” would be to develop a technology transfer model from gown to town that accelerates the pace of innovation. Adopting this R&D financing model will accelerate the rate of new discoveries, up from the current rate that is the equivalent to the rate of innovation last seen in the 1850’s.
Accelerating the rate of technology commercialization of university developed technologies could revert society’s introduction of new innovations back up to the levels achieved in the 1950’s and potentially beyond, which has the potential to transform and dramatically improve life in Davis for all of its citizens.
Why is this important?
Peter Thiel sums up our societies’ declining rate of innovation most succinctly by saying:
“what we wanted was flying cars, space travel and a long, healthy old age…
…what we got was 144 characters to Twitter with”.
Adopting the ideas represented by the “Technology Transfer Framework”, has the potential to change the world in ways we are unable to imagine at this moment as most of the technologies our society wants and needs are yet to be discovered. However, if we adopt the proposed “Technology Transfer Framework” we might see a flying car in our very near future… even Peter Thiel would give a big Facebook thumbs up “like” to that.
4 Pillars of the Technology Transfer Framework
The Technology Transfer Framework consists of 4 pillars or founding principles:
- Form early stage capital to finance the launch of new Start-Up companies commercializing U.C. Davis technology through a crowd funding platform comprised of the university faculty, staff, students and alumni, complemented by local, Davis residents and business owners.
- Foster the local U.C. Davis technology commercialization ecosystem by building a large technology transfer incubator AND Start-Up accelerator facility, plus the associated R&D facilities for these technologies to be brought to life on R&D parks.
- Assemble ad-hoc, multi-disciplined, commercialization teams drawn from the business school and other innovative student populations on campus to “mine” the faculty’s laboratories across the entire U.C. Davis campus to find the technology “nuggets” currently lying undiscovered, yet highly suitable for commercialization.
- Adjust the faculty compensation structure to reward technology commercialization and incentivize the acceleration of the rate of technology transfer at U.C. Davis.
The “Technology Transfer Framework” could have two profound impacts:
- The Technology Transfer Framework has the potential to double the amount of total R&D funding available for U.C. Davis faculty to work with from $780 million to $1.5 billion annually by 2030, positively transforming the sheer volume of R&D taking place on the U.C. Davis campus.
- The Technology Transfer Framework has the potential to dramatically increase the amount of “unencumbered” funding available to U.C. Davis faculty. These funds will free up faculty so that they can pursue more “Blue Sky” kinds of research projects rather than the incremental types of research that are typically funded by outside grant sources or corporations.
These two impacts will transform the type of R&D taking place on the U.C. Davis campus, dramatically increasing the rate at which the U.C. Davis faculty can innovate and expand mankind’s knowledge base for all of society's benefit.
Pillar 1- Crowd Funding Davis Start-Ups
This is all great, BUT the major hurdle that still stands in the way of all this technology commercialization is the funding gap that exists when a technology is beyond the laboratory proof of concept stage but not yet at the stage where there is a minimally viable product being sold to show a Venture Capitalist that the product has demonstrate-able market traction.
The 1st pillar of the “Technology Transfer Framework” attempts to overcome the start-up funding gap by crowd funding the required seed capital from U.C. Davis alumni, faculty, staff, students and local Davis investors...lets generate the same passion for our Start-Ups as we have for our teams !!!
But why would anyone want to risk their hard earned savings on high risk start-ups?
Investing in Start-Up’s based on university based IP should decrease an investor’s risk exposure and potentially enable faculty and alumni “crowd investors” to take advantage of the increase the rate of return that Start-Ups based on U.C. Davis technology could potentially offer. This is due to the little known fact that 8% of all Start-Ups commercializing university intellectual property “go public” through the IPO process in comparison to a "going public rate" of only 0.07 % for other U.S. enterprises. This gives Start-Ups commercializing university intellectual property a 114x advantage over all other US Start-Ups. In addition, 68% of the Start-Ups commercializing university IP formed between 1980 (when the Bayh-Dole Act was passed) and the year 2000, still remained in business in 2001, while non-university based startups experienced a 90% failure rate during that same time period.
This investment thesis suggests that a successful investment strategy with which to build a retirement nest egg might be to allocate a portion of your retirement savings account for high risk, high reward Start-Up companies. The problem is that “Angel Investing” in Start-Up companies has historically been limited by US regulations that allow only accredited investors to participate. The accredited investor requirement of a net worth of over $1million shuts out the majority of the US population from these alternative investment opportunities, so not everyone can participate.
However, due to rule changes just enacted by the US congress in the Jobs Act of 2012, as of March 16th 2016, anyone can be a venture capitalist and invest in Start-Ups within certain limits. These rule changes open up the opportunity to fund Start-Ups based on U.C. Davis technology through a crowd funding process as long as they go through a FINRA registered crowd funding platform like the one used by the Davis Funding Club.
Limiting the people eligible who have the opportunity to invest in Start-Ups commercializing U.C. Davis intellectual property has some advantages. By limiting the crowd of eligible investors able to fund Start-Ups commercializing U.C. Davis intellectual property brings a major benefit from working at UC Davis, attending UC Davis as a student or being a resident living in the town of Davis. This benefit would be a major draw for students as they can participate in these investment opportunities and start-ups after graduation. The clubs membership profile also makes it more attractive for staff or faculty to come and work at U.C. Davis and should help reduce the tension between gown and town due to the student housing shortage crisis.
Pillar 2- Incubator and Accelerator
The 2nd pillar of the “Technology Transfer Framework” is to foster the local commercialization ecosystem for U.C. Davis technologies by building a large technology transfer incubator and Start-Up accelerator facility, plus the associated R&D facilities.
The technology being commercialized would initially be incubated along the lines of the Y combinator program that gets the commercialization plan into shape over a 3 to 6 month, intensive entrepreneurial “boot camp” period. Once the plan is ready for commercialization through a start-up or through licensing, the team will pitch for funding or pitch companies for a licensing deal. If a licensing deal is struck, the students on the commercialization team could graduate with the technology and transition into the corporate world alongside their technology. If the start-up route is the best commercialization option, the team would pitch the Davis Funding Club for seed funding, then join the accelerator program to help move the company along as fast as possible towards a minimally viable product if the seed fund raise is successful.
The incubator / accelerator program could compliment the curriculum of the U.C. Davis Graduate School of Management and the programs of the Child Family Institute for Innovation and Entrepreneurship. This would enrich these programs by making them more applied in nature and at the same time the mentoring team could be populated by local experts like the faculty in the UC Davis Graduate School of Management.
The graduating students would then come with desirable skills and knowledge when they transfer into the corporate entity along with the technology that is being licensed, so the first job out of college could have a much lower barrier to entry. The commercialization process creates a nice stepping stone for students to transition from academia into their first career position and this process could reduce the rate of post college unemployment, further increasing the value of a U.C. Davis education.
The location of this unique academic/entrepreneurial/life environment on the doorstep of Silicon Valley’s unique Start-Up ecosystem that comprises all the elements that can scale up ideas into world dominating businesses might only be possible in a location like Davis. Adding to these unique ingredients is U.C. Davis’s ability to develop technologies in scientifically intensive areas like Bio-Medical and Agriculture that no entrepreneurial Start-Up working out of a Silicon Valley garage could ever contemplate developing. By combining UC Davis’s R&D capabilities and unique location on the shoulder of the Silicon Valley and the capital of California, a very special environment for technology transfer can be created.
Pillar 3 - Commercialization Teams
The 3rd pillar of the “Technology Transfer Framework” seeks to break down “silos” by assembling ad-hoc, multi-disciplined, technology commercialization teams drawn from the U.C. Davis business school and other innovative student populations across the U.C. Davis campus.
It is pretty ironic that one of the university’s meeting places is actually in a silo...
Using the “wisdom of the crowd” approach represented in the “Technology Transfer Framework”, the potential exists to accelerate the current ideation processing rate of 229 per year up to the full potential of 25,000 ideas per year that the campus wide faculty is capable of generating. This is a volume of license-able and Start-Up company creation opportunities completely unimaginable and completely unmanageable using that a traditional technology transfer type of approach.
Under the “Patent Acknowledgment” section of the employment contract that each member of faculty signs upon starting work at the university, they have an obligation to disclose all of their inventions (whether or not they are patentable) to UC Davis InnovationAccess for evaluation.
Why should I disclose an invention to UC Davis?
Under the Patent Acknowledgment you signed upon starting work at the university, you have an obligation to disclose all of your inventions, whether or not patentable, to UC Davis InnovationAccess for evaluation. The disclosure is made using the Record of Invention (ROI) form to UC Davis InnovationAccess. UC Davis InnovationAccess will review your ROI and make a determination whether the university has ownership in the invention as described above and, if yes, whether or not the university will file a patent application for that invention. The development, distribution and commercialization of your invention may provide significant public benefit and generate income for research and education at UC Davis. A licensee of your invention may wish to sponsor research in your laboratory. Also, inventors receive a portion of net income generated by their inventions.
In 2014, the U.C. Davis Office of Research processed 229 new invention disclosures from the 2,500 faculty. This begs the question, did the other 2,271 members of the U.C. Davis faculty have no ideas at all that year, or is the current methodology for invention declaration ineffective?
The likely answer to this question is the latter and the current methodology for invention declaration ineffectiveness is likely due to the “silos” that exist throughout the campus.
Entrepreneurs are natural “combiners” and by their very nature seek to break down “silos”. Faculty, by their very nature as Intellectual Property creators, establish “silos” as they develop their Intellectual Property and build defensible “moats” around that Intellectual Property. Assembling ad-hoc teams of entrepreneurs drawn from the ranks of the U.C Davis Graduate School of Management and sending these teams out on a regular basis has the potential of infusing an entrepreneurial “DNA” into the university campus that will breakdown “silos” automatically and have this effect on a continuous basis.
These entrepreneurial, ad-hoc teams would be formed to essentially “mine” the faculty’s laboratories across the entire U.C. Davis campus in the effort to uncover the treasure trove of technology “nuggets” residing in the faculty laboratories that are highly suitable for commercialization, yet currently lying undiscovered by the InnovationAccess program. Unleashing the sheer volume of 500 Graduate School of Management students into the faculty eco-system on a regular basis would create a process that begins to continuously draw out all of the technology that is currently residing and largely un-commercialized in the various laboratories across the U.C. Davis campus.
The results of the “Technology Transfer Framework” on U.C. Davis would the disbursement of business school students to all the corners of the campus and would be the natural antidote to the natural silo building effect that developing intellectual property entails. The process of U.C. Davis GSM students scouring the campus laboratories for technology breakthroughs on a regular basis would start to “infuse” a silo busting “DNA” into the culture of U.C. Davis. The results of this silo busting culture would result in the leveraging of the power of individual technologies developed in each laboratory into technology combinatorics and we can only begin to imagine what effect this would have on the pace of innovation.
The incubator / accelerator program could be integrated with on-campus curriculums like those of the U.C. Davis Graduate School of Management and the programs of the Child Family Institute for Innovation and Entrepreneurship for example. The benefit from the “Technology Transfer Framework” on the on-campus curriculum would be the enrichment of that curriculum by offering the students real world, hands-on experience not readily available in a lecture hall setting. The students not only of the business school, but campus wide could become hands on with incubation of Start-Up process, which could make the learning environment much more powerful as the students would be learning while working on the real problems Start-Ups face.
Let’s not forget that being a student might actually the best time to attempt technology transfer or a Start-Up company as there is no downside as students have no jobs to walk away from and are unlikely to have started a family yet, so do not have the time or financial pressure this commitment entails. Well know student entrepreneurs have gone on to build world changing organizations, students like Michael Dell, Jerry Yang of Yahoo, Sergey Brin and Larry Page of Google and richest of us all, Bill Gates, all founded their companies while they were still students.
Dave Lerner has a great TEDx talk for potential student entrepreneurs at this URL
Is the next Mark Zuckerberg building the next Facebook in the UC Davis silo right now? If so, let’s not force these students to drop out of college to go do their Start-Up. Instead lets nurture them right here on campus and teach them the tricks of the Start-Up trade until they are ready to graduate. When they are ready, let’s send these fully trained entrepreneurs on their way along with technology developed right here on the U.C. Davis campus. They can change the world for the better with a licensing technology placement or Start-Up company that has been dramatically de-risked.
Accelerating the rate of technology transformation by collaborating with the Graduate School of Management and the Alumni would bring two main benefits to U.C. Davis and our society at large. The entire U.C Davis faculty would have the opportunity to commercialize technology more rapidly if the “Technology Transfer Framework” is implemented and the faculty would at the same time benefit more quickly from the financial rewards of this accelerated rate of technology commercialization.
Pillar 4 – Changing the Reward Structure
U.C. Davis faculty is almost 100% dependent on external grant funding sources for its R&D funding and it essentially has become a research institute “for hire”, with risk adverse projects and incremental innovation the likely outcome. Opening up another source of funding so faculty can apply for grants as well as use their own unencumbered funds resulting from technology commercialization, would bring balance back to the R&D funding process.
Tenure was designed to free faculty of constraints in their research but grant funding for this research puts the bureaucrats back in charge of the direction this research can take. A change in the faculty reward structure means that the fruits of technology commercialization can flow back into the faculty as unencumbered funds so faculty can then go invent their specialty’s equivalent of the flying car.
Texas A&M was one of the first public universities to add commercialization to Tenure track criteria. In 2006, Texas A&M, the College Station based institution became what was believed to be the first public university in the U.S. to formally incorporate commercialization into its criteria for granting tenure to professors. This change quickly led to a marked increase in patent applications filed by tenure-track faculty.
“There has been a cultural belief that academic research and commercialization are at odds with each other,” he observes. “In fact, we found they are complementary. You have to consider research as a process, not an event that begins and ends with an innovation and publication of that new idea.” Bringing research to market has such a major impact on the university’s ability to fund further research — and in terms of burnishing a school’s reputation and attracting more talent to the faculty — “you have to be able to reward for commercialization,” asserts Guy Diedrich, vice chancellor for technology commercialization at Texas A&M.
I am not suggesting reinventing the wheel here, I am just suggesting adopting practices that work in other institutions. For another example, just mirroring the Stanford reward structure would work perfectly so that department heads and deans are incentivized to encourage their faculty to commercialize more of their technology via Start-Ups:
The un-encumbered revenue stream that becomes available from commercialization would enable the faculty to undertake R&D that is more transformational in nature in contrast to the largely incremental nature of R&D that is largely directed by the external entities providing the funding, all things are not equal in this comparison but incentives do influence outcomes...
An early exit and liquidation of the equity in the Start-Up within a 24 months period is clearly a key component of the “Technology Transfer Framework” concept. Adjusting the faculty reward structure to incentivize technology commercialization needs to be complimented with a mechanism that allows for early exits from these Start-Ups. Waiting the average timeframe for a merger of 7.5 years or 10 years for an IPO is well outside the typical tenure track faculty timeline.
Exiting at Series A to a Venture Capital firm or to a large corporate entity after 2 years would provide the liquidity event so that faculty could generate cash flow for more R&D and early investors in the Start-Up could be compensated for their risk taking. The proximity of U.C. Davis to Silicon Valley would be a big part of enabling this mechanism as the large Venture Capital firms located in the Valley would be able to provide the capital for these early exits. In return, these VC's would get a qualified deal flow that is of an extraordinary caliber and de-risked ready for the larger rounds of “Acceleration Capital” that these firms are best at providing.
The combination of U.C. Davis and the Silicon Valley Start-Up eco-system allows for the technology transfer cycle from ideation to equity liquidation to be shortened dramatically, down to a 2-3 year timeframe from the typical 8 to 10 year cycle timeframe. This dramatically shortened cycle would enable U.C. Davis faculty, for the first time, to have another R&D funding option that can provide unencumbered R&D funds. Faculty can then use this new source of R&D cash flow to pursue the research line of their choice rather than the research line determined by an external grant funding source.
The “Technology Transfer Framework” concept would enable the faculty to choose the best option to pursue their chosen R&D path as opposed to the current status quo where R&D is mainly directed by funding sources outside of U.C. Davis. The R&D taking place across the entire U.C. Davis campus would become more evenly balanced between being self-directed by the faculty and guided by external funders. Increasing the rate of transformational types R&D projects will dramatically advance the overall rate of knowledge acquisition for faculty and re-accelerate the pace that our civilization can improve the standard of living for all its members.
The potential results from adopting the “Technology Transfer Framework” on our society could be that the frontiers of mankind’s knowledge base will be expanded at a much faster pace than is possible with an incrementally based type of R&D approach. Our society could then begin to see more direct benefits in our daily lives from the research taking place at the university as more of the research taking place on the campus will be directly translated into commercial products that the general public can use to enrich our daily lives.
The human capital required within the University to bring the “Technology Transfer Framework” to life will be relatively low. this would take the form of a small team.
The small team build-out would require funding initially, but the team would become self-funding after a time. The cash flow generated by the equity liquidation process as the Start-Ups resulting from the “Technology Transfer Framework” mature would enable U.C. Davis to exit and monetize its’ equity position, so the “Technology Transfer Framework” team would become self-funding.
It is up to us to not let the next big idea get away, join the Davis Funding Club and let's take the first step together...