Unpacking how technology transfer is about to change how startups are founded, funded, and scaled.
Accelerate Impact: A OneValley blog series dedicated to sustainability and social responsibility in the acceleration industry. This is the second article in a four-part series. Read part one here.
The recent passage of the Chips Plus Act and the Inflation Reduction Act allocate over $30 Billion in funding to support regional R&D and innovation hubs. Most of these hubs are found in universities and research labs. Much of this support will be directed toward technology transfer at these institutions (tech transfer).
What is technology transfer?
Techtransfercentral.com defines technology transfer (tech transfer) as “the process by which new inventions and other innovations created in those institutions’ labs are turned into products and commercialized… through licensing patented intellectual property to corporations, and the creation of start-up companies”
Given the increased funding for tech transfer, there will inevitably be an increase in startup acceleration targeted toward technologies that come out of tech transfer ecosystems. These include:
Academic institutions
Government Labs
Public-Private-Partnerships focused on R&D
Why is this relevant to the startup ecosystem?
The existing startup and acceleration ecosystem has not been optimized to support startups originating from the tech transfer process. These startups have unique needs and challenges that will need to be addressed. These include:
Helping technologists to have the mindset of industrialists-Researchers often don’t look at their work in terms of problems that need to be solved, rather they’re looking to refine a niche technology further or advance a specific line of research. Helping this class of innovators understand how to grow into founders will be crucial to their success as startup founders.
The complexities involved with transferring ownership of a technology or business from a government lab/private university have their own legal rules and best practices. Tech transfer founders have additional restrictions when it comes to cap table management. Their equity structure can often have an outsized ownership percentage from private foundations, university endowments, or the federal government. Understanding how to handle negotiations, draft deal docs, and properly structure these transactions will be critical.
The funding sources for these startups are significantly more diverse and broad when compared to traditional startups. Tech transfer founders have a broader toolkit when it comes to funding. Helping these founders understand and take advantage of these types of opportunities is critical to their success. Some examples of these funding types are:
Federal grants
Recoverable Grants
Green bonds
“First loss” financing
Impact Loans
Philanthropic investment
Startups from technology transfer can bypass traditional pre-seed and seed funding rounds by securing non-dilutive forms of capital due to their affiliation with government or academic institutions. A prime example of this is the startup Skycool, which raised 3.5 million dollars in non-dilutive funding through federal grants from the Arpa-E program.
Who needs to adapt and how?
Researchers at these institutions need to start thinking of themselves as founders seeking to solve problems
Early stage VCs and other investors need to revisit their existing investment mandates and adjust their deal-flow systems to account for an increase in this type of investee.
Research institutions and technology transfer departments need to become accelerators where they can provide the support needed to maximize the likelihood these new startups succeed
The Federal agencies (primarily the Department of Energy and National Science Foundation) underwriting these grants will need to include the additional requirements for tech transfer funding that include requirements and recommendations intended to help these companies succeed as commercial enterprises.
The takeaway
Opportunities for stakeholders in the current startup ecosystem will be significant in the next few years. To support startups that originate from tech transfer ecosystems, these stakeholders will have to make tactical changes in the way they do business. For those that do so successfully, there is tremendous economic opportunity.
Stay tuned for an upcoming piece about the newly created Green Bank-the $20 Billion Dollar fund created to support social impact startups and how people who work in the innovation ecosystem can win crucial financial support.
About Alex:
Alex Fang serves as the Director of Social Impact at OneValley, where he helps sustainability-minded founders grow their startups.