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Commercial Academics: An Indian Story

Round Table Commercial Academics: An Indian Story Venkat Chandrasekhar and Vijay Chandru Venkat Chandrasekhar is a Senior Consultant with PicoPeta Simputersand is a Partnerat C&C Associates.He teaches popular courseson entrepreneurship at IISc and IIM-B. candc@vsnl.com Vijay Chandru, Professor, Indian Institute of Science, National Institute of Advanced Studies, Jawaharlal Nehru Centre for AdvancedScientific Research, is a Co-Founder of Strand Genomics, PicoPeta Simputers, String Labs and MetaString. chandru@csa.iisc.ernet.in Venture funding today is geared to entrepreneurial initiatives that are innovative, address new markets, highly scalable and thus growth oriented. On a time dimension, the sooner this is achieved the better. Given this scenario, successful technology entrepreneurs must possess good domain knowledge and deep-rooted technical expertise. The recent history of high-tech successes have shown us that in the above conditions, academic research based startups and entrepreneurs from academic environments have been highly successful with astounding contributions towards wealth creation. These entrepreneurship activities are knowledge based and so is the current knowledge economy. In the era of technology start-ups, for a company to grow and achieve industry leadership, the fundamental requirement is technical superiority and development leadership. This calls for a great deal of depth in the domain knowledge. As Charles Geshke, Founder of Abode Systems, is reported to have said, “ Technology travels with people. You cannot throw it over the wall and because it is such a good idea, expect another engineering group to simply pick it up and run with it”. Therefore the universities have to build necessary bridges for entrepreneurs to travel with their technological innovations. Kanter (1983) in the now famous article on innovation"when a thousand flowers bloom" notes that technological “ innovation is facilitated by organizational complexity, diversity breadthof expertise, includingexperts who have a great deal of contact with other experts in other fields, openness to the environment, and integration across fields viaintersecting territories, multiple communication links and interdisciplinary units”. Very few organisational entities in India except universities seem to carry thesecharacteristics. In the current ‘knowledge economy’, by nature, academia will become the largest asset holders and it will be in their interest to exploit these assets for their own growth and entrepreneurship promotion gives the opportunity. However, universities need to change and adapt their objectives, structures and teachingprogrammes and note that: · Knowledge is now the key determinant for competitive advantage in businesses and economies · Universities are principal buildersof knowledge


· Universities have a responsibility to apply that knowledge to the economy,businesses and the community To this effect there is a need to conceptualise university activities in ways that will enhance its ability to interact while preserving the key and distinctive features responsible for it’s intellectual vitality, independence, ensuredquality and foresight. Historically, the university involvement has been low. Our universities have produced great discoveries and inventions but very few new businesses. To a graduate from the university till a few years ago, entrepreneurship was not a relevant careeroption. However, the university was important in passively contributing to manpower, adding And enhancing skills,knowledge and capabilities. It hasbeen a provider of facilities and a creative cauldron of intellectual property. But the changing role requires that apart from teaching and research, the universities shouldalso engage extensively in the application of its knowledge repository. ■ Universities have a huge asset base ofknowledge worth millions ■ It is currently unexploited/under-exploited ■ They have a responsibility to get value from these assets to support: existing university teaching and research economic performance and growth employment wealth creation The entrepreneurship “nurture and creation” by universities and academic institutions has a benefit cycle. The entrepreneur’s original research creates ‘intellectual capital’ -- case studies, textbooks, journal articles, award-winning dissertations -- and fuels constantly evolving innovations in course offerings. This in turn creates market driven, real world savvy human capital that gives entrepreneurs and entrepreneurial companies the knowledgeworkers they need for a sustainable competitive advantage. It should also be noted that in this evolving knowledge economy organizations are realizing the crying need for innovation and entrepreneurship within organizations (Intrapreneurship). The traditional managers and executives roles are being redefined as we speak. Tomorrow’s managerial elite will be those who are constantly in an innovativemode by zeroing in on customer needs and who show entrepreneurial orientation to deliver on those needs. This in itself will force some fundamental changes in university curriculums. Just as we focus on analytical ability today we may have to focus on innovation and entrepreneurial abilitysoon. Faculty entrepreneurship is not new. Though there have been only a few cases in India there are many prominent examples abroad. Jim Clark of Stanford (Silicon Graphics, Netscape and Healtheon) , Amar Bose at MIT (Bose Systems), William A. Haseltine of Harvard (Human Genome Sciences), Charles Cantor of Berkeley (Sequenom). Faculty in


universities, particularly in technology departments, are by nature innovators. They like to come up with new ideas and new ways of doing things. They also have a good networkof people in their knowledge domain.They often carry a sense of duty to see their discoveries widely distributed. Often research labs and universities are not in a position to help them commercialise their innovations. In today’s marketplace, unlike grant funding in research which is dwindling, venture funding for commercialization is available along with other managerial and market resources that a faculty entrepreneur might need. If we accept the premise that India has great intellectual capital in several temporally relevant aspectsof science and technology, then we must wonder why the premier research institutes and universities have been unable to drive an IP (intellectual property) based entrepreneurial sector. Undoubtedly, there are many contributing factors to the emergence of the Silicon Valley around Stanford and Berkeley, Route 128 around MIT and Harvard, Cambridge around the legendary university, or most recently Tel Aviv around Tel Aviv University (Newsweek (November 2, 1998) deemed Tel Aviv one of the top ten capitals of the high technology industry worldwide. The nine other capitals include seven cities in the United States, Bangalore in India, and Cambridge in Great Britain. Tel Aviv is flourishing as a technological center mainly as a result of immigration from the former Soviet Union, a high percentage of which were trained in the computer science field. The magazine also states that the Israel Defense Forces provides talent to the industry with youngsters who obtain knowledge and experience during their military service. Some say that of all the cities in the world, Tel Aviv is the most serious competitor to the Silicon Valley.). The availability of capital, good incubation centers, local test markets for products and services are as important or more than the mere presence of universities which assures the availability of highlyskilled manpower and a rich source of IP. However, the single most important factor that has held India back on this score has been the extreme conservatism in university policies, sometimes referred to as the Saraswati- Lakshmi dichotomy. The trendsetter in progressive policies towards faculty entrepreneurship has certainly been the US. The seeds of commercial academics in the US were sown by the legislation knownas the Bayh-Dole Act of 1980. A difficult issue that has to be addressed is the issue of ownership of the venture and how much should the universities partake in the direct wealth of the company. Clearly oneapproach is that of Cambridge University, UK that takes the position that the university takes no equity at all (despite the fact that the entire IP for the venture may have been created in the university). The reasoning (as stated by Professor David King ScD FRS, Chief Scientific Adviser, Office of Science and Technology (UK), when he was in Bangalore a couple of months back) is that this laissez-faire approach by the universityhas a great benefit to society at large because of wealth and job creation. If the university wishes to partake up to the point of noticeable liability (both reputational and financial), just under 10% equity is the right amount from the perspective of Company Law in India.Ideally the equityshare should be reflective of the value of the IP


being taken out of the university by the entrepreneur. This is sometimes a little hard to pin down and has to evolve from experience. Academic Entrepreneurship in US and The Bayh-DoleAct, 1980 The primary intent of the Bayh-Dole Act of 1980 was to fosterthe growth of technology- based small businesses by allowing them to own the patents that arose out of federallysponsored research. Universities and other nonprofit recipients of federal funding were included in the definition of ‘small entities’ benefitting from the Bayh-Dole Act, largely as an afterthought. This law permitted universities two new mechanisms: ■ It allowed universities to license patented technologies to industry, retain the royalties from such licensing with an explicit specification that the royaltieswould be shared as personal income to the inventors. By law, the university’s share of the royalties must be ploughed back into its research and educational activities. ■ A key aspect of the licensing of inventions under this new law was that the universities were now permitted to grant exclusivity. The justification of why a singlecompany is given the advantage of intellectual property developed under public funding was that exclusivity is required as an inducement and reward for a company willing to step forwardand take the risk of early-stage technology development. The number of US patents granted to US universities in a year rose from 300 in 1980 to almost 2000 in 1995. More than 1,900 companies were formed through university licenses in the 1980-1996 period after the Bayh-Dole Act. The direct financial impact on the universities themselves has been relatively small contradicting the belief of many that royalties could compensate for declining state support of research. We alwaysremember the few blockbusters that make some universities tens of millions but these are a preciousfew. In contrast, the impact of university technology transfer has had substantial impact on local and national economies. As a result the “town/gown” seems to be on the wane all over the US. A culture of filing patents before publishing has gradually evolved in US universities thereby giving corporate sponsorship of research some confidence in partnering with universities. Contrary to the fear that patenting and commercialization would somehow shut out student access, the reality is that the students are motivated and their awareness of the potential commercial value of their research findings and inventions is on the increase. Policy fiats or even attempts to categorize IP and formalize their handling are very likely to be doomed to have overly broad effects with harmful, unintended consequences. The answer seems to be to handle situations on a case-by-case basis, but with a continual dedication withinthe university to “do the right thing”. Extracted from Nelsen (1998).


The good news is that there are winds of change blowing across the Indian academic landscape. Incubation centres have come up on several campuses, alumni who have been successful entrepreneurs in the US and elsewhere are providing seed capital and networking for ventures emerging from their alma maters. In the following sections the reader will be subjected to a brief description of one such initiative at the Indian Institute of Science in Bangalore where four professors from the computer science faculty have been encouraged to spin off ventures to commercialise technologies developed in theirlaboratory at the institute. The institute has also worked out mechanisms to hold equity in the emerging ventures – a move that may help the university build on its endowment from holdings in successful ventures. Faculty Entrepreneurs at IndianInstitute of Science In the autumn of 1999, four professors at the Indian Institute of Science in Bangalore responded to a call from the President of the Court, Mr. Ratan Tata, who in his inaugural address to the Court of IISc earlier that year had raised the very question that we posed above – i.e., why has an institution like IISc not been able to drive scientific and technology entrepreneurship in and around Bangalore. The professors: V Chandru, R Hariharan, S Manohar and V Vinay, all computer scientists, had been co-convenors of the Perceptual Computing Laboratory (PerCoLat) in the Department of Computer Science and Automation, IISc and had been collaborators in research and consultancy for about a decade. They proposed to the Council of IISc for permission to commercialise technologies developed in the laboratory through entrepreneurial ventures and requested a formulation of policies on this issue. The Council and the Administration of IISc took a very positive view of this request and initiated a systematic enquiry into the issues that led to the creation of “The Office Of Technology Licensing and Entrepreneurship” (TOTLE) which would oversee the policy of faculty entrepreneurship and advise the Society for Innovation Development (SID) on its participation (as the representative of IISc) in the shareholding agreements with the concerned faculty in these ventures. These structures were in place in October of 2000 and PerCoLat spun off a holding company – MetaString Pvt Ltd – in partnership with SID soon after. By November 1, 2000 a complex structure (see the figure below) was in place. The media, both local and international (Business World, Business Today, Time Asia, Business Week, Technology Review), sniffed history in the making and heralded the developments. PerCoLat had evolved from the “VirtualPrototyping Lab” which specialized in work on graphics, Geometric Modeling for CAD/CAM, and Virtual Reality experiments. PerCoLat continued excellent work in graphics and visualization, including some path breaking work on visualization of molecular dynamics and the creation of a voxel based 3D sculpting system called SIRPI-Lab. The Satyam group gave the seed funding for PerCoLat (1997-1999) to pursue a futuristic theme in natural language processing. The “Genomics Factory” software for Genomics Collaborative Inc., USA was created at PerCoLat (1999-2000). The ambitious Simputer project was initiated at PerCoLat in 1998 in collaboration with Ncore Technologies. This was clearly a ripe breeding ground for entrepreneurs in the making.


PICOPETASIMPUTERS 0000011010111 STRING-LABS 00010101011001 YYYY XXXX STRANDGENOMICS Society forInnovation Development (SID, IISc) xxxx yyyy The structure for the commercialisation of the Perceptual Computing Laboratory (PerCoLat) of the Indian Institute of Science as proposed to The Office of Technology Licensing and Entrepreneurship (TOTLE),IISc. <VC,RH,SM,VV> PerCoLat FacultyMETASTRING TECHNOLOGIES



Features:

■ Creation of a Holding Company – MetaString Technologies (partners: Faculty of PerCoLat - V Chandru,R Hariharan, S Manohar and V Vinay - and SID representing IISc).


■ Creation of String Labs - an incubator / software technology center devoted to hatching ventures of PerCoLat initially. String Labs began as a wholly owned subsidiary of Metastring. Future incubation of new ventures (XXXX,YYYY) at StringLabs - these ventures may be independent of Metastring and of the promoters of MetaString or for that matter of any entity related to IISc. In essence, StringLabs is a venturein its own right and could evolveinto an incubation enterprise.


■ Creation of Strand Genomics, a bioinformatics company – with a focus on developing advanced data-processing, annotation and visualisation software tools and services for the globalbioinformatics industry.


■ Creation of PicoPetaSimputers - a subsidiary of Metastring, PicoPetais a solutions company that will build on the Simputer platform for handheld computing and communications.


■ Start dates:November 1, 2000 for MetaString, StringLabs and StrandGenomics; May 31, 2001 for Picopeta.



The statusof these venturesat the time of writingis that StrandGenomics is runningwith 45 scientific staff and a management infrastructure in place. First round venture funding has been obtainedand a pipeline of high-endcontract services and products is in place.

PicoPeta Simputers has close to 30 employees and the first batch of Simputers have rolled out of the manufacturing plant this week. Some seed funding has been in place anda revenue pipeline is beginning to aid the cash flow and expansion. String Labs has had the experience of incubating these two companies and is getting ready to offer incubation services as a business proposition. These commercial academics are on their way.



References and Notes:


Rosabeth Moss Kanter “When a thousand flowers bloom: structural, collective and social conditions for innovation in organization," in Entrepreneurship: The Social Science View, edited by Richard Swedberg Oxford ; New York : OxfordUniversity Press, 2000.


Lita Nelsen “Increase of intellectual property licensing at universities stems from changes in funding and legislation.” Science, volume 279, number 5356 issue of March 1998, pp. 1460-1461.

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The Entrepreneurial Story in many easy pieces:

1. Commercial Academics: An Indian Story A little note co-authored with Prof Venkat Chandrasekar that was published in the Indian Institute of Management (Bangalore) Journal in 2002 about the starting