The Impact

1
The Impact Commercialization of Research
By Mohd. Azwar Mahmud, CEO, MALAYSIA
VENTURE CAPITAL MANAGEMENT BHD

• International Islamic University Malaysia
• September 9 10, 2003

2
A G E N D A

• Key Concept, Relationship and Relevance
• Benchmarking Indigenous Research
• Commercialization VCs Perspective
• Conclusions

3
Key Concept, Relationship, Relevance

• Research
• Creativity
• Discovery
• Invention
• Technology
• Innovation
• Technopreneurship
• Commercialization

4
Taxonomy
Research

• Creative work
• undertaken on a systematic basis
• to increase the stock of knowledge
• to use this stock of new found knowledge
• for the betterment of man and society

Source Frascati Manual, 2002, OECD
5

• Creativity accidental, art, diff to plan
  predict

• We discover what before existed, though to us
  unknown. (discovery)
• We invent what did not before exist. (invention)
• Operationalising discovery invention to
  practical use (technology)

6

• Innovation

Evolutionizing technology to create competitive
advantage
Commercialization- process

• Taking innovation to market profitably

Technopreneur

• Enterprising soul that make innovation
  commercialization possible

7

• Relevance - Creativity, Innovation
  Commercialization

• Resources for Competitive Advantage
• Key engine for perpetual regeneration
  reinvention of the US economy into the most
  dynamic competitive globally

8
Benchmarking Indigenous Research
9
5232 RD projects implemented during 6 MP and 7
MP revealed 14 (732) of these are potential
candidates for commercialization while 5.1
(267) was commercialized.
Source MOSTE
10
Examples of Local Research Success
Putra J-58 The Grain Maize Hybrid Variety 14
Putra J-58 is the first grain maize hybrid
variety ever developed and released in Malaysia
for use as animal feed.
A rapid test kit, produced at UPM, is sold in
many countries affected by the disease. This
novel single tube method is the first in the
world and is patent pending.
White spot syndrome (WSS) Detection Kit for
shrimp 20
Strength Measuring Device for Hard Soil, Weak
Rock and Concrete 15
Measures the indirect tensile strength of weak
rock, hard soil and concrete. It is protected by
a patent and won the Bronze Medal for
International Invention, Invention, Industrial
Design and Technology Exhibition (I.Tex99).
UPMs PCR technique is 100-fold more sensitive,
simple to perform more samples can tested, and
takes less than 10 hours compared with previous
methods.
Diagnostic Kit for Newcastle Disease Virus 19
Source UPM
11
Venture Capital backed Companies Spinning out of
Local Research
Malaysian Bio-Diagnostic Research Sdn Bhd (MBDR)
Commercialization of rapid diagnostic detection
for typhoid fever from USM School of Medical
Sciences. (Backed by MTDC)
Commercialization of Aujeszkys Disease Killed
Vaccines formulated by Veterinary Research
Institute (VRI) (Backed by MTDC).
Malaysian Vaccine and Pharmaceuticals Sdn Bhd
(MVP)
Malaysian Agri-HiTech Sdn Bhd (MAH)
Commercialization of Arbuscular mycorrhiza fungi
to strengthen tree roots and provide defense
against pathogen. The invention originated from
UPMs laboratory. (Backed by MTDC)
Malaysian Electroplating Technology Sdn Bhd
Source MTDC
12
Venture Capital backed Companies Spinning out of
Local Research
Phytes Biotek Sdn Bhd
Commercialization of a standardized extract of
Tongkat Ali from UM FRIM. (Backed by MAVCAP)
The technology for speech recognition and natural
language originated from Hong Kong University of
Science and Technology. Intellectual property
lies within the company. (Backed by MAVCAP).
Nusuara Technologies Sdn Bhd
Commercialization of aromatherapy using locally
extracted essential oil. (Backed by MAVCAP)
Fito Elegance Sdn Bhd
Source MAVCAP
13
10. Feasibility Studies
8. Innovation Infrastructure
6. Reward Incentives
4. Manpower
2. Commercial Awareness
WHY COMMERCIALIZATION OF PUBLIC RESEARCH IS
MODEST IN MALAYSIA?
1. Funding Mechanism
3. Research Management
5. Research Focus
7. Industry Linkage
9. Diffusion of New ST
14
Low Rates of Commercialization Root Causes

• Funding mechanism not conducive to
  commercialization

• Researchers are not commercially aware of the
  potential of their research findings

• Impending lack of effective Research Management
  Practices in universities and PRIs

• Manpower issues constraint ease of translating
  research results into commercial outputs

• Research focus is largely publications-oriented
  with little applications-oriented research

Source MOSTE
15
Low Rates of Commercialization Root Causes

• Lack of clear incentives and rewards to stimulate
  commercialization

• Paucity of networking mechanism linking key
  parties to commercialize research findings

• Pockets of excellence exist in the Innovation
  Infrastructure, but overall, it suffers from
  systemic weakness

• Shortage of diffusion mechanisms to accelerate
  adoption of technologies across different sectors

• Pre-technical feasibility studies on marketable
  outputs or tangible benefits are seldom conducted
  by researcher, since it is not an institutional
  requirement

Source MOSTE
16
Four main hypotheses affecting low rates of
commercialization

• Manpower issues
• Industry linkage
• Innovation infrastructure
• Diffusion of Science and Technology knowledge

17

• Manpower issues
• Lack of people with business building competence
  
• To attract world class talents to raise standards
  of research in the country
• To attract and retain overseas Malaysian ST
  personnel
• Lack of ST personnel with the required skills in
  the country. 64 respondents agreed agreed
  statement suggesting the Manpower issue is not
  just one of capacity but more so in term of
  capability
• World Bank report which ranked 128 developing
  countries based upon
• their scientific proficiency, Malaysia was
  categorized as Scientifically
• Lagging (World Bank 2002). Malaysia generates
  less than 5 ST articles
• per 1 Billion GDP (MOSTE, 200284)

18

• Industry linkage
• Marketing of my research findings to industry is
  not a requirement in my job
• Facing difficulty in finding partners for
  research collaboration
• Pro-sharing of information with industry.

• Innovation infrastructure
• 91 respondents agreed that Malaysia requires a
  critical mass of research centers of excellence
  for various disciplines
• Malaysias share of worldwide scientific
  publications stand at mere 0.01 (Indicators
  Report, MOSTE 1999)

19

• Diffusion of ST knowledge
• Do not know what technology transfer mechanisms
  are available
• Do not have access to Technology Transfer
  organization
• Lack of good Technology Broker in the market

20
Commercialization VCs Perspective
21
RELATIONSHIPS BETWEEN CREATIVITY, TECHNOLOGICAL
INNOVATION COMMERCIALIZATION
COMMERCIAL WORLD
TECHNICAL WORLD
TECHNO-PRENEURSHIP
15 20 of Commercial proceed to be ploughed
back into RD
BUSINESS CAPABILITIES
TECHNOLOGICAL INNOVATIONS
INVENTIONS/DISCOVERIES/ TECHNOLOGIES
Results
Market Developm Activities
Research Activities
Develop m Activities
Product/ Process Developm Activities
Activities
Tinkering/ Experimenting
Source Technology Strategy A General
Management Perspective
22
Commercialization
Research universities are an engine for
economic growth and a source of new knowledge
Fertile ground for new ideas Educate workers
comfortable with new technology Focused on
research involving revolutionary concepts
Funded with a mandate to benefit society So if
research universities are such a great engine,
why isnt our Corvette smoking down the track?
Engines must be properly designed and tuned My
car needs more than just an engine!
23
Corporate Spin-offs Versus University Start-Ups
in the EU

• Benefits of Corporate Spin-offs
• Greater business experience
• Better access to development capital
• Better access to markets
• Better job prospects for employees

• Hurdles of University Start-ups
• Grow slowly
• Commercialization hampered by bureaucracy
• Less entrepreneurial approach

Source EU Study, 2000
24
Lesson 1 - Chances of Success for a High-Tech
Start-up
On average, good plans, people, and businesses
succeed only one in ten times.
INDIVIDUAL EVENT
PROBABILITY
Company has sufficient capital
80 Management is capable
and focused
80 Product development goes as planned
80 Production and component
sourcing goes as planned

80 Competitors behave as expected
80 Customers want
product
80 Pricing is forecast correctly

80 Patents are issued and are enforceable
80
COMBINED PROBABILITY OF SUCCESS 17
Source Harvard Business Review
25
There are Lots of Players with Different Goals!!
26
Source A.D Little, 1992
27
Rapidly Changing Global Scenario
Shortening life cycle of products and services
if you understand the technology, it is
obsolete Rapidly changing business
environment its not the big that eats the
small its the fast that eats the slow
Globalization of world economies, technologies
and innovations Shift of emphasis from a
decaying industrial economy composed of large
firms to a knowledge-based entrepreneurial
economy driven by innovative technology
Source 1000ventures.com
28
Gap Between Research Commercial Application
Target Resources Where They Have The Greatest
Impact On New Business Creation
Existing Research Resources
Existing Commercialization Resources
Resources
Valley of Death Entrepreneurial Zone Gap
Funding
Idea Patent Practice Product Commercial
Business
Product Development Timeline
Source School of Venture, Hoseo University,
Korea itbi_kim
29
Barriers to CommercializationIndustry

• Poor understanding of the nature of academe
• Poor understanding of its financial imperatives
  
• Funding for research
• Funding for commercialization activities
• Desire to overlook the importance of student
  education
• View of university as a vendor not a
  partner
• Purchase agreements for research
• University seen as a source of contract
  research
• Lack of industrial role in education
• Difficulty in funding early, risky stages of
  the research/product process

30
Barriers to CommercializationUniversities
Poor understanding of the industrial
environment Lack of understanding of the need
for speed Unrealistic evaluation of the work
of commercialization Need to protect education
and discovery missions Susceptibility to
litigation Lack of revenue to offset liability
Deep pockets of endowments Lack of
flexibility in the system Government
regulations Protection of multiple,
independent participants
31
Venture makes sense for very few companies

• MOST successful companies are NOT funded by
  venture
• Venture Capital ONLY makes sense for very few
  companies
• Pre-Seed funding(cradle)- RM 50K
• Seed funding- up to RM 2 million
• Post-Seed funding- up to RM 40 million
• Venture capitalists are not risk-takers, they are
  risk managers

32
HIGH REWARD

• A study, sponsored by the National Venture
  Capital Association
• found the following
• Companies backed by venture capital generate 2X
  the sales,
• pay 3X the federal taxes
• And invest far more heavily in research and
  development as their traditionally financed
  counterparts,
• VC backed companies generate 634 in sales for
  every 1,000 in
• assets, compared with traditional companies, 391
  in sales.
• Venture-backed firms spend more money on RD
  costs 44 per
• 1,000 in assets compared with 15 for others.

Ciena Corp USA IPO on NASDAQ reach valuation
of USD 2.1 bil
33
Lesson 1 - Chances of Success for a High-Tech
Start-up
Idea to IPO
6 in 1,000,000
Plans to IPO
6 in 1,000
Funded to IPO
1 in 10
Source Saratoga Venture Finance
34
Lesson 2 - Scientist Versus Rainmaker (Who
makes the better Entrepreneur?)
Case 1 Biotech early stage in neutraceutical)
- water soluble extraction technology -
Strong technology and academic grounding -
Commercialization fresh from the lab -
Over-promise underperformed - Difficulty
adjusting to real-world practices Case 2 MEMS
company design fabrication packaging of
sensors - Veteran Engineers in semiconductors
business - Have strong contact with the
industry and understand the
practicalities - Under-stated Over
performed Case 3 EAI Software - Freshie
(bright young graduates) - Naïve, gun-ho,
stubborn and idealistic - Over--promise
underperformed
35

• Some Common Mistakes Entrepreneurs make-
• Mistakes 1 Hiring the Wrong Person to Fill a
  Key Position
• Mistakes 2 Thinking Small to Reduce Risk
• Mistakes 3 Telling VCs What You Think They Want
  to Hear
• Mistakes 4 Believing Your Competition Is
  Incompetent
• Mistakes 5 Focusing Solely on the Money

Source Dresdner RCM Global Investors LLC
36
Conclusions
37
Commercialization is risky mainly because so
few of the so-called entrepreneurs know what they
are doing. They lack the methodology. The violate
elementary and well-known rules.