ENTERPRISE CREATION at CARNEGIE MELLON UNIVERSITY

1. ENTERPRISE CREATIONat CARNEGIE MELLON UNIVERSITY Dr. Robert A. Lowe CENTER FOR TECHNOLOGY TRANSFER Director of Enterprise Creation and Assistant Professor of Entrepreneurship

2. University start-ups serve as a “development vehicle” or a transition organization between the university lab and full commercialization WHAT IS A UNIVERSITY-BASED START-UP? Definition: A firm founded for the explicit purpose of developing and commercializing a technology discovered at the university. • Key distinctions: • University Discovery: Basic research (Invention) • Development: “Hardening” the technology; create prototypes (Innovation) • Commercialization: Production and distribution (Manufacturing Process)

3. UNIVERSITIES ARE A SOURCE OF ENTREPRENEURIAL ACTIVITY • High-profile, successful start-ups based on university technology • Hewlett Packard • Polaroid • Digital Equipment Corporation • Bose • Catalysts for industries • Internet: Inktomi, Google, Lycos • Biotech: Genentech, Chiron

4. CARNEGIE MELLON LEADS PEERS IN START-UP FORMATION First Second Source: AUTM Survey through 2003

5. SUCCESS TRAJECTORY CMU spun out 7 licensee firms in Fiscal 2005 • Range of industries: Robotic surgical devices, computer vision software, educational/learning toys • Nearly doubled from 4 start-ups in 2004 Projected for 7-10+ start-ups in the 2006 fiscal year • 4 Firms in Enterprise Creation Process already • Green Chemistry, Process Automation Equipment, Training Video Game, Surgical Snake Robot

6. Total Total Start Start - - ups ups Established Established (n=734) (n=734) (n=267) (n=267) (n=467) (n=467) Commercialized Commercialized Count Count 188 188 75 75 113 113 % of total % of total 21.1% 21.1% 27.2% 27.2% 18.4% 18.4% Abandoned Abandoned Count Count 268 268 72 72 196 196 % of total % of total 30.1% 30.1% 26.1% 26.1% 31.9% 31.9% Censored Censored Count Count 278 278 120 158 % of total 31.2% 43.5% 25.7% Inventor - founded start - ups Total All others (n=734) (n=191) (n=543) Commercialized Count 188 53 135 % of total 21.1% 26.6% 19.5% Abandoned Count 268 50 218 % of total 30.1% 25.1% 31.5% Censored Count 278 88 190 % of total 31.2% 44.2% 27.5% ACADEMIC RESEARCH SHOWS U-START-UPS ARE A GREAT INVESTMENT

7. “SUCCESS STORIES” ARE THE FIRMS ACQUIRED WITHIN A FEW YEARS Claritech (aqd. by Just Systems) MediaSite (aqd. Sonic Foundry) Neolinear (aqd. Cadence) Widegap technologies (aqd. by Cree, Inc.) Neomorphic (aqd. by Affymetrix) Xenometrix (aqd. by DPII) Aurora Biosciences (aqd. by Rosetta Inpharmatics) at CMU… … and in California

8. Question: Who becomes a university entrepreneur?

9. UNIVERSITY ENTREPRENEURS EMERGE FROM EVERY FIELD • Medical schools factoids • 49% of entrepreneurs are in biomedical and chemistry in our sample • 49% of North American universities have a medical school • ~67% of university patents and licenses are in biomedical– most are to est. firms

10. ENGINEERING FACULTY TEND TO START THEIR FIRMS AT AN EARLIER STAGE IN THEIR CAREERS Research Age All ECE Materials Mech Physics Med Chem Bio <4 18 9 1 2 0 2 1 3 4-6 8 3 0 0 0 3 0 2 7-9 14 6 3 1 0 3 1 0 >9 110 28 9 8 7 32 11 15 150 46 13 11 7 40 13 20 73% 73% 69% 61% Share > 9 100% 80% 85% 75%

11. Number of Entrepreneur Entrepreneur Entrepreneurs vs. Peer vs. Coauthor +*** +*** 150 Full Sample +*** +*** 77 Engineering +*** -* Biomedicine 60 NS +*** Chemistry 13 A TOP RESEARCHER AMONG PEERS

12. Panel A. Engineering Panel A. Engineering Panel B. Biomedical Panel B. Biomedical Panel C. Chemistry Panel C. Chemistry 6 6 6 6 6 6 5 5 5 5 5 5 4 4 4 4 4 4 3 3 3 3 3 3 2 2 2 2 2 2 1 1 1 1 1 1 0 0 0 0 0 0 Mean after Mean after Mean before Mean before Mean after Mean after Mean before Mean before Mean before Mean before Mean after Mean after Entrepreneurs Matched Sample ENGINEERS INCREASE RESEARCH PRODUCTIVITY AFTER STARTING A FIRM

13. WHY ENTERPRISE CREATION? 1. Many inventors seek an advocate and advisor in the business community– a “new venture liaison”. 2. Reduce Potential Start-up Process Bottlenecks and Transaction Costs 3. CTTEC staff’s unique experience • 86% of staff have founded or been an early employee of a start-up • Biannual benchmarking data • Ongoing education

14. BOTTLENECK 1: IDENTIFY OPPORTUNITIES EARLIER “We weren’t looking to start a firm… but when (Company A) cancelled their license, we saw it as the opportunity to commercialize the technology.” - Scientific founder of Calimetrics “The University was marketing the technology, but no one was interested in licensing… Especially in the semiconductor industry, firms don’t want the technology, they want the know-how (for development).” - Scientific founder of Nitres “I’ve talked to lots of companies in the industry on multiple occasions. They call me and visit and ask a lot of questions, but they never licensed.” - Scientific founder (Pittsburgh start-up) Solution: Systematic Start-up Opportunity Evaluation

15. BOTTLENECK 2: DON’T ENCUMBER THE PROCESS Campus organizations with direct-to-industry transfer process • Disk Storage Systems Center (DSSC) • CyLab • Software Engineering Institute Flexible, Clear License “Menu” Enterprise creation: Free to inventors Solution: Flexible campus process—only apply resources where needed

16. BOTTLENECK 3: PROVIDE RESOURCES FASTER Resource devoted to market evaluation, business plan Early funding opportunities • Proof of Technology • Proof of Market, Reference Customer • Opportunity Grants Mentoring: “New Venture Liaision” and Experienced Entrepreneurs Solution: Project Plan with Bridge Funding

17. Assess Start-up Opportunity Resource Needs Assessment Invention disclosure Project Plan Execution Marketing • StAT • Licensing • Experience • Venture Liaison • Team, Roles • Timeline • Deliverables • Marketing Plan • Development • Resources • Strategic • Partnerships • etc., THE ENTERPRISE CREATION PROCESS

18. WHEN IS A START-UP AN APPROPRIATE DEVELOPMENT VEHICLE? Considerations before starting a firm Platform technology: A technology that has a broad range of possible applications Tacit knowledge/Know how: Experience-based knowledge necessary to further development that is not easily exchanged between inventor and licensee Complementary assets: Assets necessary to sell, distribute, and maintain a commercialized product.

19. WHEN IS A START-UP AN APPROPRIATE DEVELOPMENT VEHICLE? Considerations before starting a firm Disruptive technology: Technology which serves to replace an existing one that could fundamentally change the way an industry operates. Network Effects: Product value increases with the number of other users of that product.

20. INTEGRATING RIGOROUS ENTREPRENEURSHIP TEACHING AND RESEARCH • Leading scholars studying Strategy, Entrepreneurship, and TECHnological Change (SETChange) • Graduate program • Academic research • Seminar series • Interdisciplinary: • Ashish Arora (Heinz) Steven Klepper (Economics) • David Hounshell (History)Robert Lowe (Economics) • Chris Forman (Info. Systems) Angela No (Economics) • Bill Keech (Political Science) Francisco Veloso (Engineering)

21. OUR PHILOSOPHY: START-UPS IMPROVE RESEARCH AND COMMERCIALIZATION • Our philosophy is guided by rigorous academic research • University start-ups are as successful as established firms at commercializing technology (Lowe and Ziedonis 2006) • Start-ups tend to commercialize difficult technologies: Sophisticated commercialization strategies • Entrepreneurship and Academic Research appear complementary (Lowe and Gonzalez 2005)

22. THANK YOU! COMMENTS AND QUESTIONS?