1 The Impact & Commercialization of Research By Mohd. Azwar Mahmud, CEO, MALAYSIA VENTURE CAPITAL MANAGEMENT BHD International Islamic University Malaysia.

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The Impact & Commercialization of Research The Impact & Commercialization of Research

ByBy

Mohd. Azwar Mahmud, CEO, Mohd. Azwar Mahmud, CEO, MALAYSIA VENTURE CAPITAL MANAGEMENT BHDMALAYSIA VENTURE CAPITAL MANAGEMENT BHD

International Islamic University MalaysiaInternational Islamic University MalaysiaSeptember 9 & 10, 2003September 9 & 10, 2003

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A G E N D AA G E N D A

• Key Concept, Relationship and Relevance

• Benchmarking Indigenous Research:

• Commercialization: VC’s Perspective

• Conclusions

33

• Research

• Creativity

• Discovery

• Invention

• Technology

• Innovation

• Technopreneurship

• Commercialization

Key Concept, Relationship, RelevanceKey Concept, Relationship, Relevance

44

ResearchResearch

• 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

Taxonomy

55

Creativity – accidental, art, diff to plan & predict 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)

66

Innovation Innovation

Evolutionizing technology to create competitive advantage

Commercialization- process Commercialization- process • Taking innovation to market profitably

TechnopreneurTechnopreneur• Enterprising soul that make innovation & commercialization possible

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Relevance - Creativity, Innovation & Relevance - Creativity, Innovation & CommercializationCommercialization

• Resources for Competitive Advantage

• Key engine for perpetual “regeneration & reinvention” of the US economy into the most dynamic & competitive globally

88

Benchmarking Indigenous ResearchBenchmarking Indigenous Research

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5232 R&D projects implemented during 6 MPand 7 MP revealed 14% (732) of these are“potential candidates” for commercializationwhile 5.1% (267) was commercialized.

Source: MOSTE

1010

Examples of Local Research Success

Invention Invention AbstractAbstract

Putra J-58: The Grain Putra J-58: The Grain Maize Hybrid Variety Maize Hybrid Variety [14][14]

Putra J-58 is the first grain maize hybrid variety Putra J-58 is the first grain maize hybrid variety ever developed and released in Malaysia for use ever developed and released in Malaysia for use as animal feed.as animal feed.

White spot syndrome White spot syndrome (WSS) Detection Kit for (WSS) Detection Kit for shrimp [20]shrimp [20]

A rapid test kit, produced at UPM, is sold in many A rapid test kit, produced at UPM, is sold in many countries affected by the disease. This novel countries affected by the disease. This novel single tube method is the first in the world and is single tube method is the first in the world and is patent pending.patent pending.

Strength Measuring Strength Measuring Device for Hard Soil, Device for Hard Soil, Weak Rock and Weak Rock and Concrete [15]Concrete [15]

Measures the indirect tensile strength of weak Measures the indirect tensile strength of weak rock, hard soil and concrete. It is protected by a rock, hard soil and concrete. It is protected by a patent and won the Bronze Medal for patent and won the Bronze Medal for International Invention, Invention, Industrial International Invention, Invention, Industrial Design and Technology Exhibition (I.Tex’99).Design and Technology Exhibition (I.Tex’99).

Diagnostic Kit for Diagnostic Kit for Newcastle Disease Newcastle Disease Virus [19]Virus [19]

UPM’s PCR technique is 100-fold more UPM’s PCR technique is 100-fold more sensitive, simple to perform; more samples can sensitive, simple to perform; more samples can tested, and takes less than 10 hours compared tested, and takes less than 10 hours compared with previous methods.with previous methods.

Source: UPM

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Venture Capital backed Companies Spinning out of Local Research

CompanyCompany ProductProduct

Commercialization of electroplating technology by Commercialization of electroplating technology by UTM (Backed by MTDC)UTM (Backed by MTDC)

Malaysian Bio-Malaysian Bio-Diagnostic Research Diagnostic Research Sdn Bhd (MBDR)Sdn Bhd (MBDR)

Commercialization of rapid diagnostic detection Commercialization of rapid diagnostic detection for typhoid fever from USM School of Medical for typhoid fever from USM School of Medical Sciences. (Backed by MTDC)Sciences. (Backed by MTDC)

Malaysian Vaccine and Malaysian Vaccine and Pharmaceuticals Sdn Pharmaceuticals Sdn Bhd (MVP)Bhd (MVP)

Commercialization of Aujeszky’s Disease Killed Commercialization of Aujeszky’s Disease Killed Vaccines formulated by Veterinary Research Vaccines formulated by Veterinary Research Institute (VRI) (Backed by MTDC).Institute (VRI) (Backed by MTDC).

Malaysian Agri-HiTech Malaysian Agri-HiTech Sdn Bhd (MAH)Sdn Bhd (MAH)

Commercialization of Arbuscular mycorrhiza fungi to strengthen tree roots and provide defense against pathogen. The invention originated from UPM’s laboratory. (Backed by MTDC)

Malaysian Malaysian Electroplating Electroplating Technology Sdn BhdTechnology Sdn Bhd

Source: MTDC

1212

Venture Capital backed Companies Spinning out of Local Research

CompanyCompany ProductProduct

Phytes Biotek Sdn BhdPhytes Biotek Sdn Bhd Commercialization of a standardized extract of Commercialization of a standardized extract of Tongkat Ali from UM & FRIM. (Backed by Tongkat Ali from UM & FRIM. (Backed by MAVCAP)MAVCAP)

Nusuara Technologies Nusuara Technologies Sdn BhdSdn Bhd

The technology for speech recognition and natural The technology for speech recognition and natural language originated from Hong Kong University of language originated from Hong Kong University of Science and Technology. Intellectual property lies Science and Technology. Intellectual property lies within the company. (Backed by MAVCAP).within the company. (Backed by MAVCAP).

Fito Elegance Sdn BhdFito Elegance Sdn BhdCommercialization of aromatherapy using locally extracted essential oil. (Backed by MAVCAP)

Source: MAVCAP

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WHY COMMERCIALIZATION

OF PUBLIC RESEARCH IS

MODEST IN MALAYSIA?

10. Feasibility Studies 8. Innovation

Infrastructure 6. Reward & Incentives 4. Manpower 2. Commercial

Awareness

5. Research Focus

1. Funding Mechanism3. Research

Management7. Industry

Linkage9. Diffusion of New S&T

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Low Rates of Commercialization: Root CausesLow Rates of Commercialization: Root Causes

Source: MOSTE

• Funding mechanism not conducive to commercializationFunding mechanism not conducive to commercialization

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

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

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

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

1515

Low Rates of Commercialization: Root CausesLow Rates of Commercialization: Root Causes

Source: MOSTE

• Lack of clear incentives and rewards to stimulate Lack of clear incentives and rewards to stimulate commercializationcommercialization

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

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

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

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

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Four main hypotheses affecting low rates Four main hypotheses affecting low rates of commercializationof commercialization

• Manpower issues

• Industry linkage

• Innovation infrastructure

• Diffusion of Science and Technology knowledge

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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 S&T personnel;

• Lack of S&T 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 S&T articles

per 1 Billion GDP (MOSTE, 2002:84)

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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

• Malaysia’s share of worldwide scientific publications stand at mere 0.01% (Indicators Report, MOSTE 1999)

1919

Diffusion of S&T 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

2020

Commercialization – VC’s PerspectiveCommercialization – VC’s Perspective

2121

TECHNICAL WORLD

BUSINESS CAPABILITIES

TECHNO-PRENEURSHIPCOMMERCIAL

WORLD

TECHNOLOGICAL INNOVATIONS

INVENTIONS/DISCOVERIES/TECHNOLOGIES

15 – 20 % of Commercial proceed to be ploughed

back into R&D

Research Activities

Tinkering/Experimenting

Develop’ mActivities

Product/Process

Develop’mActivities

MarketDevelop’mActivities

Results

Activities

RELATIONSHIPS BETWEEN CREATIVITY, TECHNOLOGICAL INNOVATION & COMMERCIALIZATION

Source: Technology & Strategy: A General Management Perspective

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CommercializationCommercialization

• 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 isn’t our Corvette smoking down the track?

• Engines must be properly designed and tuned

• My car needs more than just an engine!

The First APEC Incubation ForumThe First APEC Incubation Forum APECAPEC

2323

Corporate Spin-offs Versus University Start-Ups in the EUCorporate Spin-offs Versus University Start-Ups in the EU

Corporate Spin-offs as aProportion of All Start-ups

05

1015202530

Spain

Sweden

Denm

ark

Finlan

d

Germ

any

Italy

Franc

e UK

%

15

45

0

10

20

30

40

50

Corporate spin-offs University start-ups

Failure Rate%

• 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


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Lesson # 1 - Chances of Success for a Lesson # 1 - Chances of Success for a High-Tech Start-upHigh-Tech Start-up

INDIVIDUAL EVENT PROBABILITY

COMBINED PROBABILITY OF SUCCESS 17%

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%

On average, good plans, people, and businesses succeed only one inten times.

Source: Harvard Business Review

2525

There are Lots of Players with Different Goals!!There are Lots of Players with Different Goals!!

Business incubator

University

Government Profit

Cornered Markets

Publication

Reputation

Jobs Distribution

Com

mer

cial

izat

ion

Idea

s Education of Students Economic Development

Improvement of Life


2626

Decreasing Product Life Cycles

0 10 20 30

Cosmetics

Toys

Tools

Food

Drug

Length of Cycle in Years

Today

Fifty years ago

Source: A.D Little, 1992

2727

Rapidly Changing Global ScenarioRapidly Changing Global Scenario

• Shortening life cycle of products and services: “if you understand the technology, it is obsolete”

• Rapidly changing business environment: “it’s not the big that eats the small; it’s 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


2828

Gap Between Research & Commercial Application

Target Resources Where They Have The Greatest Impact On New Business Creation

Res

ou

rces

Idea Patent Practice Product Commercial Business

Product Development Timeline

Existing Research Resources

“Valley of Death”

“Entrepreneurial Zone”

“Gap Funding”

Existing Commercialization Resources

Source: School of Venture, Hoseo University, Korea [itbi_kim]

2929

Barriers to CommercializationBarriers 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


3030

Barriers to CommercializationBarriers to CommercializationUniversitiesUniversities

• 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


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Venture makes sense for very few Venture makes sense for very few companies 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

Source: Dresdner RCM Global InvestorsSource: Dresdner RCM Global Investors LLC, Ca LLC, Ca

HIGH REWARDHIGH REWARDA study, sponsored by the National Venture Capital AssociationA study, sponsored by the National Venture Capital Associationfound the following;found the following;

Companies backed by venture capital generate 2X the sales, Companies backed by venture capital generate 2X the sales, pay 3X the federal taxes;pay 3X the federal taxes;And invest far more heavily in research and development as their traditionally financed counterparts,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 VC backed companies generate $634 in sales for every $1,000 in assets, compared with traditional companies, $391 in sales.assets, compared with traditional companies, $391 in sales.

Venture-backed firms spend more money on R&D costs: $ 44 perVenture-backed firms spend more money on R&D costs: $ 44 per$1,000 in assets compared with $15 for others.$1,000 in assets compared with $15 for others.

* Ciena Corp USA – IPO on NASDAQ reach valuation of USD 2.1 bil

3333

Lesson # 1 - Chances of Success Lesson # 1 - Chances of Success for a High-Tech Start-upfor a High-Tech Start-up

Idea to IPO

Plans to IPO

Funded to IPO

6 in 1,000,000

6 in 1,000

1 in 10

Source: Saratoga Venture Finance

3434

Lesson # 2 - Scientist Versus RainmakerLesson # 2 - Scientist Versus Rainmaker(Who makes the better Entrepreneur?)(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

Source: Dresdner RCM Global InvestorsSource: Dresdner RCM Global Investors LLC, Ca LLC, Ca

Source: Dresdner RCM Global Investors LLC

Some Common Mistakes Entrepreneurs make:-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

3636

ConclusionsConclusions

3737

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.

1 The Impact & Commercialization of Research By Mohd. Azwar Mahmud, CEO, MALAYSIA VENTURE CAPITAL MANAGEMENT BHD International Islamic University Malaysia.

Documents

research findingsresearchers

mtdc slide

mavcap slide

commercialization researchers

relevance slide

moste slide

upm slide

low rates of commercialization