Govt incentives needed to fix commercialisation ‘market failure’

Joseph Brookes
Senior Reporter

Australia’s commercialisation struggles stem from a lack of incentives rather than a lack of skills or capital, according to the former head of CSIRO’s ON accelerator program, who has welcomed the federal government’s intervention into a “market failure”.

David Burt developed CSIRO’s ON Program in 2015 to help scientists turn their research into startup companies. He said the program had been a success despite not being extended, and demonstrated the “superpower” of equity to align incentives and keep researchers involved.

He now wants the approach applied widely as part of the current reforms to university research commercialisation.

Former head of CSIRO’s ON accelerator program David Burt. Supplied

While rating highly on research outcomes, Australian universities are far worse at translating it into knowledge and technology outputs, according to global rankings. Australian industry also trails the developed world in terms of innovation investment.

But Mr Burt said the problem lies in a lack of incentives rather than a lack of capability. There have been instances of university researchers flat out declining to help companies that licence their inventions because there is no incentive, according to Mr Burt, who is now the director of entrepreneurship at UNSW.

“It’s not that we’re not good at this thing [commercialisation],” Mr Burt told InnovationAus.

“It’s just for many people, it’s not worth the time and effort to do the thing. The expected value of the effort and risk versus reward is just not attractive compared to the alternatives.”

For Australian researchers, those alternatives include a relatively safe career in academia, Mr Burt said, where they are incentivised to focus on winning grants and publishing articles, not found companies or bring technology to market.

Industry meanwhile sees negotiations with Australian universities as a potential waste of time and money because of a historically conservative approach to intellectual property, Mr Burt said.

“Universities are scared that they’re going to give away their IP too cheaply; they’re going to do a deal that makes them look bad when the company is worth billions [later on]. And industry is scared that the university is going to waste their time and money. They’re going to have these long drawn-out negotiations. They’re going to overpay and they’re going to look bad to their shareholders or stakeholders,” he said.

The federal government is finishing up a $6 million university research commercialisation scoping study. So far, the study has yielded a proposal to introduce mandatory IP agreements to speed up negotiations but is facing pushback on making the agreements mandatory and preventing adjustments in contracts below $100,000.

The sector is bracing for more reforms from the Education minister, who is demanding more commercial outcomes from government spending on university research.

Mr Burt said the intervention was justified because research commercialisation in Australia is at a point of “market failure”.

“There’s a lot to like, there’s a lot of good stuff happening. But I think the incentives for people to do the hard work are not right. So we’re in a state of market failure,” Mr Burt said.

The latest commercialisation proposal would see any IP deals worth less than $100,000 made under a university sector wide standard agreement. The agreements are essentially unable to be modified by either the university or the business, and would eventually apply to all government funded research commercialisation.

Mr Burt said standardised agreements are welcome and needed to speed up negotiations.

“I’ve been across more than 100 research commercialisation deals in the past five years. The quickest was six months. The longest that actually completed was 28 months. There are some I know of that are still been going on for three plus years,” he said.

But the rigidity for smaller deals is highly problematic and could create perverse outcomes, he said.

“There’s always nuance with technology commercialisation. So, I think there needs to be standard deal terms and both sides need the ability to modify every clause,” Mr Burt said.

Without the flexibility, universities will be incentivised to focus on higher value deals, potentially excluding emerging work or smaller private sector partners, he said.

“I predict you’ve just incentivised universities to make the minimum price for any agreement with them $101,000. Because we’ve just incentivised people to ignore low value deals which I think is a bad thing,” Mr Burt said.

After developing and running CSIRO’s ON accelerator program to train scientists in entrepreneurship, Mr Burt said the key to commercialisation was giving the innovators control of it and an incentive to stick with it, sometimes over several years.

“We kept the ball with the scientists. We said ‘you’ve invented the thing, you’ve got the ball, you’ve made the ball. Now go find the commercialization opportunity. And if you have enough conviction, quit your job and start a company’,” he said.

Part of Malcolm Turnbull’s National Innovation and Science Agenda, the ON program was not renewed by the Morrison government after its four years of funding ran out.

Mr Burt said the program had been a clear success and proven the power of equity and scientist control.

“[Over] four years we spent $40 million helping just over 4000 scientists go through this methodology of the ON program, and about 65 new companies resulted as of that…about 100 scientists quit their jobs to start companies. If you would value those companies as at today, it’s more than $500 million of enterprise value,” he said.

The input of scientists and innovators is not helped by mandatory agreements on IP sharing however, Mr Burt said, and may even incentivise their continued involvement in commercialisation.

“The reality if you’ve ever been involved in research commercialisation,  is there’s a third leg to that stool which is the humans that know how to iterate and wiggle the puzzle piece of that patent in the market; do some redevelopment, add a feature, take a feature away, reduce the [physical] size by an order of magnitude,” he said.

“There’s a bunch of know how that you can’t codify. It lives in the people’s heads. They do the work.”

The innovators don’t necessarily need to start a new company, but they do need to be incentivised to play a meaningful role in them, Mr Burt said, pointing to the success of spin-outs like v2food and RapidAIM (Mr Burt is a non-executive director of the latter) where scientists founded and stayed with the companies.

To repeat the success, he said the government should create a “massive” subsidy for commercialisation capability development in universities and publicly-funded research centres, delivered in a program that would be a prerequisite for certain grants.

He also recommended non-recourse loans from the government to academic startups and a government funded commercialisation fellowship where academics could create a spin-out without quitting their job.

The university support is fundamental for improving commercialisation outcomes, he said, because they are “best actor in the system” of creating innovative companies.

“The role of a university is not just to develop the IP. They’re the best placed to nurture and incubate the founders and the companies,” he said.

Do you know more? Contact James Riley via Email.

  1. Walter 2 years ago

    Australia is a tiny market with effective lockdown on most profitable industries by an established cabal. Our weak to nonexistant supply chain, disjointed logistics, expensive real estate, high regulatory ingress and labyrinthine taxation and financial systems plus expensive labour pool make us a weak competitor to Asia as a base for innovation.

    I am 40 and operate in China by necessity. My peers either work for the US, European finance, or Japan. In my professional opinion, Australia cannot move forward with innovation in a country that makes importing required products prohibitively expensive, doing anything a legal minefield, and leaving to visit business partners a crime.

  2. Kevin 2 years ago

    Although we do have research capability to a certain extent, we lack important skills specifically in Product Management and Product Marketing. These are critical for Commercialisation. Too much focus on R and not enough on D. Take a look at the investment successful tech companies make in Product M&M – often much larger than in R&D!

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