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

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Presentation on theme: "1 The Impact & Commercialization of Research By Mohd. Azwar Mahmud, CEO, MALAYSIA VENTURE CAPITAL MANAGEMENT BHD International Islamic University Malaysia."— Presentation transcript:

1 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 2 A G E N D A Key Concept, Relationship and Relevance Benchmarking Indigenous Research: Commercialization: VCs Perspective Conclusions

3 3 Research Creativity Discovery Invention Technology Innovation Technopreneurship Commercialization Key Concept, Relationship, Relevance

4 4 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 Taxonomy

5 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 6 Innovation Evolutionizing technology to create competitive advantage Commercialization- process Taking innovation to market profitably Technopreneur Enterprising soul that make innovation & commercialization possible

7 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 8 Benchmarking Indigenous Research

9 R&D 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 10 Examples of Local Research SuccessInventionAbstract 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. White spot syndrome (WSS) Detection Kit for shrimp [20] 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. 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). Diagnostic Kit for Newcastle Disease Virus [19] 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. Source: UPM

11 11 Venture Capital backed Companies Spinning out of Local ResearchCompanyProduct Commercialization of electroplating technology by UTM (Backed by MTDC) Malaysian Bio- Diagnostic Research Sdn Bhd (MBDR) Commercialization of rapid diagnostic detection for typhoid fever from USM School of Medical Sciences. (Backed by MTDC) Malaysian Vaccine and Pharmaceuticals Sdn Bhd (MVP) Commercialization of Aujeszkys Disease Killed Vaccines formulated by Veterinary Research Institute (VRI) (Backed by MTDC). 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 12 Venture Capital backed Companies Spinning out of Local ResearchCompanyProduct Phytes Biotek Sdn Bhd Commercialization of a standardized extract of Tongkat Ali from UM & FRIM. (Backed by MAVCAP) Nusuara Technologies Sdn Bhd 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). Fito Elegance Sdn Bhd Commercialization of aromatherapy using locally extracted essential oil. (Backed by MAVCAP) Source: MAVCAP

13 13 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 Mechanism 3. Research Management 7. Industry Linkage 9. Diffusion of New S&T

14 14 Low 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 research findingsResearchers are not commercially aware of the potential of their research findings Impending lack of effective Research Management Practices in universities and PRIsImpending lack of effective Research Management Practices in universities and PRIs Manpower issues constraint ease of translating research results into commercial outputsManpower issues constraint ease of translating research results into commercial outputs Research focus is largely publications-oriented with little applications-oriented researchResearch focus is largely publications-oriented with little applications-oriented research

15 15 Low Rates of Commercialization: Root Causes Source: MOSTE Lack of clear incentives and rewards to stimulate commercializationLack of clear incentives and rewards to stimulate commercialization Paucity of networking mechanism linking key parties to commercialize research findingsPaucity of networking mechanism linking key parties to commercialize research findings Pockets of excellence exist in the Innovation Infrastructure, but overall, it suffers from systemic weaknessPockets 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 sectorsShortage 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 requirementPre-technical feasibility studies on marketable outputs or tangible benefits are seldom conducted by researcher, since it is not an institutional requirement

16 16 Four main hypotheses affecting low rates of commercialization Manpower issues Industry linkage Innovation infrastructure Diffusion of Science and Technology knowledge

17 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 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)

18 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 19 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

20 20 Commercialization – VCs Perspective

21 21 TECHNICAL WORLD BUSINESS CAPABILITIES TECHNO-PRENEURSHIP COMMERCIAL WORLD TECHNOLOGICAL INNOVATIONS INVENTIONS/DISCOVERIES/ TECHNOLOGIES 15 – 20 % of Commercial proceed to be ploughed back into R&D Research Activities Tinkering / Experimenting Develop m Activities Product/ Process Developm Activities Market Developm Activities Results Activities RELATIONSHIPS BETWEEN CREATIVITY, TECHNOLOGICAL INNOVATION & COMMERCIALIZATION Source: Technology & Strategy: A General Management Perspective

22 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! The First APEC Incubation Forum The First APEC Incubation ForumAPEC

23 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 The First APEC Incubation Forum The First APEC Incubation ForumAPEC

24 24 Lesson # 1 - Chances of Success for a High-Tech Start-up INDIVIDUAL EVENTPROBABILITY COMBINED PROBABILITY OF SUCCESS17% 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 in ten times. Source: Harvard Business Review

25 25 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 Commercialization Ideas Education of Students Economic Development Improvement of Life The First APEC Incubation Forum The First APEC Incubation ForumAPEC

26 26 Source: A.D Little, 1992

27 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 The First APEC Incubation Forum The First APEC Incubation ForumAPEC

28 28 Gap Between Research & Commercial Application Target Resources Where They Have The Greatest Impact On New Business Creation Resources Idea PatentPracticeProduct 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]

29 29 Barriers to Commercialization Barriers to Commercialization Industry 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 The First APEC Incubation Forum The First APEC Incubation ForumAPEC

30 30 Barriers to Commercialization Universities 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 The First APEC Incubation Forum The First APEC Incubation ForumAPEC

31 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 Source: Dresdner RCM Global Investors LLC, Ca 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 R&D 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 33 Lesson # 1 - Chances of Success for 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

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

36 36 Conclusions

37 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.


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