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The Distributed Partnering Model ... A New Bridge Over The "Valley of Death"?
Please review & comment on this thoughtful essay by Duane J. Roth in Xconomy on a new model for crossing the "Valley of Death" between laboratory and the market. The full article, "Addressing the Innovation "Valley of Death:" It's the Products, Stupid!, can be found by clicking here ... Excerpts follow below ...
ENJOY!
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... global innovation economy is dependent on our sustained investment in research and its translation into innovative products...
... Historically, the majority of innovative products (many of which stem from federally funded research) were entirely developed by large, fully integrated corporations. This model was highly successful until the 1970s, when certain business practices were introduced that eventually stifled innovation...
... in 1980, adoption of the landmark Bayh-Dole Act allowed universities and non-profits to gain ownership of intellectual property (IP) derived from research funded by federal grants. This led to the formation of many start-up companies, which were built around a license for the research-based discoveries and primarily financed by venture capital (VC). During the 1990’s and the early 2000s, this VC start-up model transformed our economy through the creation of major high-tech and life sciences clusters around the US...
... over time, the VC model has been increasingly challenging to maintain. It has proven difficult
to fund start-up companies and achieve a sustainable and acceptable return on investment based solely on an early stage discovery. As a result, many of these research discoveries reside in the so-called “Valley of Death” because they lack the necessary financial support and
skilled management team to progress into the “proof of relevancy” phase. To address this gap, foundations and advocacy groups have stepped in to try to provide funding. However, these investments are generally insufficient to carry these startups to follow-on VC funding...
... To address this funding challenge, I ... propose a new funding model for innovation, which we call the Distributed Partnering Model...
... This model emphasizes the importance of advancing the innovative technologies and products— instead of a model that emphasizes building individual companies around each new discovery or invention. In our model, we have identified four independent entities that work
collectively to advance innovation ...
... They are:
—Discovery: A research institute that focuses on new discoveries.
—Definition: A company that invests in defining the initial product(s) from the research-based discoveries in a given field of expertise.
—Development: A company with responsibility for funding and advancing product development.
—Delivery: A company with a significant marketing and distribution channel.
... There are two key enabling elements of the proposed model:
* the formation of a new type of company to address the “Valley of Death” bottleneck, called a product definition company (PDC),
* and a more efficient use of infrastructure and product development expertise provided by professional service providers (PSP).
... PDCs would focus on translating a portfolio of research discoveries into an early, development stage product. These would be managed by an experienced entrepreneurial team with significant operating experience in a given field. The PDC business model would call for SELLING the product or technology assets to VCs or distribution companies after the initial product definition phase for further product development and, eventually, delivery to the market by distribution companies. Potential PDC investors would include angels, large corporations, VCs,
foundations, etc., and investor focus would be on their field of interest and the expertise of the operating team.
... translational experiments to reach “proof of relevancy” would be contracted to PSPs to perform the key development activities...
... To increase the level of investment in this critical space of product development, we have called on the federal government to consider investing as a limited partner (LP), matching the PDC’s private sector investment with federal dollars. Termed the American Innovation
Investment Fund (AIIF), the government would share the fund’s profits as any other LP (typically in the VC model, the LPs receive 80 percent of the profits and the management receives 20 percent)...
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