The Startup Scaleup Challenge for Innovation

Transcription

1 The Startup Scaleup Challenge for Innovation William B. Bonvillian Director, MIT Washington Office FAPESP Conference Creating Local Prosperity Through World-Class Science- Based Business Development Sao Paulo, Brazil, June 16, 2016

2 What s the policy challenge and the emerging policy? What s the US innovation system problem? Financial system model can t measure value of modern firm, i.e., its innovation capacity No metrics, so substitute a proxy: short term profitability Finance therefore drives US firms to focus on core competency, to reduce vertical assets, go asset light This drives a reduction in firm research (basic and applied) Firm research fell to 26% in from near 30% from (as a % of total business R&D - ITIF) Firms do incremental development focus instead But for breakthrough research for innovation large firms increasingly buy startups 2

3 The Startup challenge: But this buy-up startups option for big firms is running into trouble: There is a decline in finance support for startup model in most technology areas (other than software/it) Creates a gap in the US innovation system Scale up challenge for emerging technologies into production and implementation What policies are emerging? How can we fill this gap? New Innovation Orchards concept Link startups and small manufacturers (US 3 Manufacturing Extension Program)

4 Emerging Technology: Complicated story U.S. likes to stand up new technologies in New Frontier Sectors in Unoccupied Territory Limits competition in the early technology stages But most tech is in Occupied Territory New technologies have to parachute in and will be shot at on the way in -- We do biotech, we don t fix health care delivery 4

5 Related Problem: Legacy Sector Issue for New Technologies New technologies that open new sectors typically introduce new functionality There was nothing quite like computing before computing Can command premium price at entry because of new functionality Then over time drive down the cost curve But most technologies in complex established Legacy Sectors Initial technologies introduce limited new functionality Compete against established technologies Must compete on price on day one No time to drive down cost curve Legacy sectors: well-defended castles Protected by technological-economic-political-social paradigms Legacy Sector R&D low ex: Energy industry R&D = > 1% of 5 Annual Revenue we will need startups for new energy technologies

6 VC s don t like Legacy Sectors: Decline in VC Investment in Energy Startups 6

7 Non-IT Technologies: higher risk/ lower return so no VC From VC new energy investment grew from $1B to $5B (47%/yr.) Then: After 2008: down to $1B Energy: high risk, low return vs. software low risk, high return : $25B in clean tech VC $; less than half returned (B. Gaddy, et al, Venture Capital and Cleantech ) MIT Production in the Innovation Economy study Looked at 60 Boston-area startups that survived for more than decade (focus on non-it, BT) VCs stayed in past normal 5/7 years, didn't want to marginalize holdings, but put firms on income maintenance When startup got well into product design, called VC The VC reply: we don t do this, call our contract manufacturer or sovereign wealth fund in (you fill in the blank) (E, Reynolds, et al, PIE, vol. 2, chapt. 4) 7

8 Enter: Advanced Manufacturing Institutes The Issue: U.S. manufacturing in decline hollowing out, employment cut 1/3 from affects U.S. innovation system because production is creative stage The Fix: advanced Manufacturing Innovation Institutes (MIIs) Advanced Manufacturing Partnership 2011 and 2014 reports: apply a Fraunhofer model 8 Institutes named; 2 through DOE (power electronics, advanced composites) But: Mfg. Institute model speaks to existing ecosystem Collaborations of SMEs and major mfg s. w/univ. and gov t The Startup Scale-up problem isn t really reached by Institutes What to do? 8

9 Another Answer: SunShot DOE s SunShot program - national collaboration set up in 2007 to make solar competitive with fuels by 2020 Goal: 6 cents/kw hour total, installed cost Have reached 70% of that goal; 30% to go Approaches: Driving down production costs, systems integration, driving down soft costs and installation (64% of total costs), incubator and startup programs Support for 61 startups since 2007 $138m in early stage federal funds; leverage $3B in private support Includes: hardware innovation and manufacturing, software, costreductions throughout the value chain, and capability-related solutions federal role: many stages, not just R&D Now: 2015, disruptive solar technologies (beyond solar PV) 9

10 SunShot s Approach: X X X X X where SunShot helps 10

11 Trend in Price Reduction for PV & Capacity Growth,

12 Now What? for Startup Scaleup But SunShot is solar only and goal is price not helping startups And startups are outside the Manufacturing Institute model Is there a more systematic approach? Finance? US AMP 2014 advanced manufacturing study: recognized the innovation system gap in financing for scale up for startups tried to find new financing mechanisms not a good time for expensive new programs - couldn't find a workable one Now What? 12

13 Innovation Orchards Rafael Reif, MIT - substitute space for capital Innovation Orchards Already rich innovation cluster in Boston, but scaleup issue Need: technology and equipment rich space for startups full of know-how use regional support to build for: advanced prototyping, demonstration, testing - perhaps small lot pilot production Gets startup down scaleup curve Derisking get them into range of more traditional financing 13 Could accelerate the innovation better than VC fix

14 Example: Cyclotron Road/LBL ModHOMEPROGRAMCOHORTPROJECTS MOSAIC MATERIALS VISOLIS OPUS12 SPARK THERMIONICS CALWAVE POLYSPECTRA ABOUT US MISSION TEAM GET INVOLVED LATEST NEWS REPORTS PRESS INSPIRATION APPLY style below blocks out the mobile nav toggle only when nav is loaded IDEA: Park a bunch of energy tech startups (16) outside fence of Lawrence Berkeley Lab in intermediary space Pay them salaries Give them the keys let them invade Access to advanced technology, equipment, know-how New tech transition model: - Old model inside/out - get the labs to transition their own technologies - New Model outside/in 14 Better model? More DOE labs will do

15 Example: TechBridge TechBridge arm of Boston Fraunhofer for energy startups TechBridge Role: Prototype, Pilot Production, Test, Validate Link startups with industry partners, then prototype. test and validate technology for production use Fraunhofer facilities for test/validation, use industry partner who wants the innovation for scaleup So high grade industry level tech validation w/ scaling with partner Validation is key Match-udep model 15

16 Does US law allow federal labs to help startups? IDEA federal labs are underutilized assets for adv d equipment. technologies, know how get better utilization from them for startups efficiency issue new outside/in tech transfer approach low cost Can federal labs do this? Yes Stevenson-Wydler Act of 1980 allows Partnership Intermediary Agreements (PIAs) state-ok d non-profits (ex., state univ s) to set up intermediary org s. to link labs with tech transfer options can include startups who can use facilities DOD, NIST, Ag use widely SO: PIA model - allows entry to labs and tech transfer 16 subject to export controls, other federal requirements

17 But what does a federal lab know about manufacturing? A federal lab knows technology research and equipment But federal labs don t know about production? So: NEW IDEA a missing feature for innovation orchards: Incubator Greentown Labs in Somerville joined Mass. Manufacturing Extension Program in 1 year pilot program Link scaleup ready startups with small manufacturers Don't have to go to the prototype shops in Shenzhen can find capabilities in your own backyard 17

18 GreentownLabs/Mass MEP Here s what happened: IDEA They need each other - startups need production, manufacturers don t do R&D, need innovation access 46 startups a Greentown; 33 Startups were interested in linking to SME manufacturers from 7 different locations across eastern Mass. 83 Manufacturers were interested in working with and connected to Startups. 120 Connections were made between Startups and Manufacturers. People intensive effort online matching won t work 10 Workshops held by Greentown Labs Over 100 office hours held at Greentown Labs 8 outside startup support networks expressed interest in learning from the Initiative 16 Partnerships were formed between Startups and local Manufacturers. Basic training for startups on production could go online and scale; but personal relationship-building critical it s a marriage, love required (sources: Micaelah Morrill, Greentown, Peter Rossi, MassMEP) 18

19 Wrap-up: Role of Policy in Startup Scaleup So: innovation policy challenge: Need to scaleup innovative startups for production of new technologies But financial support for non-it startups in sharp decline Are new policy models emerging to fix this? New Manufacturing Institutes and SunShot - impt., but don t quite fit But: Innovation Orchards idea fits substitute space for capital Rich technology, equipment, know-how space for startups Help get them through advanced prototype, demo, testing, pilot production Cyclotron Road, TechBridge provide working models Another missing link: connect startups to small manufacturers Can link startup incubators to startups with MEPs -- in every state Greentown Labs/MassMEP example Can this work? Feds no new money, can t create new programs But these policy fixes are already authorized, have low capital costs, better utilization of existing assets labs, MEPs 19