The importance of public/private partnerships

BY MARK LUECKE

The importance of public/private partnerships is never more apparent than in the process of research commercialization, and trying to establish and grow knowledge-based communities. This is especially true in our region where it is a significant challenge to achieve a critical mass of the key success factors required to develop these types of communities, such as market-aligned university research, experienced entrepreneurial talent and early-stage investment capital

Each year, the United States invests approximately $125 billion in research and development through its university system alone While this is an impressive number, numerous studies have highlighted the United States’ increasing deficit in research and development investment and an increasing competitive disadvantage in innovation compared with global competitors For example, China will invest $1.5 trillion over the next seven years on “strategic emerging industries” as part of its Innovation 2020 strategy

The $125 billion investment by the U S generates approximately 25,000 inventions being disclosed by university professors, many of which lead to new patent applications and a smaller number of which lead to license agreements to existing companies. Yet this investment leads to fewer than 750 new startup companies. Therefore, the simple math suggests an investment of $5 million is required to achieve one new invention disclosure, and an investment of $165 million is required to achieve one new startup company This dismal return on investment is compounded by the historical probability of a startup company achieving sustainable success, which is less than 10 percent according to many studies.

How do we resolve our current situation of investing in research and development to lead the world in innovation, while expecting a sustainable return on investment? And how do we accomplish this in our region, where resources are limited?

One of our board members teaches a simple framework to assess complex situations such as the one described above: Problem, Alternatives, Solution With the problem clearly defined the high risk of investing in research and development to maintain our competitive advantage in innovation it is important for us to begin looking at the alternatives

The public sector (federal and state government) is a leading investor in research and development, and has recently implemented a number of programs to facilitate research commercialization through startup company formation A good example at the federal level is the National Science Foundation’s Innovation Corps program, which prepares scientists to extend the focus of research beyond the laboratory At the state level, South Dakota’s Proof of Concept program provides up to a $25,000 investment to conduct research demonstrating technical and economic feasibility of an innovation, enhancing its commercialization

The private sector (industr y) is also a leading investor in research and development, and represents the closest position to the final customer, given commercial scale manufacturing and distribution on a global basis Our portfolio companies work with a number of industry leaders to complete early-stage milestones that reduce the risk of new technology

However, the alternative with the highest probability of success (i.e., the solution) is a combination of alternatives With the public sector’s investment in research and development through our university system, and the private sector’s position with the final customer that will align research and development priorities with the market, it is important to increase the number of public/private partnerships that occur These partnerships work collaboratively to reduce the overall risk the public sector with early-stage investment capacity and the private sector with market alignment and distribution capability

The AgTech Center for Rural Enterprise in Brookings, S.D., is a perfect example where the public sector and private sector collaborated to construct a 30,000square-foot pilot-scale facility for bioprocessing and aquaculture to reduce our country’s second largest trade deficit in natural resources (seafood) and increase our opportunities for rural development This public/private partnership is a good example of establishing and growing knowledge-based communities. PB

Mark Luecke Managing Director/CEO South Dakota Innovation Partners mark@southdakotainnovation com