Innovation: not only venture, but also transfer

Venture vs Technology Transfer   
Anatoly Chaussky 

Recently, when they talk about innovation and innovative development, they implicitly link it with venture capital. By default, innovation development refers to the process in which a developer creates a startup, attracts angel or venture investments, develops his business and sells it in the future.

At the same time, such a tool as technology transfer is completely undeservedly forgotten. In my opinion, technology transfer is no less promising mechanism for innovative development than the creation of their own startups by innovators with the subsequent attraction of venture investments.

Let's compare these two ways of innovative development. But, first of all, I want to make a reservation, by innovations in this post I mean ordinary scientific developments, NOT from the field of IT.

What are the main difficulties of the "venture" development path? As a rule, innovation developers (scientists) know nothing about business. They cannot give their development the form of a project – describe business processes, form a team, etc. The transition from a scientific type of thinking to an entrepreneurial one is comparable to a quantum transition – theoretically it is possible, but in practice it is extremely rare. In the IT sphere, this is much easier, developers are young people, they already initially look at the world with entrepreneurial eyes.

There are serious problems on the other hand. It is well known that the investment culture in Russia is at zero. Almost no one has any practical experience of investing in innovations. Venture funds have been created in recent years, but they finance companies at the stage when the business has been created and more or less started functioning. They do not represent seed investments. For seed investments, you need to turn to angels, i.e. private entrepreneurs.

Do we have many entrepreneurs who are willing to invest their financial resources in innovative companies? That's right, not enough. Very little. Why? It seems that we have enough people with money in Russia. To answer this question, we need to figure out who and why can provide seed money to innovators. Big businessmen "sitting on the pipe"? Why would they do that? They're doing fine as it is. For the tasks of capital multiplication, there is no expediency in this – the cash flow is already flowing steadily. There are a lot of other more reliable financial instruments for the tasks of saving money. So it makes no sense for them to bother with innovations, life has already been a success.

To a greater extent, those who are not completely satisfied with their current situation may be interested in the prospect of investing money in innovative companies. Only dissatisfaction can make a person raise his "fifth" point from his place, move his limbs and look for a "better" life. In my opinion, these are representatives of small and medium-sized businesses. In my opinion, they can be considered as angels for seed financing. After all, what are the chances of a small business growing to a large one? To do this, you need something non-standard that will push it up. Just this "lucky ticket" for an entrepreneur can be an investment in innovation at the seed stage.

But there is one problem. Angelic business implies, firstly, entry, and secondly, exit. The way out is to sell the company to a strategic investor. And let me ask, to whom will the Russian angel sell the company? Who will buy this company? Do we have a pool of large industrial innovative companies in Russia that would buy startups, as it happens in the West? It turns out that as long as we do not have a market for "exits", there will be no serial angels, i.e. angels consciously focused on bringing companies up to standard and getting out of them by selling.

In addition, there is another very important nuance. The motivation of Russian angels is very different from the motivation of American ones. From the experience of communicating with entrepreneurs related to small and medium-sized businesses, i.e. those who are part of our target audience, I have a feeling that they do not understand the point of selling a company. "Why sell if the company is successful and generates a stable cash flow?" - the question of one of my friends. These entrepreneurs behave like strategic investors. They are ready to acquire assets in order to own them for a long time. Accordingly, they want to take an active part in the management of the company, which goes against the wishes of the developer. Actually, this problem is a consequence of the first one. Most entrepreneurs have not yet realized that it is possible to earn according to the "in –out" scheme.

Add to the completeness of the picture a purely psychological problem. An entrepreneur is invited to give his money to "strangers" on the basis of several dozen pages of text called a business plan, accompanied by beautiful words about multimillion-dollar profits, Innovators promise "mountains of gold", "sing sweet songs", tell in great detail what and how much to spend, but they cannot really explain how and at the expense of what money will fight back. And this is in a situation when Russia is ruled by a ball of cutting, talkery, fraud, postings, IBD (imitation of violent activity), etc., etc. In other words, there are a lot of different ways and opportunities when your money can quickly flow into other people's pockets on very legitimate grounds.

In general, there are a lot of problems with the venture development path. Moreover, most of these problems mainly relate to the so-called "human factor".

Now let's see how things are with technology transfer. The process of technology transfer generally implies a situation when a developer sells an innovative technology created to an entrepreneur, who in turn creates and develops his business on its basis, while making royalties to the developer.

The advantages of this scheme are obvious. The developer in this scheme does not need to have entrepreneurial abilities, he does not need to think through business processes, does not need to write business plans, does not need to organize production and be able to manage a business. The developer does what he is used to doing and what he has the ability to do – science. The entrepreneur builds the business on his own and at his own expense. This state of affairs is good for an entrepreneur. Psychologically, it is much easier to invest in your business, which you fully control and manage, than to give money into the wrong hands.

There are also disadvantages to this scheme. As practice shows, entrepreneurs are not eager to pay royalties, and as malicious alimentarians shy away from their obligations to developers. From the developer's perspective, the success of technology transfer depends on whether transparent control mechanisms have been created or not. There is another unpleasant moment. In Russia, it is sometimes not clear who owns the rights to certain technologies, there is no clear legislative framework on the basis of which technology transfer could be carried out. It also very often happens that developers do not behave adequately, wringing an unrealistically high price for their technologies.

But if we compare these two ways, then technology transfer has fewer disadvantages. And the best part is that the problems mostly lie in the legislative sphere. It is much easier to develop and adopt a clear package of laws than to change the mentality of people (developers and investors).

With the right approach to the organization of the process, in a relatively short period of time, you can transfer a lot of interesting technologies to the business, which are now a dead weight for developers. And it is necessary to start first of all with technologies that can be mastered by small and medium-sized businesses. What do they do? What is their business based on? For the most part, they are engaged in selling (wholesale or retail) products of foreign manufacturers, or providing services, or renting out premises belonging to them to other entrepreneurs. Many of them dream of opening production, but the problem is not even in the lack of investment, but in the intense competition from foreign manufacturers. And here interesting technologies that will allow entrepreneurs to win in the competition can come to the rescue.

This is not some kind of theoretical reasoning on my part. Everything is confirmed by practice. Sometimes we have to promote not just products from manufacturers (look for dealers), but technologies on the basis of which a business can be created. And I see how much interest such proposals arouse from the business side. But, unfortunately, there are very few such proposals.

Of course, not every technology will be in demand, and not every technology will be able to build a transparent transfer scheme that protects the interests of the developer.

In no case do I urge you to abandon the strategic line that has been developing recently. We need to continue to open venture funds, stimulate the activity of developers and teach them business thinking, attract entrepreneurs as angels, but we do not need to completely discount such a powerful tool as technology transfer. I constantly monitor the press on the topic of innovation, but over the past few weeks I have come across an infinite number of times about venture capital and never about technology transfer.

I believe that the scheme of commercialization of innovations based on technology transfer will definitely "shoot". To do this, it is necessary to "wisely" approach the issue of organizing technology transfer centers. How to do it? Let me share my thoughts. Usually such centers were created at universities and institutes. But as practice has shown, most of the created centers are useless. There are several reasons.

The first is the inability of employees of scientific organizations, namely they worked in these centers, to organize the process. After all, a transfer is the same sale, only very difficult in its execution. And scientists do not know how to sell by definition, respectively, they cannot competently organize the transfer process. The transfer should be handled by people knowledgeable in business.

The second reason is that, in my deep conviction, technologies before sale, as well as startups before attracting investment, need to be specially "packed", as it has now become customary to say among startups. The transfer of "naked" technologies is possible only in one single case - when the technology is sold to a highly developed technology company that has highly qualified personnel and established production in its staff. If the technology transfer is supposed to be made to ordinary companies, for example, belonging to the category of small and medium–sized businesses, then these technologies must be properly prepared before sale - "packed". Different schemes can be used to "package" technologies. And this requires certain skills and resources.

Actually, practice confirms these assumptions of mine. Who has received the greatest benefits from Russian technology transfer centers over the past years? Right! Large international technology corporations. Why? Because they had everything, as they say, "on the ointment" – both qualified specialists who saw through the essence of the technology from the fly, and well-established production. Technology transfer in this case seemed to be a very simple matter – scientists simply transmitted their formulas with instructions and descriptions. With ordinary Russian business, and even more so with small and medium-sized businesses, such tricks will no longer work. Russian entrepreneurs will not digest "naked" technologies.

What should be done and how to make such a tool as technology transfer work in full force? In my opinion, it would be advisable for some venture funds to organize their own technology transfer centers. If the fund's employees see that a venture project that has been submitted to them for consideration has a strong idea at its core, but a weak team, then they can offer developers to simply sell the technology using the transfer mechanism. I am convinced that many scientists, having seen a normal working technology transfer scheme, will gladly abandon the idea of creating a business and agree to sell their technologies. A bird in the hand is better than a crane in the sky! The center at the venture fund can also act as a guarantor of the transaction. Not every entrepreneur will want to deal with the lawyers of the Center, if suddenly he will be tempted not to pay royalties. And, of course, for success, you need to learn how to properly "pack" technologies so that they can be perceived by entrepreneurs.

Portal "Eternal youth" http://vechnayamolodost.ru10.02.2011