Climate research commercialisation
On university research commercialisation teams as ecosystem orchestrators - and the (mis)perceptions around “dead equity” at the cap table.
A contentious topic
Commercialisation of intellectual property (IP) by research institutes was one of the more divisive topics we asked about on our journey to uncover how to accelerate climatetech.
IP creates an interesting tension. On one hand, universities play a pivotal role connecting industry / government trends to research and innovation. On the other hand, commercialisation incentives for researchers are often poor, and in return for developing or licensing the IP, it is common for universities to get a significant (but varying) early stake in the resultant startup. This equity position does not always come with continued value-add, and has been referred to as “dead equity” in the capitalisation (cap) table by some. We believe the reality is more nuanced; universities and their commercialisation teams often provide services no other party can provide, and the perception is often driven by stretching resourcing thinner than ideal.
We set out to explore this area in some more detail, to better understand:
What do research institutes / universities need to do differently to better play a leading role of bringing new tech to market? What would they need, and from whom, to be enabled to deliver on that change?
How can universities accelerate what they do? Is money the only answer, or are there other enablers? Would the money need to come from government, or are there other sources? And what form would this money need to take (grants to researchers, increased budgets, targeted project funding, etc)?
How might universities expand their role in non-university research (e.g. other startups)? Could they offer connections, laboratory space, access to experts, testing facilities, or other critical components to early company success?
What are the headwinds and tailwinds relevant for AU/NZ climatetech R&D? How are these influencing university IP commercialisation?
The linking pin
Without opening the Pandora’s box too far on the history and political aspects of this dynamic: successfully running a university is complicated, and expensive. Peter Mulherin, Industry Partner and Researcher at RMIT, told us: “Universities have a need to bring in revenue [via IP commercialisation] to supplement their reliance on Government funding”. In lieu of very significant changes in education and research subsidy, monetisation of research insights is a critical element of continuing to pay for this research, and so is attracting and developing the best people to do that research.
For a university, IP commercialisation is an important revenue stream, so in order to maximise that revenue it makes sense to direct what research is being done, and increase the chance that research insights can be used to solve a real-life, monitisable problem. Perhaps never before has there been a unifying real-life problem as clear as today: to avert a climate crisis we cannot come back from. But, as some of our experts highlighted, in the academic space, it’s rare to be given a problem to solve rather than have academic freedom.
From an industry perspective, there is a good case to be made for corporate access to bleeding-edge solutions that go beyond in-house R&D capacity. “While some industry players see universities as too far removed from their reality, there are great successes validating business models and working with practical applications of research,” says Peter. There is a growing number of examples where industry and research collaborated to answer consumer needs, such as big climate-related issues, including V2Food and Nourish Ingredients via CSIRO’s Company Creation team. Anna Tao, Executive Manager, mentioned that while a “reversed process” where industry drives research can sometimes be viewed as uncomfortable for some researchers, they believe the process is “delivering value at scale and speed by taking on higher technical and commercial risks with the industry, which would traditionally be taken on by industry partners on limited scale and often commercialised outside of Australia.” Increased clarity on market commitment means reduced risk for R&D teams.
Of course, the ecosystem is broader, with more players and more complicated incentives than just these. Australia and New Zealand both wish to play on the world stage when it comes to knowledge development. Both AU and NZ have world-class universities that regularly punch far above their weight in terms of knowledge export and solution development. The current leading tech around solar PV was developed at UNSW; New Zealand is ahead of the pack in many agriculture solutions; and both countries are developing bleeding edge tech in green hydro, battery technology and renewables more broadly.
But successful, academia-driven startups are still a rarity in both countries. So, then, why are we not doing more of this? Why are we, in the words of one of our experts, “so rubbish at commercialising our knowledge”?
The commercialisation challenge
According to commercialisation experts, the issue is not production of IP, or patents. Rather, there are three main factors that drive technology transfer—the first is scientists’ appetite to choose an entrepreneurial career path, the second is connectivity, and the third is a general undercapitalisation of research and innovation in Australia and New Zealand. While none of these are climate-specific, their importance in climatetech might be bigger than it is for less urgent verticals.
Entrepreneurship is not a popular career path for scientists
Famously, academia is all about “publish or perish.” This is true both for the researchers themselves, as well as the institutes that employ them. The common mindset, especially in AU/NZ, is that a PhD needs publications, and a researcher’s value to a great extent will be determined by their H-index. Conversely, an institute’s ability to attract and retain the best talent is based on their ranking—to a large extent determined by publication volume and “impact” (in this case, measured by the number of citations). What is not often highlighted as a differentiating factor in this model is what, if any, of this academic research made it out of the universities to change our lives.
Also within universities, the narrative around the “so what” of research is not as loud as one might expect. Adam Podmore, Senior Commercialisation Manager at Wellington UniVentures: “Many people are focused on publications and the notoriety they get from those, and not so much financial gains or technology applications.” Anecdotally, many researchers are more interested in digging deeper, understanding more, and being the absolute authority in their field than in understanding how to connect their findings to those in other fields. “It takes a special kind of person to have both a deeply scientific mind, as well as an entrepreneurial spirit”, says Anna. For many researchers, the entrepreneurial path is simply unknown. What we need to do more of, therefore, is telling the success stories of the companies that have been spun out, such as Liquium, Vortex, or the oft-cited LanzaTech.
In addition, industry-sponsored research positions, including PhD scholarships, are less popular in AU/NZ than they are in some other regions. This further exacerbates the differences in focus and culture between the two worlds—it is hard to value what you don’t know.
AU/NZ research institutes are not as well connected to the world stage as they would like to be
The innovation ecosystem in Australia and New Zealand, including within climatetech, has been growing for the last few years. But, we struggle to get our innovations to where they need to be put to use. According to the experts we spoke to, there are two main areas where we need better avenues to research application: research connections and market connections. These are not always easy to separate.
“Focussing on driving down New Zealand's emissions is important, but equally we need to differentiate between reducing our emissions and growing world class companies that have a global impact on climate change and the environment,” says Phil Anderson, Business Innovation Advisor at Callaghan Innovation. “That's the big opportunity for New Zealand, right now. In many cases, there are no customers of any significant size in New Zealand, so we need to think beyond our emissions targets.” How will we know whether our IP is actually best in class?
University commercialisation teams and academic researchers are uniquely positioned to play a role in solving this problem, regardless of their company-building ambitions. Like no other players, they have a view both on what is needed, and what is possible. But it’s a big role to play, especially in AU/NZ where big markets might not be around the corner. Adam: “what holds us back [in connecting AU/NZ ingenuity to overseas companies] is international connectivity; we need to get more of our researchers on planes to present their research to an international audience and develop those relationships.” Others think it is about smoothing the path to market by helping researchers shape their output to make it easier to commercialise. They argue the best way to do this is by facilitating collaboration: we need to enable researchers to get more involved in communities, for example through conferences that have a large industry presence. We believe there is little lack of ambition, but as usual limited resources pose a large barrier to doing so.
Where the Horizon Programme in Europe and NASA’s Research Innovation Funding (RIF) programme are great examples of connecting research institutes and industry partners, Australia and New Zealand are not connected in the same way. In New Zealand, KiwiNet and the MacDiarmid Institute are bringing together the NZ commercialisation ecosystem in a unique way by better enabling “competing” universities to develop IP together, augmenting universities’ commercialisation investments, and sometimes spinning out companies together. However, both Government and private funding remain limited, somewhat stunting the institutes’ ability to accelerate ecosystem growth. In Australia, UniSeed creates some of the connective tissue between a few of the universities, but we are not aware of a similar national collaboration model to that in New Zealand. However, commercialisation efforts are supported by most states, for example with Breakthrough Victoria’s new $2b investment fund, NSW’s Startup Hub, Queensland’s Advance programmes, and WA’s Investment Attraction Fund. Most often, these programmes offer financial support and sometimes co-location, but don’t appear to actively incentivise collaboration between universities or across industry.
But there is opportunity here! Some global players see AU/NZ as perfect test beds to develop, test and deploy new technology and business models. A great example is AirBus’ commitment to develop hydrogen-fueled aviation in Christchurch, which in turn attracts global attention and potentially other players in this space. Domestically, Wellington’s Robinson Research Institute has partnered with AirNZ to develop electric aviation, and with NZ Steel to develop green steel, but these fantastic examples are few and far between. “When we get it right, it’s fantastic, but what we’re up against in New Zealand is groups who have people that spend all their time building relationships, especially in the engineering space where both research and applications are very broad”, says Adam.
We believe this is where the (mis)perception of “dead equity” really comes from: the instances where universities would be expected to have broader and deeper connections to support early stage outputs, both in domestic and overseas markets, as well as in international research collaborations—and where that is not always happening, or a realistic expectation given the resources at hand. If the university is not able to pave the way by being hand-in-glove with relevant communities, their great potential might be underutilised and therefore some could perceive their role as stale. In addition, if their share of the company is significant (in some cases matching that of the scientists / founders), future investors might be negatively influenced from getting on board.
This perception might not always be fair though! IP commercialisation departments are actively looking to make an outsized impact with their relatively small teams. In addition to fostering connections with researchers and industry partners, they are actively transferring shares to other parties, getting investors on board, and freeing up capital to help more scientists bridge the divide. Some are setting up in-house entities that behave like an early-stage VC might, in order to reinvest the capital in the next wave of spinouts. The real question is what, other than 10x investment from Governments, would enable them to fully utilise their potential to commercialise climatetech research, and further extend the benefits of their position to non-university climatetech startups who might look to use some of what they offer (like free capacity in testing facilities).
One alternative route, that we heard mentioned a few times, is to follow countries where scientists outright own their IP, such as Sweden. But, without a potential upside for revenue and branding, what incentive does a university have to invest significant resources in smoothing the path to market for new IP? Indeed, research shows that Swedish universities are not that enticed to support research commercialisation. Allowing universities to be rewarded for strategic support and investment choices might not be such a bad dynamic—provided revenue is balanced with the increased impact the resulting companies have because of it.
AU/NZ are at the bottom of the OECD when it comes to investment in R&D
“NZ and AU are at the bottom of the OECD countries when it comes to R&D spending compared to GDP”, says Benjamin Pearson, Senior Investment Manager at Auckland UniServices Ltd. We followed up with some desk research: OECD data shows that both countries are spending closer to 1% on R&D (and trending down in Australia), compared to US, China and Western European countries that spend at least 3%, with Israel topping the chart at 5.5% (in 2021). This means that in AU/NZ, the research environment is challenging and competitive, and a company would likely need to set itself up to raise international capital sooner than in other geographic areas. This comes with a set of boxes to tick, which in turn might slow these companies down. In addition, similar to other investors, universities struggle with climate solutions that have a purely environmental benefit and depend on carbon price for commercial success, further exacerbating the squeeze in climatetech. Benjamin: “follow-on investment can be hard when the technology is dependent on international carbon markets that are hard to influence from AU/NZ.”
But, while Australia and New Zealand might not have the power to support some climatetech solutions in-country, overseas investors tend to be greatly impressed by the quality of what we do: “on a recent organised trip to Singapore, a number of New Zealand climate startups pitched to an audience of corporates and climatetech focussed investors. The feedback was clear: the quality of the entrepreneurs, the research-based technology, and the connected support ecosystem, was world class,” says Phil. “It wasn't surprising that three who were on the trip were acknowledged in the Cleantech APAC25 list soon after.”
Lower investment in R&D has other consequences too. It’s not just about grants or government support for universities. A big challenge is access to talent, both in the short and long term. For example, in New Zealand, Massey University has shut down their engineering school despite a huge need for additional engineers to support power transition to renewables. New Zealand is looking side-eyed at Australia where the immediate need for some 17,000 engineers in the hydrogen space is inspiring changes to skilled immigration as well as a campaign to incentivise young people to move into clean economy careers. In the meantime, Australia in general faces a talent shortage in climate jobs as well, with an expected need to get 200,000 people in clean economy jobs by 2030 (and 2 million by 2050).
In addition, there are a few other elephants in the room: while fantastic progress is absolutely being made, neither Australia nor New Zealand are prioritising climate solutions. While we could be world leaders in things like renewables, agritech or embracing indigenous climate knowledge, we are not. We have not claimed our niche; we do not have an extensive package of carrots and sticks in place like Europe’s Green Deal or the US’ IRA; and we are not doubling down on collaboration to decarbonise. While the rest of the world thinks of all of Australia (and sometimes New Zealand) as one, Australian State Governments often find themselves competing for the same Federal or Commonwealth funding rather than working off a national roadmap that makes smart use of regional (State) competencies. “There is a big opportunity to collaborate more across state boundaries - decarbonisation of the energy system is a national issue and we should be leveraging states’ specific capabilities rather than competing,” mentioned Ashby Field, Business Development Officer, Office of the South Australian Chief Entrepreneur. We believe there could be an opportunity for Australia and New Zealand to stand as one here, too.
What needs to be true to accelerate research commercialisation
Our experts inspired us to believe that increasing government support for research and innovation is critical. But in addition, it is becoming increasingly important to get clear on what sets us apart as a place to innovate and accelerate. For researchers, it may be quality of life or access to innovation hubs and collaboration initiatives. For investors, it may be access to world-class investment opportunities and a “number 8 wire mentality” unmatched by other regions. And for industry partners, it may be access to test markets with unusual appetite to adopt new tech, and rapidly scaling renewable energy to power other tech as well.
Getting it right will take some time, so we must double down on putting our climatetech to work. There is a big role for university commercialisation teams to get creative and develop relationships with the right partners and markets. We were particularly inspired by KiwiNet’s model and believe that finding ways to harness collaboration across both sides of the ditch will be a key factor for success. More money is always a good way to expand capacity—in the meantime, what we believe universities and their technology commercialisation teams can do is prioritise connections, both between teams and with relevant industry players.
Industry players will need to show their hands too, and remain open to different models of doing business than they have to date. When overseas giants like Nestle are willing to invest $40m for a research collaboration, there might be a need for our domestic players to do things differently and team up. Some of this is already well underway, especially in the cleantech and climate space, where companies have already shown themselves to be more open than other verticals. We believe there is a lot to be said for teaming up to solve specific issues that cut across companies, or even sectors and industries. As our experts mentioned, “the best commercialisation opportunity is one where there is a company involved from the start, wanting to buy a solution for a mega problem they have”. What would enable industry players to work more closely with other industry players, and with universities and their researchers?
Overseas investors believe that New Zealand has a Government that supports innovators, such as with the NZ AgriZeroNZ fund - a collaboration between major agri business companies and the NZ Government to improve farmers’ access to technology that helps them reduce their carbon and methane emissions. The good news is this: across both sides of the ditch (such as Callaghan Innovation and MBIE in New Zealand and CSIRO’s Futures Team in Australia), Governments are enabling the development of technology roadmaps that set out where the respective countries can and should capitalise on their unique mix of tech advancements, knowledge development, innovation structure and market needs—inspired both by where we’re ahead of the pack, and where we would ideally accelerate.
Removing barriers
So what are the barriers to corporates working more closely with universities? In one of our conversations, we discussed industry-sponsored and government-sponsored applied research positions, as is more common in other regions. This might require a cultural shift in how scientists and universities think about impact - while one might lead to the other, a publication is not impact, according to the experts. More industry engagement in research will lead to more funding for scholarships; it might constrain publications in some cases but drives interdisciplinary research opportunities (for example, the University of Auckland’s Geothermal Institute or the Distributed Flexibility Innovation Fund in NZ). This could be a great model for climatetech.
There might also need to be a rethink of the grant application process. While one founder we spoke to suggested ChatGPT might be a game-changer, the current process continues to be cumbersome and takes time away from advancing the research. Here, too, we believe the private sector can play a role, hand in hand with the public sector. If researchers, governments, and industry partners can agree on priorities, it is easier to allocate public money. In an earlier article we described how climatetech is seen by some as a riskier asset class because it’s perceived as “uncharted territory”—but the risk of unknown product-market-fit doesn’t apply to the climate crisis in the same way that it does for some other sectors.
Meanwhile in Australia, the Future Energy Conference is a great example for bringing together state-of-the-art research and industry players with big problems to solve, and the recent Careers for Net Zero Fair sets an example for inspiring both students and professionals to look at climate jobs. These examples are fantastic to further build AU/NZ’s collaborative brand, and we hope to see further commitments in this space.
What’s next
Delving into the world of innovation commercialisation and tech transfer enabled us to get a deeper appreciation of all the interlocking parts. While we started with a hypothesis that university commercialisation efforts might sometimes get in the way of moving fast (especially by taking up a larger-than-fair-share of spun-out companies), the dedication, expertise and commitment of the people we spoke to changed our mind. Underinvestment from both public and private sources in research and commercialisation is a big barrier, but it is unfortunately matched by a lower appetite from the wider ecosystem to smooth the path to market. Further capitalising on our world-class research and the global perception of our collaborative mindset seems like a fantastic opportunity to build up this ecosystem. We are excited that a number of big trends are emerging in the climatetech ecosystem:
Strategically prioritising collaboration: We’re in this crisis together, and faster is better. For universities, scientists and technology commercialisation teams, collaboration means national structures (like KiwiNet and UniSeed), international relationships and partnerships with industry players. For industry players the same could be true: collectively focusing on what propels AU/NZ can increase the size of the pie, and getting more intimate with scientific communities to accelerate the right research is more likely to help them reach net zero than reinventing the wheel behind closed doors.
Redefining impact: Having a shared definition of impact is critical for corporates thinking about a bottom line, for the scientific community thinking about how to value science, for governments thinking about their place on the world stage, and for investors thinking about ROI.
Strategically investing in research and education: While “more money” is the critical foundation, just doing more of everything is not as impactful as doing more of the right things. Being deliberate about where investment goes keeps different stakeholders aligned.
As always, we would love to speak to more experts in this space and very much encourage a deeper conversation around our insights, in order to get real on moving the needle.
We sincerely thank the various people who have generously taken the time to inspire and explore this space with us. Our experts note that what they discussed reflects their personal opinions, not necessarily that of the organisations they represent. We would specifically like to thank Sam Wilkins (Otago Innovation Ltd), Anna Tao (CSIRO), Adam Podmore (Wellington UniVentures), Phil Anderson (Callaghan Innovation), Benjamin Pearson (Auckland UniServices Ltd), Ashby Field (Office of the South Australian Chief Entrepreneur) and Peter Mulherin (RMIT), in addition to many others who we spoke to in order to get a nuanced understanding of this space, and those named in earlier articles.