The Government’s innovation review must come up with better ways to fund early-stage R&D. Here’s how. DORON BEN-MEIR
By Doron Ben-Meir
Every so often our elected representatives focus attention on how Australia needs to exploit its intellectual capital and innovative spirit in order to build companies of the future, and so insulate our economy from an overwhelming reliance on commodities… etc etc.
Whenever this happens you can be sure that a recently enlightened individual will lament the extent of our R&D expenditure, the relative lack of commercialisation success enjoyed and the lack of support from venture capitalists and other funding sources.
Most recently our newly elected Government instigated a wide reaching review, chaired by Terry Cutler, to look into the whole question of fostering innovation in our society.
In the midst of Cutler’s review, the Government cut AusIndustry’s Commercial Ready program – a rather curious decision given that the review was incomplete and that this was one of the premier programs supporting companies with innovative technologies moving forward with commercialisation activities.
At the same time, strong support for the continued strengthening of our national R&D programs was confirmed. No-one argues the virtues of this, but will it address commercialisation outcomes?
To take this debate forward it’s important to understand what “innovation” really is. For those who think it’s about R&D activity within our universities and research institutions… think again!
Innovation may be simply defined as finding a better way of doing something or discovering a way of doing something useful that no-one has ever been able to do before.
The point is that it is only “innovation” if it is “better” and/or “useful”. “Better” means cheaper, safer, cleaner… and “useful” means that it is worth more to someone to have it than it might cost them to acquire it. In short, “innovation” is another way of saying “value proposition”.
An isolated technology, however scientifically impressive, is not innovation. It may facilitate innovation, but first someone has to figure out how it translates into “better” and “useful”.
While there are always notable exceptions, by and large this is not something our R&D institutions do well because their prime directive is the pursuit of academic excellence – not value propositions.
Businesses centred on R&D outputs that don’t have compelling value propositions cannot attract VC funding and so typically languish in the “valley of death” – despite the huge potential they may have. This represents a point of market failure, because it is very difficult for commercial interests to take the risk of injecting resources to try and develop a value proposition unless it is immediately obvious.
To solve this dilemma we must start to view early stage commercialisation of R&D outcomes as another R&D discipline (rather than a matter for the markets alone) and provide the requisite funding to attract appropriately skilled people to systematically work on the most promising R&D outputs and so increase the probability of further commercial success.
In short, innovation can only be achieved through commercial success and so therein should lie greater focus. If we can accept this simple thesis, perhaps our industry policy makers can broaden their understanding of the commercialisation challenge for our R&D sector and so direct further resources to where they can best deliver an enhanced innovation dividend.
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Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.