Government early investment boosts commercialisation of public funded science: report

Many projects could still fail to reach their potential.

More publicly-funded science is being commercialised after a decade of government 'pre-seed' investment, according to an independent review released today.

'Pre-seed' is the earliest form of funding and allows researchers, who usually have little more than an idea, to establish if it's worth taking to market and to help accelerate them doing so. Because the idea is high risk and unproven at this point, it's difficult to attract outside investors.

Many New Zealand companies that have developed clever, disruptive, technologies say they would never have got off the ground without the government pre-seed funding.

Stuart McKenzie, chief executive of start-up ArcActive, which is developing a novel carbon nanotube battery technology, said without the $200,000 in two pre-seed injections, matched by Endeavour Capital, "this quality piece of technology from Canterbury University would have died on the vine."

It's now setting up a pilot plant to prove large scale manufacturing capability. Sales revenue back to New Zealand from the export of ArcActive's lead acid battery parts for use in hybrid and electric cars is estimated to be in excess of $250 million in the first five years.

The review is the first commissioned by the Ministry for Business, Innovation and Employment into the ministry's Pre-Seed Accelerator Fund (PSAF). It showed 573 projects from 15 universities and Crown research institutes between 2003 to 2013 received $42.6 million of government pre-seed investment, matched by co-funding of $66.5 million from research organisations and $24.4 million from external investors.

The projects resulted in more than 386 licences, numerous start-ups, and other commercial deals which have already returned $188.2 million to the research organisations, with many more projects still in development. Typically it takes 11 years from idea to market success and the projects reviewed have an estimated potential to generate at least 460 jobs and up to $3 billion in export revenues.

Many projects could still fail to reach their potential. However, a number of start-up case studies included in the report illustrate the projected benefits "are not unrealistic," it said.

One case study was Canterbury-based Invert Robotics, which received around $100,000 of PSAF investment in 2010 and additional contributions from the University of Canterbury and PowerHouse Ventures, allowing a prototype to be built of its novel climbing robot system. The start-up now sells a range of inspection services to the New Zealand and Australian dairy industries, is expanding into Europe and the US, employs five people, and estimates $10 million of potential export revenue in the first five years.

In another example, Aduro Biopolymers is trialling products made from Novatein resin, which resulted from University of Waikato research into a novel method of manufacturing plastics from blood meal, a natural waste product from meat processing.

Chief executive Darren Harpur said it will start resin production at a pilot plant early next year. He said the pre-seed investment allowed the start-up to be more targeted in its outcome.

Bram Smith, general manager of KiwiNet, which is a consortium of universities and CRIs commercialising research ideas, said MBIE's annual pre-seed investment of $5.3 million had produced good economic returns for New Zealand. Part of the problem in convincing government to put taxpayers' money into this high risk area has been being able to demonstrate what difference pre-seed made to a successful company, he said.

Graham Scown, programme and commercialisation director at Auckland University's Return on Science, said it was important to show that a small, high-risk fund investing before anyone else is willing to do so, can successfully identify risks and accelerate the commercialisation process at a very early stage.

The idea is to "fail fast" on projects that won't cut the mustard and invest that money into projects that will. Mr Scown says that doesn't mean interesting scientific research has to end there – there's still the normal research outcomes of publication and transferring into industry for common good rather than specific commercial outcomes.

The report shows in 2003 there were only a handful of projects receiving pre-seed money while 10 years later this had grown to 120 projects a year. That's despite a flattening of pre-seed investment in recent years, including from government and business investors since the global financial crisis. Frequent short-term rollovers of PSAF contracts, rather than long-term commitments, may also have contributed to the drop-off, the report said.

Government PSAF funding now requires at least a 50% co-funding contribution per project, after having dropped in 2007 a requirement for at least 20% funding from private sector partners which proved too hard to get because of the risks.

Despite the flattening in total investment, the actual and potential returns from pre-seed investment, along with commercial deals, have risen over time. The report said this was consistent with the growing maturity and capability in leveraging commercial outcomes from scientific research. There has been a prominent increase in the potential export value of pre-seed investments since 2010 compared to earlier investments.

Return on Science and KiwiNet say the PSAF should be increased significantly, as they're having to reject projects that could be commercially successful.

"More money would very quickly result in more and better outcomes," Mr Scown said. "In the long term I'd like the fund to get to $40 million and in the short term $15 million a year."

(BusinessDesk)

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