department of defense laboratories: engaging … of defense laboratories: engaging entrepreneurs in...

Department of Defense Laboratories:

Engaging Entrepreneurs in Technology

Commercialization

Jonathan Aberman

Managing director TandemNSI and Amplifier Ventures

October 2012

Table of Contents

FOREWORD .......................................................................................................................................... 1

EXECUTIVE SUMMARY .................................................................................................................... 3

ENTREPRENEURS AND COMMERCIALIZATION ......................................................................... 5

EXISTING IMPEDIMENTS TO ENTREPRENEURIAL COMMERCIALIZATION ........................ 7

BRINGING ENTREPRENEURS INTO THE DOD LABS ................................................................ 10

Creating Advisory Boards ................................................................................................................ 10

Angels Investors and Venture Capital .............................................................................................. 12

Entrepreneurs in Residence .............................................................................................................. 16

EIR in the DOD – The DeVenCi Program ................................................................................... 17

Proposed DOD Labs EIR Program .............................................................................................. 17

University Affiliated Accelerator Partnership .................................................................................. 20

Federally Funded Research and Development Centers ............................................................... 21

University Affiliated Research Centers ........................................................................................ 21

University Affiliated Acceleration Partnership ............................................................................ 22

Roles and Responsibilities ............................................................................................................ 26

CONCLUSION AND RECOMMENDATIONS ................................................................................. 28

APPENDIX A: METHODOLOGY ..................................................................................................... 30

APPENDIX B: PRESIDENTIAL MEMORANDUM ON TECHNOLOGY TRANSFER ................. 32

APPENDIX C: TECHNOLOGY TRANSFER LEGISLATION ......................................................... 36

ABOUT THE AUTHOR ...................................................................................................................... 41

Engaging Entrepreneurs in Technology Commercialization Page 1

FOREWORD

On October 28, 2011, President Obama issued a Presidential Memorandum addressing

technology transfer (the “Commercialization Memorandum”).1 The Commercialization

Memorandum declares accelerating the transfer and commercialization of federal research to

create high growth start up enterprises to be a national priority. It requires “each executive

department and agency that conducts R&D to improve the results from its technology transfer

and commercialization activities” over the five years from 2013 to 2017.

Agencies with federal laboratories were directed to undertake three interrelated activities: (i)

develop metrics for successful commercialization activities, (ii) streamline federal technology

transfer processes and procedures and improve the operation of SBIR and SBTT programs, and

(iii) facilitate commercialization through local and regional partnerships.

The Department of Defense (“DOD”) operates more than 60 research labs around the United

States, and employs over 100,000 scientists and engineers in support of the nation’s war fighting

and preparedness missions. The DOD Laboratories establishment (“DOD Labs”) as a collective

organization is the largest concentration of research personnel employed by the federal

government and is responsible for a number of well-known commercial products and many

successful war fighting technologies. As the United States’ national security interests require not

just the projection of military power but also the projection and preservation of economic power,

generating new innovations and industries has become a national priority. Additionally, the

increasing threat posed by asymmetric warfare makes, rapid research, prototyping and

entrepreneurial approaches to technology creation the keys to effective response.

In response to the Commercialization Memorandum, the Director DOD Laboratories

retained Endeka Consulting (“Endeka”) to examine the DOD Lab’s operations and to identify

one or more strategies to help the DOD more rapidly advance the Commercialization

Memorandum’s goals. Endeka was not asked to broadly evaluate any existing impediments to

successful technology transfer activities, although many impediments previously identified in

the Institute for Defense Analyses (“IDA”) report “Technology Transfer and Commercialization

1 A copy of the Commercialization Memorandum is attached as Appendix B.


Landscape of the Federal Laboratories” (the “IDA Report”) were also identified by Endeka.

Therefore, this Report should be considered in conjunction with the IDA Report, as well as with

an initiative to identify existing best practices that Endeka understands is currently being

undertaken by IDA.

Endeka’s approach was to identify and evaluate ways in which the DOD could accelerate its

commercialization activities and to facilitate economic development through technologies it has

developed. As discussed below, Endeka interviewed a broad range of personnel from the DOD

Lab establishment and concluded that the most likely catalyst for successful commercialization

will be the active involvement of experienced entrepreneurs with the DOD Labs researchers and

support personnel.

The role of entrepreneurs, particularly experienced entrepreneurs, as resource gatherers and

connectors is the lynchpin of established theories that explain successful regional economic

development and the successful transition of technology into commercial activities.

Entrepreneurs share several characteristics that make them essential for transitioning technology

to startup businesses. Two are particularly salient to the DOD Labs’ commercialization

efforts/mission. The first is the entrepreneurial drive to “make things happen” and to overcome

existing impediments. Entrepreneurs are rarely satisfied with the status quo. They challenge

existing processes and assumptions that they believe impede business success.

The second characteristic, particularly prevalent among seasoned entrepreneurs, is a desire to

freely provide mentorship and guidance. This is seen in the operations of successful technology

acceleration programs like Y Combinator and Techstars, university programs such as the

University of Maryland’s Dingman Center, and regional not-for-profits like FounderCorps in the

Washington, D.C. region. Leveraging entrepreneurs’ altruistic nature to assist overworked and

understaffed DOD Lab personnel should not be overlooked.

This Report identifies four alternative mechanisms to rapidly engage entrepreneurs in the

DOD Labs and the process of technology commercialization. These are not the only possible

solutions to what is a broad challenge, but Endeka believes that entrepreneurs as storytellers,

resource-gatherers, and mentors – not to mention as profit-motivated business people -- will

provide the DOD Labs and their people with meaningful allies and resources.


EXECUTIVE SUMMARY

All entrepreneurs share one common characteristic: their strong desire to do something

meaningful and important. For many, that means creating a business that provides opportunity

for financial gain. For others, it means creating something lasting as a means of personal

fulfillment. For others, it’s about recognition in the world. It is this need to do something

meaningful and important, whatever the motivation that provides the focus, direction and

doggedness entrepreneurs need to overcome obstacles and succeed.

That is why this Report focuses on bringing entrepreneurs into the DOD Labs: introducing

entrepreneurs into a lab allows their positive characteristics and self-interest to spill over and

energize the DOD Lab personnel and provide unique assistance to meet their commercialization

challenges

To maximize likelihood that entrepreneurs will provide meaningful assistance to the labs

Endeka recommends approaches that have the following characteristics:

• Take advantage of an entrepreneur’s financial and career interests to encourage

engagement with the DOD Lab. The more the entrepreneur believes he or she can satisfy

his need to create a meaningful business, from which he or she can benefit, the more

likely the entrepreneur will engage in a focused manner for an extended period.

• Make entrepreneur rotation periods long enough for relationships of trust and confidence

to develop, but not so long that the entrepreneur loses his commercial focus. The more

exposure an entrepreneur has to a specific lab, the more likely the entrepreneur will be

useful to the Lab personnel. Many of our meetings with DOD Lab personnel reinforced

this point: any program to bring outsiders into the labs must provide for ongoing and

consistent interactions; there must be mutual trust between lab personnel and

entrepreneur. None of this time is idle, since the DOD Labs technologies will often

require some period of education and study before their commercial potential can be fully

appreciated.

• Developing a new business idea by the entrepreneur from a DOD Lab invention should

be an iterative process. New businesses, particularly businesses centered on intellectual


property inventions, often require some period of time to create a compelling innovation

and business model. Processes that allow for the continued interaction of entrepreneurs

and lab personnel are more likely to result in new businesses.

With these requirements in mind, Endeka recommends four strategies to bring entrepreneurs

into the DOD Labs. Each of these could work within existing DOD Lab governance and

incentive structures. As will be discussed in more detail below, Endeka recommends that any

DOD Lab seeking to accelerate its technology commercialization consider:

• Creating and regularly using advisory boards.

• Engaging with Angel and venture capital investors.

• Bringing entrepreneurs-in-residence into the DOD Labs.

• Using university-derived personnel and resources.


ENTREPRENEURS AND COMMERCIALIZATION

Entrepreneurship has been the subject of almost endless discussion and research in both the

commercial sector and academia. There is a widespread consensus in the United States that

entrepreneurial behavior, particularly as manifested in the creation of new businesses, is a

primary driver of economic development and wealth creation. Domestic policy increasingly

focuses on creating a favorable legal and regulatory environment for cultivating and rewarding

entrepreneurial behavior. The importance of entrepreneurship and entrepreneurial behavior to

the Unites States economy is well established.

The United States also acknowledges the mutually reinforcing relationship between basic and

advanced research on the one hand and the creation of new industries on the other. Many of the

industries that are significant drivers of economic growth have their roots in research and

development activities financed by the federal government. Examples include GPS, the Internet,

aerospace, biotechnology, information technology, semiconductors and many others. Unpacking

the elements of the relationship reveals what is necessary for growth:

• Research creates both invention and innovation. Invention is the creation of something

that is truly novel – an idea that has not previously been described. Innovation is the

process of taking an existing invention or group of inventions and creating something

new that in its totality provides novelty. A good illustration of the difference between an

invention and innovation is the iPhone. Apple did not invent the mp3 protocol, the GPS

system, semiconductors or scratch resistant glass. However, it put them together into a

unique and innovative product.

• Innovation, rather than invention, is the more likely path to economic growth, because

innovation usually resolves into a product or service that can be bought and sold. In

other words, innovation is the process of converting invention into a commercially

attractive offering.

• Innovation is by its nature a creative activity, and one that involves the appreciation of

the component parts of an innovation and its likelihood of reaching customers and

satisfying unmet needs.

• Innovation does not necessarily entail a commercial, for-profit component. However


sustainable innovation requires the continued availability of resources (capital, personnel,

equipment and distribution, to name a few). Therefore, most successful innovators have

profit as one of their goals, in order to make the innovation self-sustaining.

• Innovation tends to occur through individuals with the skills and attitudes necessary to

turn inventions into innovations and create sustainable businesses around the innovations.

These individuals are often described as entrepreneurs.

Entrepreneurs as a group have been widely analyzed, discussed and described. There are

many descriptions of entrepreneurs. They are most often described as having these

characteristics:

• Entrepreneurs are highly self-motivated and strongly believe that their efforts can gather

and deploy the resources needed to develop and deliver an innovation that customers will

want.

• Entrepreneurs are unwilling to accept the status quo and will challenge existing structures

and processes to achieve their goals.

• Entrepreneurs often have a strong sense of community involvement, particularly with

other entrepreneurs and potential entrepreneurs. Theirs is a narrow focus: the community

that matters is the community of entrepreneurship. It is different from the civic and

religious communities that many entrepreneurs also participate in.

• Entrepreneurs are motivated by the process of creating innovations and businesses. They

like being entrepreneurs.

Combing technology invention with entrepreneurial innovation has been visibly rewarding,

particularly in regions of the United States where technology invention occurs in close proximity

to concentrations of entrepreneurs. It is a well-proven model for economic development and

drives much of the formation of high growth technology companies in the United States in

Silicon Valley, Route 128 Corridor, New York City, the Washington D.C. region and elsewhere.

Entrepreneurs’ potential and importance to converting invention into innovation and commercial

activity was certainly one of the underpinnings of the Commercialization Memorandum.


Endeka was retained by the Director DOD Labs to identify and describe methodology

through which entrepreneurs could be brought into the DOD Lab establishment to allow DOD to

comply with the spirit behind the Commercialization Memorandum: accelerating business

formation and commercialization of inventions created by the DOD Labs.

EXISTING IMPEDIMENTS TO ENTREPRENEURIAL COMMERCIALIZATION

Right now, moving technology and intellectual property out of the DOD Labs into the

commercial sector is time-consuming and complicated. Federal oversight, regulations, and

differences in DOD Lab cultures are among the many barriers that make technology transfer and

commercialization more difficult for the DOD than for research labs in the private sector and

other federal agencies. There are neither definitive technology commercialization approaches in

place within the DOD Labs, nor are there clear guideposts for success or for career progression

tied to successful commercialization. Endeka was struck in many instances by the level of

improvisation that DOD Lab personnel had undertaken to successfully commercialize DOD Lab-

derived technology. In its meetings with DOD Lab personnel, Endeka often heard that

technology commercialization was an “unfunded mandate” or a “non-essential mission.” One of

the unspoken stories of the DOD Lab establishment is the surprisingly strong interest on the part

of many technology transfer personnel and scientists and engineers to see DOD Lab-derived

technology commercialized.

The lack of incentives and clear mandates have been described in the IDA Report and are

likely to be addressed again in continuing discussions on the DOD Labs’ operations. Endeka’s

approach has been to assume that existing impediments remained in place, but that if favorable

changes were made, they would accentuate and accelerate our recommended actions.

Nevertheless, a few of the existing impediments were identified more often than others. To

assist others, and to also give some context to our recommendations, we identify the following

structural impediments and challenges that were repeatedly mentioned in Endeka’s lab

interviews.


Incentive Structures for Scientists and Engineers

When discussing entrepreneurial behavior and innovation in the DOD Labs, incentive

structures were often mentioned, suggesting that personnel would be motivated by sharing in the

economic benefit from successful commercialization. But the existing incentive structures for

developing patents/licenses by DOD scientists and engineers are almost certainly inadequate to

encourage and promote innovation in the DOD Labs. For example, DOD Lab inventor or co-

inventors receive an initial $2,000 plus 15% thereafter of royalties or other payments received

for a patent license, and royalty payments are not to exceed $150,000 for an individual inventor.2

Additionally, unlike their colleagues in the Department of Energy (“DOE”) laboratories,

scientists and engineers in the DOD Labs are not encouraged to develop companies “outside of

the wire” around technologies they develop in the lab. In the DOE laboratories, for example,

scientists and engineers are allowed to leave their position, without penalty, to start a business

around a technology, and if the business fails, the scientists and engineers have a guaranteed

opportunity to return to the DOE Lab. We recognize that some of these differences are due to the

regulations governing the lab operations, and the utility of non-government operational models

(where federal regulations on employment, progression and compensation may not apply).

However, Endeka believes inhibitions on motivating scientists and engineers benefit from the

commercialization of their inventions is a significant impediment to successful

commercialization activity by DOD Labs.

Organizational Structures and Staffing

As with any organization, commercial or private, an organization’s structure can have an

adverse impact on certain parts of the organization, while still advancing the overall mission.

Offices of Research and Technology Assessment (“ORTA”) interviewed for this study noted that

the overall organization’s structure often made the ORTAs unable to transfer technology

efficiently and regularly. For example, at one lab, the patent lawyers responsible for technology

transfer activities did not fall under the same organizational control as the ORTA, resulting in

different chains of command and organizational conflicts over which department should have

2 “The Green Book,” Federal Technology Transfer Legislation and Policy, 2009.


ownership of that Lab’s intellectual property. Another issue mentioned frequently throughout the

interviews was how the ORTAs are staffed. In laboratories where technology transfer is

supported heavily, the ORTAs are staffed with personnel who have both broad technical

(science, engineering, life sciences, etc.) and business experience. However, in labs where

technology transfer is less of a priority, the ORTAs may be staffed by senior scientists and

engineers, without experience outside of their technical background, making it difficult for them

to interact effectively with their potential partners in industry.

Support from Senior Leadership

When it comes to technology transfer and commercialization in the DOD Labs, support from

the technical directors has a significant effect on the likelihood of success. As mentioned

previously, technical directors at DOD Labs that strongly support technology transfer and

commercialization appear more likely to provide resources to their ORTAs. The ORTAs that are

not supported by their technical directors may be limited in their ability to commercialize their

technologies. In some cases, and as stated in the IDA Report, some of the ORTAs felt that the

technical directors were ambivalent about commercialization.

Partnership Intermediaries

Partnership Intermediaries are federally-funded companies that exist to help the DOD Labs

successfully commercialize DOD-derived inventions. Endeka noted during its research that at

their best, partnership intermediaries successfully engage DOD Labs in describing existing

inventions and publicizing potential commercial opportunities. The performance of the existing

partnership intermediaries was perceived as varying greatly. Additionally, there was significant

concern that without continuing Congressional funding the partnership intermediary model is not

sustainable. An additional concern was that in many cases partnership intermediaries identified

technologies that could be the basis of innovative commercial businesses but did not have the

infrastructure or resources to identify entrepreneurs to lead commercialization activities; they

were at better at licensing to existing businesses than at building startups.


BRINGING ENTREPRENEURS INTO THE DOD LABS

This Report focuses on four ways to bring outside entrepreneurs into the DOD Labs. These

approaches are:

• Creating and regularly using advisory boards.

• Engaging with private capital sources, particularly Angel and venture capital.

• Using entrepreneurs-in-residence.

• Partnering with universities.

Each is described in more detail below.

Creating Advisory Boards

A number of DOD Labs have taken steps to form (or have already formed) advisory groups

who help lab personnel evaluate potential commercialization opportunities from DOD-derived

inventions. The composition of these boards varies, depending upon the lab. However, a

consistent attribute of these advisory groups is that they are composed of business experts

identified by the local lab personnel in a somewhat informal manner, rather than by adhering to a

centrally developed list of DOD-sourced criteria. These advisory groups generally are not

specifically designed to source entrepreneurs looking for new business opportunities using DOD

Lab technology. They also tend to meet for limited periods of time (for example, once per

month) and only for a few hours (for example, half a day) and to act in a consultative capacity –

they react to inventions identified by DOD Lab personnel.

Analyzing the inventions may rely on the expertise of partnership intermediaries or other

external consultants. Some of these consultants are acting as helpful citizens and unpaid

intermediaries, where they look to connect technologies to established outside companies to

achieve a new license opportunity. The output of these advisory boards is often a memorandum

or score sheet that measures an invention’s suitability for commercialization.

The process of creating and utilizing advisory boards in this way has a number of

advantages:


• The DOD Lab can increase its exposure to business community leaders and resources

outside of the barrier of the lab.

• Depending upon the quality of the advisors, the DOD Lab personnel may receive useful

insight into commercialization opportunities.

• The advisory board approach does not generally involve significant expense, since the

advisory board members are rarely directly compensated by DOD and are usually

providing their insight as good citizens rather than commercial actors.

• There are good templates for creating and utilizing boards of advisors in the DOD Lab

establishment.

There are also disadvantages to this approach, when measured against Endeka’s

recommended assessment approach:

• The interaction between the advisory board and DOD Lab staff is minimal – interaction

occurs generally between the ORTA and the advisors. Therefore, opportunities for

serendipity or lab personnel benefiting from access to commercial thinking are limited.

• Because the level of engagement is limited, the possibility of advisory board members

developing expertise with respect to a particular invention, or group of inventions, is

unlikely.

• The staffing of these boards tends to result in identification of licensing opportunities for

existing businesses, rather than the formation of new businesses.

• Participants do not generally have any enlightened self interest to motivate their

engagement. Prevailing conflict rules make it very difficult for an advisory board

member to have a financial or personal interest in a successful license to an existing

entity.

Overall, the creation of advisory boards is a commendable activity, and one that Endeka

believes should be a recognized best practice for DOD Labs. Its limitations, however, mean it

should not be the sole approach taken by any DOD Lab seeking an entrepreneurial perspective.

Other approaches, described below, are likely to be preferable for many DOD Labs.


Angels Investors and Venture Capital

Although the federal government is a primary financing source for research and

development, particularly in areas of national defense and security, private capital is the primary

source of funds for small business formation, particularly high growth businesses based upon

technology innovations. Private capital from sources such as venture capital and individual

investors often aggregates to more than $100 billion annually invested in startup technology

companies in the United States. This capital at is invested “at risk” (e.g., with an expectation of

profit) and with an expectation of economic ownership.

During Endeka’s research, DOD Lab personnel regularly remarked that their number one

goal for accelerating commercialization was to attract private investors and entrepreneurs into

their labs. Endeka believes that investors are important, since outside capital will be essential for

most startup businesses based on DOD Lab derived technology. However, our conversations

with lab personnel revealed a tendency to conflate the provision of capital by outside investors,

particularly venture capital investors, with the identification of new technology

commercialization opportunities. This is because in many instances the opportunity to obtain

outside capital also corresponds with the identification of an entrepreneur to commercialize the

DOD Lab’s technology. An almost chicken before the egg confusion results – capital is seen as

bringing the entrepreneur, and not the reverse.

This confusion can be readily reinforced by how the capital sources act and how they

compete. Angel and venture capital investors will often compete for deal opportunities by

offering more than money. In many instances these investors attempt to differentiate themselves

by pointing to their expertise in a particular technology, access to other investors, experience in

founding similar businesses and access to management and entrepreneurs. This creates in DOD

Lab personnel an impression that the most rapid way to achieve commercialization is to engage

with these outside investors so that the investors can use their networks to build a team, business

plan and model to commercialize a DOD Lab technology. While at times such investors do have

such expertise and skill sets, the inherent limitations of their business models diminish their

suitability for satisfying the DOD Lab establishment’s broader mission. Understanding the

economic model of these investors is important.


Angel Investors

Angel investors are wealthy people (generally having more than $1 million in financial

assets) who are investing their own money in startup companies. Often they are experienced

business people who have had prior business success, which may or may not be related to the

industries and technologies in which they subsequently invest. Angels have the following

positive characteristics:

• Because they are experienced and wealthy, they often have access to networks and capital

to help the businesses in which they invest.

• By investing their own money and time, they have the autonomy to be as engaged and

involved in evaluating an invention and its commercial potential as they choose to be.

• Because they are often former entrepreneurs, Angels have positive characteristics of

entrepreneurs as partners for a DOD Lab technology commercialization effort.

Angels also have a number of disadvantages for the DOD Labs:

• An Angel’s ability to appreciate a technology and its applicability is generally limited to

the Angel’s individual experience.

• Angel investors vary greatly in expertise, experience and networks.

• Because Angels are not generally professional investors (unlike venture capital investors)

the ability to obtain information on their investment track record and success history is

severely constrained.

• Angels do not generally have financial resources necessary to advance a new business

past the start-up phase. An Angel’s financial limitations (and unwillingness or inability

to bring in other investors) may cause a start-up to grow less rapidly than it might if fully

financed by other means.

• The Angel is likely to be focused on obtaining a discrete opportunity to fund a new

business, rather than looking to create a longer term advisory relationship with the DOD

Lab.


Venture Capital

Understanding venture capital begins

with a simple appreciation of where the

money comes from and how it is deployed.

Venture capital firms are typically

structured as partnerships, the general

partners of which serve as the managers of

the firm and as investment advisors to the

venture capital funds raised. Investors in

venture capital funds are known as limited

partners and include both high net worth

individuals and institutions with large amounts of available capital. Figure 1 displays how a

venture capital firm focused on commercializing government technology would be structured.

For the purposes of evaluating the strengths and weaknesses of venture capital as an approach to

assist in DOD technology commercialization, a few attributes of venture capital funds should be

appreciated:

• Venture capital funds are generally operated for a discrete time period (10 years), during

which time investments in new companies are made, monitored and monetized.

• Venture capital general partners are compensated in two ways: (i) they receive (as a

group) annual compensation 2 to 2.5% of the capital committed to the fund (the

“management fee”) and (ii) 20% of the limited partners’ profits from the partnership’s

investments – even though the general partners usually contribute only 1% of each

investment.

• Expenses relating to the operation of the venture fund (salary to staff, external consultants

and other personnel, as well as property, plant and equipment) come out of the

management fee.

• Because the majority of the capital invested by a venture capital partnership comes from

sources other than the general partners, the general partners have specific legal duties for

how they make, manage and exit investments.


• Venture capital general partners are evaluated in the market (i.e., by their current and

future limited partner customers) by the profitability of their investments, which is

measured both in time to realization and magnitude.

Venture capital funds vary in the investment sectors, geographic regions of interest, and

stages of development of the companies they invest in. For the uninitiated, a good way think

about a venture capital funds is as a mutual fund organized for the benefit of wealthy individuals,

families, pension funds and endowments that invests in private companies. As is the case for

Angel investors, the quality of venture capital funds can vary widely. However, unlike Angel

investors, venture capital funds make multiple investments so there is more opportunity to

evaluate the quality of their expertise, contacts and ability to provide sufficient capital to advance

a commercialization effort by evaluating prior investments.

From the standpoint of accelerating DOD-related technology commercialization, venture

capital funds provide the following advantages:

• Access to entrepreneurs and management sourced by the venture capital fund.

• Technical expertise to evaluate the market potential of business innovations utilizing

DOD Lab inventions.

• Access to capital to develop inventions, establish companies and commence

commercialization.

At its best, the involvement of a venture capital fund provides significant advantages to a

lab’s commercialization plans. However, there are significant disadvantages which often make

the venture capital model unsuitable for identifying entrepreneurs or broadly promoting the DOD

Labs’ general technology commercialization interests:

• Most venture funds do not focus on the commercialization of technology, particularly

technology not yet ready to be commercialized; instead, they focus on financing

established technology businesses. It is often difficult for inexperienced lab personnel to

make this distinction.

• The venture fund investment model requires that decisions be made quickly, and a path to

commercialization identified rapidly. A transactional relationship – one where activity


must be converted into a specific commercial opportunity – often is a direct result of the

“facts of life” of a venture fund.

• Because all technical expertise must be paid by a venture fund’s management fee, the

ability of most venture funds to engage in long term research or research into multiple

concurrent projects may be severely constrained.

• Entrepreneurs provided by a venture capital fund will screen technology with the

investment criteria of that specific venture capital fund in mind.

The most important common characteristic of both venture capital funds and Angel investors

is that it is in their nature to “cherry pick” opportunities at a DOD Lab. This is not a criticism,

but an important observation that DOD Lab personnel must appreciate to utilize outside investors

in technology evaluation and commercialization.

Entrepreneurs in Residence

The term “entrepreneur in residence” (“EIR”) describes a relationship within an organization

where experienced entrepreneurs provide insight and skills that are not otherwise available in

that organization. EIRs are used extensively in industry, academia and, to a growing extent, in

government. EIRs can vary greatly in how they are compensated, their role in an organization,

and the ability of EIRs to execute new business ideas through their EIR roles.

There are a number of approaches for utilizing EIRs. Venture capital and commercial

organizations often use EIRs as a way to evaluate new business opportunities (a “Transactional

EIR”), with the implicit understanding that the Transactional EIRs will become the entrepreneur

managing and growing an identified opportunity. For example, many venture capital funds

utilize Transactional EIRs to evaluate new investment opportunities, by having the Transactional

EIRs sue their entrepreneurial and technical knowledge to assist the venture capital fund’s

general partners in their investment decisions. The expectation for both the venture capital fund

and the Transactional EIR is that through the process of offering assistance, the EIR will find an

opportunity to start or join a new business based upon the evaluated opportunities. The

expectation of a significant commercial benefit for the Transactional EIR – identification of the

entrepreneur’s next business challenge – defines the Transactional EIR relationship.


A second approach is to utilize an EIR in an advisory or operational capacity (an “Advisory

EIR”). Advisory EIRs are used widely in industry and are becoming more common in the

federal government. For example, the Office of the President of the United States is using the

concept in various agencies to identify new approaches to existing programs and operational

problems. Like Transactional EIRs, the Advisory EIRs are entrepreneurs with relevant business

and technical experience. However, unlike for Transactional EIRs where to the goal is a

transaction, the goal for Advisory EIRs is to provide the entrepreneur’s expertise as an “in

house” resource for an extended period. Advisory EIRs are more focused on long term process

improvement and applying entrepreneurial perspectives to existing and new opportunities. They

will often provide mentoring and coaching for existing personnel, and external contacts and

perspectives to assist the broader organizational mission.

EIR in the DOD – The DeVenCi Program

The DOD has applied the Advisory EIR model through the Defense Venture Catalyst

Initiative (“DeVenCi”), which focuses on increasing

DOD awareness of emerging commercial technologies

developed by non-traditional DOD suppliers, and

providing insight on DOD needs and requirements to

these potential new suppliers. DeVenCi utilizes

venture capital fund personnel, who serve a voluntary

two-year term and have relevant technical and market

expertise. The basis of the DeVenCi model is to

broker interactions between DOD participants with

specific capability needs and small innovative companies, as indicated in Figure 2. However,

DeVenCi does not fund the development of new technologies or businesses nor does it allow the

venture capital funds who provide DeVenCi advisors to make equity investments in the

technologies or businesses identified through DeVenCi.

Proposed DOD Labs EIR Program

Depending upon the requirements of a specific DOD Lab, utilization of Advisory EIRs or

Transactional EIRs could be desirable. Rather than require an outright determination to utilize


one or the other type of EIR, a DOD Lab EIR program would allow for EIR specialization on

each lab’s requirements. The focus of the DOD Labs EIR program would be to supply DOD

Labs with entrepreneurs who have proven experience and success developing and operating

startup businesses. Because the DOD Labs do not necessarily have the internal expertise to

identify, attract and retain EIRs, an outside organization with contacts and experience working

with entrepreneurs should be used to engage suitable individuals.

There are many ways a DOD Lab EIR program would be structured. One way would use a

contract or a Cooperative Research and Development Agreement (“CRADA”). Alternatively,

the organization providing the EIRs could piggy-back on an existing contract with a DOD Lab. If

the EIRs are required to have security clearances and do not currently possess one, the contract

or CRADA will specify pathways for obtaining and maintaining their clearances.

Contract performance would be evaluated against agreed criteria such as technologies

commercialized, the number of patent license agreements issued, and other progress criteria to

ensure that the EIRs are included and utilized by the lab’s personnel. Actually, those criteria

don’t measure involvement. They measure successful commercialization. EIR selection criteria

would include:

• Competency in one or more disciplines relevant to technology commercialization,

including business planning, strategy, financing, business development, marketing,

partnering, and product development.

• Previous experience providing coaching, support, and business insight to scientists and

engineers.

• Industry areas of expertise (relevant to DOD Lab core competencies), including previous

experience in a federal lab.

• Ability to obtain a security clearance (if necessary).

Once selected and in the DOD Lab, the EIRs would predominately engage with the DOD

Lab ORTA and scientists and engineer personnel in the following areas:

• The preparation of assessments for selected research and development projects in which

the laboratory is engaged.


• Identify technologies that may have potential commercial applications and assist in their

development.

• Identify potential commercial targets (including venture capital funds), make them aware

of the technologies being sourced in the lab, and present the value to the targets of

adopting the technology.

• Serve as a clearinghouse for, coordinate, and actively facilitate the transition of the

identified technologies and technological advancements from the DOD Labs to the

private sector.

• Participate in regional and state programs designed to facilitate the transfer of technology

for the benefit of the region or state in which the laboratory is located.

The DOD Lab EIR approach is intended to provide the ORTAs and lab personnel with

regular access to experienced entrepreneurs with the flexibility to engage them in the roles that

are most responsive to the lab’s requirements. For instance, Advisory EIR’s could be used to

assist in technology evaluation, similarly to the board of advisor approach, with the additional

advantage that the Advisory EIR would be part of the lab on a day-to-day basis, so a deeper

appreciation of the lab’s technology and lab personnel would be more likely. Another example

would be utilizing Transactional EIRs to identify new commercialization opportunities, similarly


to how venture capital funds use Transactional EIRs, with the additional advantage that DOD

Lab Transactional EIRs would not be tied to a specific financing source.

The DOD Lab EIR approach therefore has a number of significant benefits:

• It provides for flexible approaches to bring experienced entrepreneurs into the Labs.

• It can be used as a substitute, or as an adjunct to, utilization of outside investors or

advisory boards, to evaluate technologies and identify commercial opportunities.

• Because of the prevailing attitude of experienced entrepreneurs to provide mentorship

and community benefit, or their commercial self interest, EIRs are likely to require

compensation significantly below their private market compensation rate.

• The relationship between the EIR and the lab will be for the EIR to be part of the lab’s

operations for an extended, not permanent period (for example, six months but less than

one year), so that the EIR can develop relationships and context for the lab’s activities

and competencies.

Endeka believes there are two important issues to be addressed to successfully implement the

DOD Lab EIR program:

• The approach will require the labs to provide compensation to the program manager and

EIRs. The likely per year expense per lab to provide EIRs will be in the range of

$250,000 to $500,000 (assuming roughly four to eight EIRs, plus operational overhead).

• In order to provide Transactional EIRs with the ability to create new business

opportunities, the lab will likely need to structure CRADAs carefully and potentially

manage other conflict issues. These conflict issues are likely more manageable by using

an external intermediary to identify and source EIRs.

University Affiliated Accelerator Partnership

DOD has a longstanding relationship with universities through Federally Funded Research

and Development Centers (FFRDCs) and University Affiliated Research Centers (UARCs).

Using university relationships and resources is an established model for bringing external

resources into contact with DOD Lab personnel and technology. These existing approaches

bring many of the advantages of university affiliation and additionally provide a mechanism for


avoiding some of the impediments to commercialization currently inherent in the governance and

incentives relating to DOD operated labs. The IDA Report identifies many of the advantages of

these approaches, and we anticipate that its pending report will further elaborate on these

structures. A brief summary of these existing approaches follows:

Federally Funded Research and Development Centers

First established during World War II, FFRDCs, formerly called Federal Contract Research

Centers (FCRCs), brought together academic laboratories and research groups to perform

research and development on critical defense needs that could not be met with existing in-house

resources.3 Today, FFRDCs are operated, managed, and/or administered by either a university or

consortium of universities, other not-for-profit or nonprofit organization, or an industrial firm as

an autonomous organization that does not have shareholders or partners.

University Affiliated Research Centers

Unlike FFRDCs, UARCs are only associated with universities. Established in 1996, UARCs

are not-for-profit organizations associated with a university, and are funded by a sponsor such as

the United States Army or the Missile Defense Agency (MDA). UARCs maintain essential

research, development and engineering core capabilities, maintain long-term strategic

relationships with their DOD sponsors, and operate in the public interest, free from real or

perceived conflicts of interest. Though they receive less funding and possess fewer resources

than FFRDCs, UARCs are not restricted to providing support only in early science and

technology programs. UARC core competencies also support advanced technical development

and advanced component development and prototype engineering programs when resources

permit.4

3 Defense Acquisition University: https://acc.dau.mil/CommunityBrowser.aspx?id=434942 4 Department of Defense UARC Management Plan, July 2010.


The advantages of these structures carry with them some significant disadvantages from the

standpoint of jumpstarting technology commercialization in DOD Labs operated by DOD as

they:

• Require significant funding to operate.

• Are complex to establish.

• Require making significant changes to existing operational and governance structures.

• Are not structured to promote entrepreneurship from the standpoint of engaging

entrepreneurs into the technology commercialization process. Rather they are structured

to attempt to make the organizational structure of a lab more entrepreneurial as a whole.

In short, these approaches are an important part of the overall toolkit to be used to address the

overall performance of the DOD Labs establishment. However, for the purposes of promoting

the active engagement of entrepreneurs with and into the DOD Labs, there is another structure to

be utilized.

University Affiliated Acceleration Partnership

It has become settled wisdom among many observers of regional and national economic

development that the modern university must have a multidimensional focus. It must equally

value: (i) education, (ii) research, and (iii) promoting economic development. This multipronged

approach affects universities in many ways. A growing number of universities focus on

entrepreneurship education and support. Research, particularly research that is sponsored or

highly likely to yield or lead to economically useful knowledge, has become more important.


Many universities have incubators and accelerator programs, focusing on assisting university-

affiliated, or community-based, entrepreneurs in starting new businesses. As these universities

expand their resources to support these missions, they create an additional alternative for DOD

Labs: the University Affiliated Acceleration Partnership (“UAAP”).

The UAAP allows a DOD Lab to leverage a university’s students, faculty, and EIRs (if, as

many do, the university has EIRs from all schools (e.g. engineering, business, life sciences, etc.)

in order to develop existing DOD technologies and/or create business plans and

commercialization strategies for technologies that the university has sourced from the DOD

Lab(s). A UAAP is more than an informal relationship between a lab and a local university (for

example, a professor using patent disclosures from a lab to teach a class on commercialization),

but significantly less expensive and complex than FFRDCs or UARCs.

Structure of Agreement and Funding

When it comes to structuring the UAAP, there are two approaches that can be taken: (i)

through the formation of a CRADA or existing contract, similar to that of the EIR approach, or

(ii) as an educational partnership agreement, which is supported by 10 U.S.C. §2194. The

primary difference between the two structures is the way they are funded.

When formed as a CRADA, a UAAP is similar to FFRDCs and UARCs, in that both rely on

a sponsor for funding. However, because a UAAP is leveraging students, faculty, and EIRs that

are retained by the partner universities to further their own entrepreneurial education programs,

the funding required to operate an UAAP may be significantly less than for a DOD Lab EIR

program. The primary costs associated with an UAAP could be covering additional overhead of

the faculty and EIRs in addition to the UAAP bringing on outside experts as needed.

Alternatively, the UAAP could be structured as an educational partnership agreement. The

process for structuring a UAAP as an educational partnership agreement is very similar to that of

a CRADA or existing contract. However, educational partnership agreements do not permit the

DOD Lab to fund research projects with universities, but they are able to award academic credit

to students that participate in the program. Therefore, the university would be responsible for


covering all costs associated with the UAAP, but its educational and other missions would be

addressed.

Operation of a UAAP

The central rational for a UAAP is similar to the rationale for applying the DOD Lab EIR

program – bring external entrepreneurial resources into the DOD Labs. The major differences

are:

• University-provided resources can include access to experienced entrepreneurs, but also

access to university students, university professors and researchers, and the physical plant

of a university.

• Universities, particularly research universities, have developed expertise in forming and

operating not-for-profit research relationships with external actors (such as forming a

UAAP).

• Regional political and business interests are likely to support, and may provide additional

resources for, activities to promote commercialization through a university partnership.

• Universities have broader range of technical skills available in their internal communities

than could be obtained through other recommended approaches in this Report.

• Many universities operate programs to assist in the development of entrepreneur-driven

businesses through incubators, acceleration programs or intensive business formation

training programs.


Utilization for Technology Evaluation

As would be the case for working with Transactional EIRs, working with a UAAP would

involve a process of identifying technologies which could be suitable for commercialization.

However, the evaluation process would likely involve a broader interdisciplinary team provided

by the university partner. Ideally the DOD Lab would identify a group of technologies and lab

personnel interested in working with university sourced people. This is a significant difference

from the DOD Lab EIR program, which is focused on the EIR primarily working with ORTAs.

People affiliated with a university, particularly students, are often perceived more favorably by

lab personnel than “business people.” This is a comment that was offered often to Endeka in

connection with its preparation of this Report. Therefore, using students as a connector with the

DOD Labs (with experienced entrepreneurs acting as Advisory or Transaction EIRs in the

background) makes a more extensive and regular connection between lab personnel and

university sourced expertise more likely.

Preparation of Commercialization Plans

Because UAAPs are operated as a university-related opportunity, the university’s

educational mission allows it to direct its interactions with the labs to result in business plan


formation, technical and market analysis. Properly structured, university students can provide

analysis for class credit or as a teaching tool. This allows the DOD to benefit from significant

labor and assistance, where the “compensation” is academic opportunity. The educational

opportunities for university students are significant. With the technologies sourced, the students

who have been selected to participate will start developing business plans and commercialization

strategies. Throughout the development, the students will have access to DOD lab personnel. At

the end of each semester, the UAAP will present the completed business plans to the ORTA at

the DOD Lab. Upon submission, the ORTA will begin implementing the plans and strategies and

successfully commercialize the technology into the private sector.

Roles and Responsibilities

The primary performing entities of in the UAAP model are a DOD Lab (sponsor), which

includes scientists and engineers, technology inventors, and ORTA staff, and a university, which

includes students, faculty, and university EIRs. The roles and responsibilities of each are as

follows:

• Sponsor: The primary role of the sponsor is to work with the faculty of the UAAP in

identifying technologies within the DOD Lab that the students and EIRs would develop

business and commercialization plans around. The sponsor would be responsible for

providing the UAAP with at least one technology per academic semester over the life of

the agreement. Additionally, the sponsor is responsible for providing the UAAP access to

Lab personnel.

• Students: In the UAAP, the students are responsible for developing business plans and

commercialization strategies for the sourced DOD technologies. While students within

the school identified as the UAAP in the agreement would be the primary developers of

the business plans and strategies, they could also leverage students in other schools who

have expertise in the sourced technology.

• Faculty: Faculty of the UAAP work directly with the sponsor in developing the

curriculum and sourcing the technologies on a semester by semester basis. They also

make certain that the students have access DOD Lab personnel. Additionally, the faculty

is responsible for interviewing and selecting students for participation in the program as


well as guiding the students throughout the development of the plans and strategies,

ensuring that the deliverables for the sponsor each semester are completed.

• University Entrepreneurs in Residence: Because of their previous experiences in the

private sector and as an entrepreneur, they are able to provide greater insight to the

students during the development of the plans and strategies. The EIRs are also able to

participate with the faculty and DOD Lab personnel in identifying which technologies to

source for the program.

The UAAP offers significant advantages when compared with other recommended approaches:

• Access to broad expertise and skills.

• Reputational benefits derived from association with a university partner.

• Likely lower cash expenditures to obtain resources, when compared to utilization of a

DOD Lab EIR Program.

• The potential for greater engagement from DOD Lab personnel.

Overall, the UAAP is a model that warrants consideration by any DOD Lab that is located

near a university, particularly a university with a well-defined research and economic

development mission.

The UAAP’s advantages are tempered by a number of considerations:

• University personnel, particularly students, might not have sufficient commercial

experience and expertise to properly evaluate technologies and opportunities.

• A focus on education could result in a turnover of expertise on a semester-based

schedule, so that there is insufficient opportunity to develop continuity or deep

appreciation of technical challenges or opportunities.

• The university’s level of commitment and available resources will dramatically influence

the level of expertise available to the labs. For example, some universities maintain active

EIR programs and some do not. The existence or lack of university proved EIRs could

have a significant effect on the overall utility of an UAAP.


CONCLUSION AND RECOMMENDATIONS

The constant in all of the approaches in this Report is the active involvement of

entrepreneurs. The role of entrepreneurs, particularly experienced entrepreneurs, as resource

gatherers and connectors is the lynchpin of established theories that explain successful regional

economic development and the successful transition of technology into commercial activities. In

addition to creating a more entrepreneurial and innovative environment, the strategies identified

in this Report provide the DOD Labs with cost-effective means to accelerate commercialization

success and generate revenue for the DOD Labs.

The approaches set forth in this Report are not the only possible mechanisms for bringing

entrepreneurs and advisory resources into the DOD Lab establishment. However, they were

selected because of their relative ease of establishment, low cost, and likelihood of initial

success.

The optimal avenue or avenues for bringing entrepreneurial resources into a lab will vary

with the lab’s individual circumstances and expected reaction from DOD Lab personnel. In

many instances, the approaches described in this Report may be combined, or used to amplify

the success of existing structures within the DOD Lab establishment (for example, existing

partnership intermediaries or lab-related advisory boards). In selecting which approach to

utilize, a number of factors should be considered:

• The suitability of a lab’s technology for commercialization in startup business formation.

• The potential of matching the lab’s technologies with entrepreneurial expertise in the

region surrounding the lab.

• The availability of capital sources, venture capital fund or Angel investor that have the

expertise and interest in investing in technologies created by a lab.

• The level of interest, and individuals interested, in commercialization within a lab.

• Resources and suitability of local universities to supporting commercialization of the

lab’s technology.

• Level of support from local business leaders and politicians for commercialization of lab

technology.

• Availability of financial resources to support a DOD Lab EIR Program or UAAP.


Whichever process or combination of processes is adopted by a DOD Lab, the most

important overall consideration is to identify and bring entrepreneurs into the DOD Labs and

provide them with avenues to do what entrepreneurs do so well: find commercial opportunities

and ways to exploit them. In a time of budgetary restraint, avenues to benefit from

entrepreneurial enthusiasm and commitment should get the DOD’s full attention.


APPENDIX A: METHODOLOGY

In developing this Report, Endeka: (1) conducted a baseline analysis of past and current DOD

Lab’s technology transfer and commercialization efforts and (2) evaluated and applied existing

technology commercialization practices outside of the DOD to determine their applicability to

the DOD Labs.

Baseline Analysis

In order to determine the state of DOD technology commercialization efforts, Endeka

interviewed scientists and engineers, DOD Lab leadership, and ORTA personnel to identify the

following:

• Past, current, and future technology areas of emphasis.

• Current technology transfer practices and policies within the DOD Labs and how they

have been leveraged.

• Examples of technologies that have been successfully commercialized.

• ORTA roles and responsibilities.

• Current entrepreneurial programs within the DOD Labs.

• Incentive structures for scientists and engineers within the DOD Labs in relation to the

development of commercialized technologies.

Based on the feedback provided during the interviews, Endeka compared the DOD Labs

technology commercialization efforts to that of other institutions that commercialize technology.

Endeka researched and evaluated technology commercialization practices within several federal

agencies such as the Department of Energy and National Institutes of Standards and Technology

as well as at academic institutions including Stanford University, Massachusetts Institute of

Technology, and the University of Maryland College Park and George Mason University.

Development/Identification of Technology Commercialization Approaches

With a baseline analysis of the technology commercialization activity efforts in the DOD Labs

identified, Endeka identified existing technology commercialization approaches used in the


private and commercial sectors. As in methodology used in performing the baseline analysis,

Endeka conducted interviews with individuals from a variety of industries such as government,

high technology, manufacturing, venture capital, private equity, and academia in order to identify

the following:

• Current technology commercialization approaches in their respective industries and why

that model was selected.

• The incentive structures for their employees that are directly involved with technologies

that have been commercialized.

• Total resources and costs associated with maintaining their technology

commercialization model.

• Technology commercialization approaches that would and/or would not be applicable to

the DOD Labs.

• Time required to implement technology commercialization approaches.

In addition to the approaches identified during the interviews and independent research, Endeka

also developed several commercialization approaches. All of these approaches were then vetted

against the baseline analysis and approaches that were deemed applicable to the DOD Labs were

further researched and recommended in the Report.


APPENDIX B: PRESIDENTIAL MEMORANDUM ON TECHNOLOGY TRANSFER

On October 28, 2011, President Barack Obama issued the following memorandum to the heads

of executive departments and agencies regarding accelerating technology transfer and

commercialization of federal research in support of high growth businesses:

SUBJECT: Accelerating Technology Transfer and Commercialization of Federal Research in

Support of High Growth Businesses

Section 1. Policy. Innovation fuels economic growth, the creation of new industries, companies,

jobs, products and services, and the global competitiveness of U.S. industries. One driver of

successful innovation is technology transfer, in which the private sector adapts Federal research

for use in the marketplace. One of the goals of my Administration's "Startup America" initiative,

which supports high growth entrepreneurship, is to foster innovation by increasing the rate of

technology transfer and the economic and societal impact from Federal research and

development (R&D) investments. This will be accomplished by committing each executive

department and agency (agency) that conducts R&D to improve the results from its technology

transfer and commercialization activities. The aim is to increase the successful outcomes of these

activities significantly over the next 5 years, while simultaneously achieving excellence in our

basic and mission focused research activities.

I direct that the following actions be taken to establish goals and measure performance,

streamline administrative processes, and facilitate local and regional partnerships in order to

accelerate technology transfer and support private sector commercialization.

Sec. 2. Establish Goals and Measure Progress. Establishing performance goals, metrics, and

evaluation methods, as well as implementing and tracking progress relative to those goals, is

critical to improving the returns from Federal R&D investments. Therefore, I direct that:

(a) Agencies with Federal laboratories shall develop plans that establish performance goals to

increase the number and pace of effective technology transfer and commercialization activities in

partnership with non federal entities, including private firms, research organizations, and

nonprofit entities. These plans shall cover the 5 year period from 2013 through 2017 and shall

contain goals, metrics, and methods to evaluate progress relative to the performance goals. These


goals, metrics, and evaluation methods may vary by agency as appropriate to that agency's

mission and types of research activities, and may include the number and quality of, among other

things, invention disclosures, licenses issued on existing patents, Cooperative Research and

Development Agreements (CRADAs), industry partnerships, new products, and successful self

sustaining spinoff companies created for such products. Within 180 days of the date of this

memorandum, these plans shall be submitted to the Office of Management and Budget (OMB)

which, in consultation with the Office of Science and Technology Policy (OSTP) and the

Department of Commerce, shall review and monitor implementation of the plans.

(b) The Interagency Workgroup on Technology Transfer, established pursuant to Executive

Order 12591 of April 10, 1987, shall recommend to the Department of Commerce opportunities

for improving technology transfer from Federal laboratories, including: (i) current technology

transfer programs and standards for assessing the effectiveness of these programs; (ii) new or

creative approaches to technology transfer that might serve as model programs for Federal

laboratories; (iii) criteria to assess the effectiveness and impact on the Nation's economy of

planned or future technology transfer efforts; and (iv) an assessment of cooperative research and

development venture programs.

(c) The Secretary of Commerce, in consultation with other agencies, including the National

Center for Science and Engineering Statistics, shall improve and expand, where appropriate, its

collection of metrics in the Department of Commerce's annual technology transfer summary

report, submitted pursuant to 15 U.S.C. 3710(g)(2).

(d) The heads of agencies with Federal laboratories are encouraged to include technology

transfer efforts in overall laboratory evaluation.

Sec. 3. Streamline the Federal Government's Technology Transfer and Commercialization

Process. Streamlining licensing procedures, improving public availability of federally owned

inventions from across the Federal Government, and improving the executive branch's Small

Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT)

programs based on best practices will accelerate technology transfer from Federal laboratories

and other facilities and spur entrepreneurship. Some agencies have already implemented

administrative changes to their SBIR and SBTT programs on a pilot basis and achieved


significant results, such as reducing award times by 50 percent or more. Over the past year, some

agencies have also initiated pilot programs to streamline the SBIR award timeline and licensing

process for small businesses. In addition, some agencies have developed new short term

exclusive license agreements for startups to facilitate licensing of inventions to small companies.

Therefore:

(a) Agencies with Federal laboratories shall review their licensing procedures and practices for

establishing CRADAs with the goal of reducing the time required to license their technologies

and establish CRADAs to the maximum practicable extent.

(b) The Federal Chief Information Officer and the Assistant to the President and Chief

Technology Officer shall, in coordination with other agencies: (i) list all publicly available

federally owned inventions and, when available, licensing agreements on a public Government

database; (ii) develop strategies to increase the usefulness and accessibility of this data, such as

competitions, awards or prizes; and (iii) report their initial progress to OMB and OSTP within

180 days of the date of this memorandum.

(c) The heads of agencies participating in the SBIR and SBTT programs shall implement

administrative practices that reduce the time from grant application to award by the maximum

practicable extent; publish performance timelines to increase transparency and accountability;

explore award flexibility to encourage high quality submissions; engage private sector scientists

and engineers in reviewing grant proposals; encourage private sector co investment in SBIR

grantees; partner with external organizations such as mentoring programs, university proof of

concept centers, and regional innovation clusters; and track scientific and economic outcomes.

The OMB, OSTP, and the Small Business Administration shall work with agencies to facilitate,

to the extent practicable, a common reporting of these performance measures.

Sec. 4. Facilitate Commercialization through Local and Regional Partnerships. Agencies

must take steps to enhance successful technology innovation networks by fostering increased

Federal laboratory engagement with external partners, including universities, industry consortia,

economic development entities, and State and local governments. Accordingly:


(a) I encourage agencies with Federal laboratories to collaborate, consistent with their missions

and authorities, with external partners to share the expertise of Federal laboratories with

businesses and to participate in regional technology innovation clusters that are in place across

the country.

(b) I encourage agencies, where appropriate and in accordance with OMB Circular A 11, to use

existing authorities, such as Enhanced Use Leasing or Facility Use Agreements, to locate applied

research and business support programs, such as incubators and research parks, on or near

Federal laboratories and other research facilities to further technology transfer and

commercialization.

(c) I encourage agencies with Federal laboratories and other research facilities to engage in

public-private partnerships in those technical areas of importance to the agency's mission with

external partners to strengthen the commercialization activities in their local region.

Sec. 5. General Provisions. (a) For purposes of this memorandum, the term "Federal

laboratories" shall have the meaning set forth for that term in 15 U.S.C. 3703(4).

(b) This memorandum shall be implemented consistent with applicable law and subject to the

availability of appropriations.

(c) Nothing in this memorandum shall be construed to impair or otherwise affect the functions of

the Director of OMB relating to budgetary, administrative, and legislative proposals.

(d) Independent agencies are strongly encouraged to comply with this memorandum.

(e) This memorandum is not intended to, and does not, create any right or benefit, substantive or

procedural, enforceable at law or in equity by any party against the United States, its

departments, agencies, or entities, its officers, employees, or agents, or any other person.


APPENDIX C: TECHNOLOGY TRANSFER LEGISLATION

Stevenson-Wydler Technology Innovation Act of 1980 (P.L. 96-480)

The Stevenson-Wydler Act of 1980 is the first of a continuing series of laws to define and

promote technology transfer. It made it easier for federal laboratories to transfer technology to

nonfederal parties and provided outside organizations with a means to access federal laboratory

developments.

The primary focus of the Stevenson-Wydler Act concerned the dissemination of information

from the federal government and getting federal laboratories more involved in the technology

transfer process. The law requires laboratories to take an active role in technical cooperation and

to set apart a percentage of the laboratory budget specifically for technology transfer activities.

The law also established an Office of Research and Technology Applications (ORTA) in each

laboratory to coordinate and promote technology transfer.

Bayh-Dole Act of 1980 (P.L. 96-517)

The Bayh-Dole Act of 1980, together with the Patent and Trademark Clarification Act of 1984

(P.L. 98-620), established more boundaries regarding patents and licenses for federally funded

research and development. Small businesses, universities, and not-for-profit organizations were

allowed to obtain titles to inventions developed with federal funds. Government owned and

government operated (GOGO) laboratories were permitted to grant exclusive patent licenses to

commercial organizations.

Small Business Innovation Development Act of 1982 (P.L. 97-219)

The Small Business Innovation Development Act of 1982 established the Small Business

Innovation Research (SBIR) Program, requiring agencies to provide special funds for small

business R&D connected to the agencies’ missions. SBIR has been reauthorized through 2008 by

the Small Business Research and Development Enhancement Act of 2000.

SBIR is a highly competitive program designed to encourage innovation, as well as the

commercialization of products and processes developed by small businesses through federal

funds. Each year 11 federal departments and agencies are required to reserve 2.5% of their

extramural R&D budgets for SBIR awards. These agencies designate SBIR R&D topics and


accept proposals. SBIR awards or grants are awarded competitively to small U.S.-owned

commercial businesses with less than 500 employees that submit proposals addressing topics

published by the agencies.

Federal Technology Transfer Act of 1986 (P.L. 99-502)

The Federal Technology Transfer Act of 1986 was the second major piece of legislation to focus

directly on technology transfer. All federal laboratory scientists and engineers are required to

consider technology transfer an individual responsibility, and technology transfer activities are to

be considered in employee performance evaluations. This 1986 law also established a charter and

funding mechanism for the previously existing Federal Laboratory Consortium for Technology

Transfer (FLC). In addition, the law enabled GOGO laboratories to enter into Cooperative

Research and Development Agreements (CRADAs) and to negotiate licensing arrangements for

patented inventions made at the laboratories. It also required that government-employed

inventors share in royalties from patent licenses. Further, the law provided for the exchange of

personnel, services, and equipment among the laboratories and nonfederal partners.

Other specific requirements, incentives and authorities were added, including the ability of

GOGO laboratories to grant or waive rights to laboratory inventions and intellectual property,

and permission for current and former federal employees to participate in commercial

development, to the extent that there is no conflict of interest.

Executive Order 12591 (1987)

Executive Order 12591, Facilitating Access to Science and Technology (1987), was written to

ensure that federal laboratories and agencies assist universities and the private sector by

transferring technical knowledge. The order required agency and laboratory heads to identify and

encourage individuals who would act as conduits of information among federal laboratories,

universities, and the private sector. It also underscored the government’s commitment to

technology transfer and urged GOGOs to enter into cooperative agreements to the limits

permitted by law.

The order also promoted commercialization of federally funded inventions by requiring that, to

the extent permitted by law, laboratories grant to contractors the title to patents developed in


whole or in part with federal funds, as long as the government is given a royalty-free license for

use.

Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418)

The Omnibus Trade and Competitiveness Act of 1988 emphasized the need for public/private

cooperation in realizing the benefits of R&D, established centers for transferring manufacturing

technology, established Industrial Extension Services and an information clearinghouse on state

and local technology programs, and extended royalty payment requirements to non-government

employees of federal laboratories

National Competitiveness Technology Transfer Act of 1989

(P.L. 101-189)

The National Competitiveness Technology Transfer Act of 1989 provided additional guidelines

and coverage for the use of CRADAs, extending to government owned and contractor operated

(GOCO) laboratories essentially the same ability to enter into CRADAs that previously had been

granted to GOGO laboratories by the Federal Technology Transfer Act of 1986.

To protect the commercial nature of the agreements, the Act allowed information and

innovations that were created through a CRADA, or brought into a CRADA, to be protected

from disclosure to third parties.

American Technology Preeminence Act of 1991 (P.L. 102-245)

The American Technology Preeminence Act of 1991 contained several provisions covering the

FLC and the use of CRADAs. The mandate for the FLC was extended to 1996, the requirement

that the FLC conduct a grant program was removed, and a requirement for an independent

annual audit was added.

With respect to CRADAs, the Act included intellectual property as potential contributions under

CRADAs. The exchanging of intellectual property among the parties to an agreement was

allowed, and the Secretary of Commerce was asked to report on the advisability of creating a

new type of CRADA that would allow federal laboratories to contribute funds to the effort


covered by the agreement (which is not permitted at present). It also allowed laboratory directors

to give excess equipment to educational institutions and nonprofit organizations as a gift.

Small Business Research and Development Enhancement Act of 1992 (P.L. 102-564)

This Act established the Small Business Technology Transfer (STTR) Program. STTR is a three-

phase program similar to the SBIR Program in many ways. The key differences are that STTR

funding is available only from five agencies and the small business must partner a minimum of

30% of the effort with a U.S. college or university, nonprofit research organization, or federally

funded research and development center (FFRDC). The designated agencies select R&D topics,

accept proposals, and award grants for a three-phase program that mirrors the SBIR Program.

Awards are based on small business/nonprofit research institution qualifications, degree of

innovation, and future market potential. The STTR Program was reauthorized through 2009 by

the Small Business Technology Transfer Program Reauthorization Act of 2001.

The STTR Program provides early-stage R&D funding directly to small companies working

cooperatively with researchers at other research institutions. The objectives of the STTR

Program are to bridge the funding gap between basic research and commercial products, and to

provide a way for researchers to pursue commercial applications of technologies. Unlike SBIR, a

small business may partner with a federal laboratory that is an FFRDC, without the need of a

waiver from SBA.

National Technology Transfer and Advancement Act of 1995

(P.L. 104-113)

This law amended the Stevenson-Wydler Act to make CRADAs more attractive to both federal

laboratories and scientists and to private industry. The law provides assurances to U.S.

companies that they will be granted sufficient intellectual property rights to justify prompt

commercialization of inventions arising from a CRADA with a federal laboratory, and gives the

collaborating party in a CRADA the right to choose an exclusive or nonexclusive license for a

prenegotiated field of use for an invention resulting from joint research under a CRADA. The

CRADA partner may also retain title to an invention made solely by its employees in exchange

for granting the government a worldwide license to use the invention. The law also revised the


financial rewards for federal scientists who develop marketable technology under a CRADA—

increasing the annual limit of payment of royalties to laboratories from $100,000 per person to

$150,000.

Technology Transfer Commercialization Act of 2000 (P.L. 106-404)

This Act recognizes the success of CRADAs for federal technology transfer and broadens the

CRADA licensing authority to include preexisting government inventions to make CRADAs

more attractive to private industry and increase the transfer of federal technology. The Act

permits federal laboratories to grant a license for a federally owned invention that was created

prior to the signing of a CRADA. In addition, the Act requires an agency to provide a 15-day

public notice before granting an exclusive or partially exclusive license, and requires licensees to

provide a plan for development and/or marketing of the invention and to make a commitment to

achieve a practical application of the invention within a reasonable period of time; however, the

Act exempts from these requirements the licensing of any inventions made under a CRADA.


ABOUT THE AUTHOR

Jonathan Aberman is the founder and Managing Director of Amplifier

Ventures (www.amplifierventures.com), a seed and early stage venture

capital fund based in Mclean, VA. Amplifier Ventures focuses on

commercializing federally-funded technology. He is also the founder and

President of FounderCorps (www.foundercorps.org), a Virginia not for profit

that provides experienced mentors to partners throughout the Greater

Washington Region, including George Mason University, George Washington

University, University of Maryland, Fosterly and others.

Jonathan also is very involved in intellectual property commercialization from universities and

government labs. He is currently the founder and Managing Director of TandemNSI

(www.tandemnsi.com), a program funded by the Commonwealth of Virginia and supported by Arlington

County EDA to bring entrepreneurs, universities and national security agencies together to accelerate

economic development and national security entrepreneurship in the Greater Washington Region. Over

the last two years he has assisted both the Office of Governor McDonnell and the Obama Administration

in formulating policies to promote start up formation. He has also worked with the Department of

Defense Lab directorate, DARPA, DHS, AFOSR, the Army and other national security agencies on various

consulting engagements addressing entrepreneurship and technology creation.

Jonathan is also an educator, and he teaches subjects relating to nontraditional performer

businesses, including corporate finance, business planning, organizational development and new

venture creation. He is currently a Lecturer at the University of Maryland’s Robert H. Smith School of

Business. He is also a regular speaker on topics related to business formation and expansion for groups

such as the National Academies of Science, the National Science Foundation, the Northern Virginia

Technology Council and others. Jonathan is the co-host of LeftJab Radio (www.leftjabradio.com), a

weekly radio show on business, politics and current events broadcast on SiriusXM. He is frequently

interviewed and quoted on business topics by national and local news organizations, including

Washington Business Report, Huffington Post, the Deal, Potomac TechWire, the Washington Post, and

the Washington Business Journal.

Prior to becoming a venture investor, Jonathan had a career in London and New York as an

investment banker and law firm partner, working for international investment banks (Goldman Sachs,

Donaldson Lufkin and Daiwa Securities) and national law firms specializing in technology law (Pillsbury

Winthrop Shaw Pittman, Fenwick & West and Fish and Richardson).

Jonathan holds a BA (with honors) in Political Science and Economics from George Washington

University, where he was a Phi Beta Kappa. He received an MSc in International Economics with

Distinction from the London School of Economics. He also holds two law degrees, an MA from Downing

College, Cambridge University and an LLM from the New York University School of Law.

Jonathan can be reached at: [email protected]

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