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Crowdfunding: Uneasy fit or a new springboard for promising innovations?

Crowdfunding: Uneasy fit or a new springboard for promising innovations?

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Published by Julian Baldwin

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Published by: Julian Baldwin on Aug 03, 2012
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With traditional sources of research funding becoming scarcer by the day, universities and theirTTOs are naturally on high alert for any new mecha-nism that can keep their technologies and start-upsmoving forward. Much of the buzz of late hasfocused on crowdfunding -- the concept of leverag-ing social networks and other Internet-based tools toreach donors or investors who would be most inter-ested in funding a particular research endeavor,whether it involves diabetes, clean energy, or spaceexploration.Websites like Kickstarter, RocketHub, and hun-dreds of other crowdfunding platforms around theworld have demonstrated that the approach canfind willing donors for the arts and all kinds of con-sumer-focused causes. But the concept is new to sci-ence, and crowdfunding pioneers are only now tip-toeing into this uncharted arena.There are plenty of skeptics who believe thecrowdfunding approach is simply not an easy fit forscience, and more than a few universities are cling-ing to the sidelines until the approach shows moretangible benefits. But one significant wrinkle in the Jumpstart Our Business Startups (JOBS) Act, signedinto law in April, makes it hard to ignore the poten-tial of crowdfunding to push new innovations outinto the marketplace. The Securities and ExchangeCommission (SEC) has yet to unveil the rules onhow the provisions will work, but the new law willallow new enterprises to use online funding portalsto raise up to $1 million per year from small-dollarinvestors, who would acquire equity in the projector company.Still, opinions differ on the potential for crowd-funding to fill critical funding gaps for research andcommercialization. Many observers believe themost likely scenario is that the approach will work best at funding smaller projects that require a fewthousand dollars or so to build a prototype or takea very early-stage innovation to the next step.However, this may be enough to loosen the fundingchokehold on the tens of thousands of promisinginnovations that go begging each year.
Leverage social networks
While implementation of the equity-basedcrowdfunding model is on hold until the SEC for-mulates rules governing how these types of plat-forms will work, a few science-focused entrepre-neurs have already plowed into the crowdfundingarena, hoping to take advantage of the strictlydonor-based model.One of the factors that may be stifling thecrowdfunding movement in the university researchworld is the typical bureaucracy that comes withthe territory at most campuses. And the red-tape barriers get even harder to cut through when thingslike tax deductibility and IPrights enter the picture.Innovocracy, a Pittsford, NY-based start-up, is fash-ioning itself as the answer to all of these complica-tions for academic institutions that want to take fulladvantage of crowdfunding to move their early-stage discoveries forward.“The company really grew out of the frustra-tion of seeing all these amazing things in academicinstitutions, and realizing that in some situations itmay only require as little as $3,000, $10,000, or per-haps $15,000, and very commercially-oriented pro-totyping, to make the difference between a start-upand no start-up or a licensing deal and no licensingdeal,” explains
Mikael Totterman
, a co-founder andchairman of Innovocracy. “We also recognized thatcrowdfunding needs to be tailored in a particularway to the needs of the academic institution tomake sure that the TTO is fully in the loop, and the
 Technology Transfer Tactics
 TM
The monthly advisor on best practices in technology transfer 
Reprinted with permission from
TechnologyTransferTactics,
 Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com
Crowdfunding: Uneasy fit or a new springboardfor promising innovations?
 
provisional patents have been filed so that the inno-vator doesn’t disclose all this stuff on the Internetwhen the right things haven’t been done yet in thetechnology transfer process.”At press time, the University of Rochester,Cornell University, Clarkson University, and theRochester Institute of Technology were alreadylined up as launch partners for Innovocracy, mean-ing that they had each funneled money into thestart-up and were in the process of using the com-pany’s crowdfunding capabilities to raise funds forselected innovations.“Our focus is specifically on things that arepotentially commercializable and will produce busi-nesses,” stresses
Richard Glazer,
a co-founder of Innovocracy
. “
So [by using crowdfunding] we aredeploying a tool that has become widely acceptedfor raising money and providing certain incentivesthat drive donors to contribute to a project that theyfeel some connection or affinity to.”Glaser emphasizes that the Innovocracymodel is predicated on forming a relationshipwith technology transfer offices and universities –it’s much more than a web-based place to appealfor donors, he says. “We are patient enough toknow how complex universities are, and weunderstand that the development departmentdoesn’t necessarily talk with technology transferpeople, and that they don’t necessarily talk withfinance people. But we also understand the mind-set of researchers,” he says. “We are sensitive toIP, sensitive to inappropriate use of universityresources, and the potentially inappropriate use of the university name.”While Innovocracy is still in the proof-of-con-cept stage itself, one project -- a toilet training toolfor autistic children that is being developed at theUniversity of Rochester -- is already 170% funded.Totterman explains that in addition to raising fundsso that a prototype can be built, the crowdfundingtechnique has also generated several news articlesabout the tool, and it has attracted the attention of several potential manufacturing partners.This type of success is clearly possible withcrowdfunding, but Totterman emphasizes that itwill not work for everything. “You need somethingthat appeals to people on a societal level, so thiscould involve a disease or a drug or some otherthing which is inherently charitable,” he says. “Youcan’t treat crowdfunding like eBay where you justput stuff out there and hope somebody picks it up.For technology transfer, things have to be packagedcorrectly.”Totterman also stresses that it is important to be realistic about the dollar amounts that can beraised through crowdfunding. “The sweet spot is inthe $3,000 to $15,000 range,” he says. Also, heemphasizes that you don’t want to post a project ona site where there are hundreds or thousands of similar projects posted. “When we work with uni-versity partners, there are usually no more thanthree to five projects posted per academic institu-tion for each funding cycle, which usually goesfrom 30 to 45 days, so whatever is there is promi-nently displayed.”
 Students launch crowdfunding platform
Another recent effort to apply crowdfunding touniversity research, called Microryza, was launched by a student team from the University of Washington in Seattle. Microryza is a for-profitcrowdfunding platform that focuses on serving thefunding needs of researchers who are engaged insmaller, seed-stage research projects.“This is very much an experiment,” acknowl-edges
Denny Luan
, a co-founder of the platformand a recent UW graduate. “We have received 40project proposals from around the world, but allof the 11 projects that are on the site right now arefrom UW researchers that we personally know.For us, that was a way around the vettingprocess.”Officially launched in April 2012, Microryzahad attracted $11,000 in donations by mid-June --enough to fully fund three of the projects, explainsLuan. While there is no cost involved with actuallyposting a project on Microryza, the company takes atransaction fee from all projects that meet theirfunding goal, and fees are also taken to cover creditcard processing charges. All the projects must reachtheir goal within a specific timeline before the fund-ing is released.Where do the donors come from? Luan sayscompany founders still have much to learn aboutdrumming up support for the projects posted onthe Microryza site, but he says the company makesfull use of social networking sites like Facebook andTwitter. “Ahuge portion of the people who have been donating are friends and family of theresearchers, but there are also a number of scientistswho work in the particular field [of the research
Reprinted with permission from
TechnologyTransferTactics,
 Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com
 
project], and just random people who come in fromour social networks or blog posts that we help togenerate,” says Luan.While the researchers retain ownership of their projects as well as any results, users of theMicroryza platform also buy into the idea thattheir science is to be shared. “All of the researchersare very intent on science communication and real-ly putting their science out there,” says Luan.“They are less concerned about being scooped andmore interested in engaging the public and gain-ing support.”In fact, many of the researchers are alreadyactively engaged in using the Microryza website tocommunicate with donors, providing updates ontheir research, including images as well as videos.“It is a crowdfunding platform, but it is also a con-tent platform,” says Luan.
Consider benefits beyond funding
The Microryza co-founders have worked close-ly with the New Ventures group at UW to get entre-preneurial advice and guidance, but because it is astudent-owned company, there are no university/IPownership issues involved, explains
PatrickShelby
, the director of New Ventures at the UWCenter for Commercialization. But that doesn’tmean the commercialization advocates at the uni-versity aren’t paying close attention to the model.“The leveraging of the crowd is an interesting andintriguing idea, and we have people here in differ-ent areas and different applications looking at it asa way to move things forward,” says Shelby.The notion that you can use crowdfundingto raise public awareness of how scientific inno-vations make their way to the marketplace isalso intriguing, observes
Lisa Norton
, seniortechnology manager for bioengineering at UW.“I think the thing that may be most tangiblefrom having individuals directly supportresearch is not only to have a better understand-ing of the research, but also to get a betterunderstanding of the cost of research,” addsNorton. “There is so much that is written aboutcost without necessarily there being a real break-down of what that means in terms of the workthat is being done and the materials that arerequired to actually bring technologies even anincremental step forward.”While crowdfunding may be able to jump-startvery early-stage projects, Norton is skeptical that itcan bring in the kind of funds needed to get tech-nology-based companies off the ground. “Alot of the companies that are transitioning out of universi-ties have already had a fair amount of researchfunding, and then for them to get to their next realstage in growth they typically need more than whatI think would generally be possible through crowd-funding,” she says.Norton acknowledges that there may be sometechnologies that resonate with large enoughgroups of people that they bring in large sums of money, but she says those will probably be outliers.“However, at this point in time, when otherresearch funds are becoming harder and harder toget, we are certainly not going to ignore the possi- bility of having our teams get funding this way.”Shelby agrees, noting that the idea of gettingpeople directly engaged in areas where they have apersonal interest is an exciting, but still unproven,mechanism for raising significant dollars. “The uni-versity is certainly interested in seeing the viabilityof this model, and then questioning how we canincorporate the successful elements of it into whatwe do.”
Build an audience
 Jai Ranganathan
, a conservation biologist andassociate at the National Center for EcologicalAnalysis and Synthesis at the University of California at Santa Barbara (UCSB), is a big believerin crowdfunding for scientific research, and not justas a means to raise funds but also to get the publicmore informed and involved with science. As hewrote recently in a guest blog on the
Scientific American
website, Ranganathan believes scientistsare at a disadvantage when it comes to crowdfund-ing because they have never been encouraged to dooutreach.To get around this hurdle, Ranganathan estab-lished the SciFund Challenge, a crowdfundingopportunity that is bundled together with a crashcourse on how to engage audiences and conductscientific outreach. “Figuring out how to take acomplicated science message and boil it down tosomething that is accessible and engaging to thegeneral public is not easy to do, so we spend a lotof time training scientists in how to do that,”explains Ranganathan.The training, which typically takes place over
Reprinted with permission from
TechnologyTransferTactics,
 Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com

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