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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 on Aug 03, 2012
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Technology Transfer Tactics

The monthly advisor on best practices in technology transfer

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Crowdfunding: Uneasy fit or a new springboard for promising innovations?
With traditional sources of research funding becoming scarcer by the day, universities and their TTOs are naturally on high alert for any new mechanism that can keep their technologies and start-ups moving forward. Much of the buzz of late has focused on crowdfunding -- the concept of leveraging social networks and other Internet-based tools to reach donors or investors who would be most interested in funding a particular research endeavor, whether it involves diabetes, clean energy, or space exploration. Websites like Kickstarter, RocketHub, and hundreds of other crowdfunding platforms around the world have demonstrated that the approach can find willing donors for the arts and all kinds of consumer-focused causes. But the concept is new to science, and crowdfunding pioneers are only now tiptoeing into this uncharted arena. There are plenty of skeptics who believe the crowdfunding approach is simply not an easy fit for science, and more than a few universities are clinging to the sidelines until the approach shows more tangible benefits. But one significant wrinkle in the Jumpstart Our Business Startups (JOBS) Act, signed into law in April, makes it hard to ignore the potential of crowdfunding to push new innovations out into the marketplace. The Securities and Exchange Commission (SEC) has yet to unveil the rules on how the provisions will work, but the new law will allow new enterprises to use online funding portals to raise up to $1 million per year from small-dollar investors, who would acquire equity in the project or company. Still, opinions differ on the potential for crowdfunding to fill critical funding gaps for research and commercialization. Many observers believe the most likely scenario is that the approach will work best at funding smaller projects that require a few thousand dollars or so to build a prototype or take a very early-stage innovation to the next step. However, this may be enough to loosen the funding chokehold on the tens of thousands of promising innovations that go begging each year.

Leverage social networks
While implementation of the equity-based crowdfunding model is on hold until the SEC formulates rules governing how these types of platforms will work, a few science-focused entrepreneurs have already plowed into the crowdfunding arena, hoping to take advantage of the strictly donor-based model. One of the factors that may be stifling the crowdfunding movement in the university research world is the typical bureaucracy that comes with the territory at most campuses. And the red-tape barriers get even harder to cut through when things like tax deductibility and IP rights enter the picture. Innovocracy, a Pittsford, NY-based start-up, is fashioning itself as the answer to all of these complications for academic institutions that want to take full advantage of crowdfunding to move their earlystage discoveries forward. “The company really grew out of the frustration of seeing all these amazing things in academic institutions, and realizing that in some situations it may only require as little as $3,000, $10,000, or perhaps $15,000, and very commercially-oriented prototyping, to make the difference between a start-up and no start-up or a licensing deal and no licensing deal,” explains Mikael Totterman, a co-founder and chairman of Innovocracy. “We also recognized that crowdfunding needs to be tailored in a particular way to the needs of the academic institution to make sure that the TTO is fully in the loop, and the

Reprinted with permission from Technology Transfer Tactics, Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com

provisional patents have been filed so that the innovator doesn’t disclose all this stuff on the Internet when the right things haven’t been done yet in the technology transfer process.” At press time, the University of Rochester, Cornell University, Clarkson University, and the Rochester Institute of Technology were already lined up as launch partners for Innovocracy, meaning that they had each funneled money into the start-up and were in the process of using the company’s crowdfunding capabilities to raise funds for selected innovations. “Our focus is specifically on things that are potentially commercializable and will produce businesses,” stresses Richard Glazer, a co-founder of Innovocracy. “So [by using crowdfunding] we are deploying a tool that has become widely accepted for raising money and providing certain incentives that drive donors to contribute to a project that they feel some connection or affinity to.” Glaser emphasizes that the Innovocracy model is predicated on forming a relationship with technology transfer offices and universities – it’s much more than a web-based place to appeal for donors, he says. “We are patient enough to know how complex universities are, and we understand that the development department doesn’t necessarily talk with technology transfer people, and that they don’t necessarily talk with finance people. But we also understand the mindset of researchers,” he says. “We are sensitive to IP, sensitive to inappropriate use of university resources, and the potentially inappropriate use of the university name.” While Innovocracy is still in the proof-of-concept stage itself, one project -- a toilet training tool for autistic children that is being developed at the University of Rochester -- is already 170% funded. Totterman explains that in addition to raising funds so that a prototype can be built, the crowdfunding technique has also generated several news articles about the tool, and it has attracted the attention of several potential manufacturing partners. This type of success is clearly possible with crowdfunding, but Totterman emphasizes that it will not work for everything. “You need something that appeals to people on a societal level, so this could involve a disease or a drug or some other thing which is inherently charitable,” he says. “You can’t treat crowdfunding like eBay where you just put stuff out there and hope somebody picks it up.

For technology transfer, things have to be packaged correctly.” Totterman also stresses that it is important to be realistic about the dollar amounts that can be raised through crowdfunding. “The sweet spot is in the $3,000 to $15,000 range,” he says. Also, he emphasizes that you don’t want to post a project on a site where there are hundreds or thousands of similar projects posted. “When we work with university partners, there are usually no more than three to five projects posted per academic institution for each funding cycle, which usually goes from 30 to 45 days, so whatever is there is prominently displayed.”

Students launch crowdfunding platform
Another recent effort to apply crowdfunding to university research, called Microryza, was launched by a student team from the University of Washington in Seattle. Microryza is a for-profit crowdfunding platform that focuses on serving the funding needs of researchers who are engaged in smaller, seed-stage research projects. “This is very much an experiment,” acknowledges Denny Luan, a co-founder of the platform and a recent UW graduate. “We have received 40 project proposals from around the world, but all of the 11 projects that are on the site right now are from UW researchers that we personally know. For us, that was a way around the vetting process.” Officially launched in April 2012, Microryza had attracted $11,000 in donations by mid-June -enough to fully fund three of the projects, explains Luan. While there is no cost involved with actually posting a project on Microryza, the company takes a transaction fee from all projects that meet their funding goal, and fees are also taken to cover credit card processing charges. All the projects must reach their goal within a specific timeline before the funding is released. Where do the donors come from? Luan says company founders still have much to learn about drumming up support for the projects posted on the Microryza site, but he says the company makes full use of social networking sites like Facebook and Twitter. “A huge portion of the people who have been donating are friends and family of the researchers, but there are also a number of scientists who work in the particular field [of the research

Reprinted with permission from Technology Transfer Tactics, 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 from our social networks or blog posts that we help to generate,” says Luan. While the researchers retain ownership of their projects as well as any results, users of the Microryza platform also buy into the idea that their science is to be shared. “All of the researchers are very intent on science communication and really putting their science out there,” says Luan. “They are less concerned about being scooped and more interested in engaging the public and gaining support.” In fact, many of the researchers are already actively engaged in using the Microryza website to communicate with donors, providing updates on their research, including images as well as videos. “It is a crowdfunding platform, but it is also a content platform,” says Luan.

Consider benefits beyond funding
The Microryza co-founders have worked closely with the New Ventures group at UW to get entrepreneurial advice and guidance, but because it is a student-owned company, there are no university/IP ownership issues involved, explains Patrick Shelby, the director of New Ventures at the UW Center for Commercialization. But that doesn’t mean the commercialization advocates at the university aren’t paying close attention to the model. “The leveraging of the crowd is an interesting and intriguing idea, and we have people here in different areas and different applications looking at it as a way to move things forward,” says Shelby. The notion that you can use crowdfunding to raise public awareness of how scientific innovations make their way to the marketplace is also intriguing, observes Lisa Norton, senior technology manager for bioengineering at UW. “I think the thing that may be most tangible from having individuals directly support research is not only to have a better understanding of the research, but also to get a better understanding of the cost of research,” adds Norton. “There is so much that is written about cost without necessarily there being a real breakdown of what that means in terms of the work that is being done and the materials that are required to actually bring technologies even an incremental step forward.” While crowdfunding may be able to jump-start

very early-stage projects, Norton is skeptical that it can bring in the kind of funds needed to get technology-based companies off the ground. “A lot of the companies that are transitioning out of universities have already had a fair amount of research funding, and then for them to get to their next real stage in growth they typically need more than what I think would generally be possible through crowdfunding,” she says. Norton acknowledges that there may be some technologies that resonate with large enough groups 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 other research funds are becoming harder and harder to get, we are certainly not going to ignore the possibility of having our teams get funding this way.” Shelby agrees, noting that the idea of getting people directly engaged in areas where they have a personal interest is an exciting, but still unproven, mechanism for raising significant dollars. “The university is certainly interested in seeing the viability of this model, and then questioning how we can incorporate the successful elements of it into what we do.”

Build an audience
Jai Ranganathan, a conservation biologist and associate at the National Center for Ecological Analysis and Synthesis at the University of California at Santa Barbara (UCSB), is a big believer in crowdfunding for scientific research, and not just as a means to raise funds but also to get the public more informed and involved with science. As he wrote recently in a guest blog on the Scientific American website, Ranganathan believes scientists are at a disadvantage when it comes to crowdfunding because they have never been encouraged to do outreach. To get around this hurdle, Ranganathan established the SciFund Challenge, a crowdfunding opportunity that is bundled together with a crash course on how to engage audiences and conduct scientific outreach. “Figuring out how to take a complicated science message and boil it down to something that is accessible and engaging to the general public is not easy to do, so we spend a lot of time training scientists in how to do that,” explains Ranganathan. The training, which typically takes place over

Reprinted with permission from Technology Transfer Tactics, Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com

four weeks, involves everything from learning how to make informational videos to putting together interesting and intriguing messages for a general audience. Then the participants begin their month-long crowdfunding campaigns on RocketHub, an established crowdfunding site that has partnered with SciFund Challenge. (www.scifund.rockethub.com.) Even Ranganathan has been amazed by the results. “For the first round of SciFund Challenge, which took place last fall, we had 49 people jump in, and we raised a total of $76,000,” he reports, noting that most of the participants were professors, graduate students, and post-docs. “We got an incredible amount of media attention for doing it, and we really seemed to push the needle for people.” For the second round, 75 participants underwent the training and then conducted their crowdfunding campaigns in May of 2012. They raised more than $100,000, says Ranganathan. At press time, he was gearing up for the third round of SciFund Challenge. He emphasizes, however, that he is not doing this as a business, but rather as a mission to change the culture of science. Most of the SciFund projects raise a few thousand dollars at most. That is about what researchers can expect if they are starting out of the gate with no established audience, says Ranganathan. “It is very clear from other fields [that have been involved with crowdfunding for a longer period of time] that there is a three- to fiveyear build-out period before you start to see real money coming in,” he explains. “It is all dependent on scientists building an audience, and that can take years to do.” In general, about 10% of the money raised through a for-profit site like RocketHub or Kickstarter will go toward the site’s profit and credit card processing fees, says Ranganathan. Potentially, this fee could be erased if universities decided to build their own crowdfunding sites at some point, but the institutional response to SciFund Challenge has not been all positive. “We have had more than 100 scientists go through SciFund Challenge at this point, and some universities are super excited about it and they want to make it work, but other universities won’t touch it,” observes Ranganathan. “Crowdfunding seems like something funny and weird, but in the end you get a single check and it is no different than if a rich person was providing money to con-

struct a building on campus.”

Appeal to the younger crowd
Rick Wash, an assistant professor at Michigan State University (MSU) in East Lansing, MI, is using a grant from the National Science Foundation to look into how universities can most effectively take advantage of crowdfunding tools. He’s also working concurrently on a crowdfunding mechanism at MSU designed to help students raise money for projects. While he is doubtful that crowdfunding will ever be able to generate the huge funding amounts needed to drive large research projects, he has found that the approach does offer some unique advantages over traditional fundraising methods. “What I am finding and what others have found is that the people who donate to projects on crowdfunding sites tend to either know or run into the people who are running or creating the projects, or they know someone who knows them,” he says. This may seem like an awfully small pond to be working in, but Wash stresses that word can spread much more quickly this way than through the typical methods universities use to seek out donations. “When a person donates to a project on a crowdfunding site, he or she wants to see that project succeed, so now all of a sudden the person has become another voice advocating for the project to others,” says Wash. “Getting the word out is much more difficult with traditional fundraising.” However, perhaps the biggest advantage that crowdfunding may offer is that it tends to appeal to younger adults, a traditionally stingy group, at least with respect to universities. “One of the really interesting things about crowdfunding as opposed to traditional donation is that you have a lot more control over where your money goes,” says Wash. “People in the [under 40] age bracket tend to want to know where their money is going … so crowdfunding actually enables you to target those younger demographics really well by giving them more control.” Contact Glaser at 585-419-4955 or Richard.glazer@innovocracy.org; Luan at denny@microryza.com; Norton at 206-616-6918 or lnorton@uw.edu; Ranganathan at 805-892-2134 or jai.ranganathan@ gmail.com; Shelby at 206-685-4501 or jpshelby@uw.edu; Totterman at mikael.totterman@innovocracy.org; and Wash at 517-355-2381 or wash@msu.edu.

Reprinted with permission from Technology Transfer Tactics, Vol. 6, No. 7 July 2012, Published by 2Market Information, Inc. Copyright 2012. For subscription information, visit www.technologytransfertactics.com

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