A national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy National Renewable Energy Laboratory Innovation for Our Energy Future Enhancing Commercial Technical Report NREL/TP-110-40463 Outcomes from R&D May 2007 A Framework for a Public–Private Partnership to Increase the Yield of Federally Funded R&D Investments and Promote Economic Development L.M. Murphy Manager, Enterprise Development Programs National Renewable Energy Laboratory P. Jerde Executive Director Robert H. and Beverly A. Deming Center for Entrepreneurship, Leeds School of Business University of Colorado, Boulder L. Rutherford Venture Partner Vista Ventures R. Barone 2008 MS/MBA Candidate Department of Environmental Studies and Leeds School of Business University of Colorado, Boulder NREL is operated by Midwest Research Institute ● Battelle Contract No. DE-AC36-99-GO10337 Enhancing Commercial Technical Report NREL/TP-110-40463 Outcomes from R&D May 2007 A Framework for a Public–Private Partnership to Increase the Yield of Federally Funded R&D Investments and Promote Economic Development L.M. Murphy Manager, Enterprise Development Programs National Renewable Energy Laboratory P. Jerde Executive Director Robert H. and Beverly A. Deming Center for Entrepreneurship, Leeds School of Business University of Colorado, Boulder L. Rutherford Venture Partner Vista Ventures R. Barone 2008 MS/MBA Candidate Department of Environmental Studies and Leeds School of Business University of Colorado, Boulder Prepared under Task No. 1100.1000 National Renewable Energy Laboratory 1617 Cole Boulevard, Golden, Colorado 80401-3393 303-275-3000 • www.nrel.gov Operated for the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy by Midwest Research Institute • Battelle Contract No. DE-AC36-99-GO10337 NOTICE This report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. 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Box 62 Oak Ridge, TN 37831-0062 phone: 865.576.8401 fax: 865.576.5728 email: mailto:[email protected] Available for sale to the public, in paper, from: U.S. Department of Commerce National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 phone: 800.553.6847 fax: 703.605.6900 email: [email protected] online ordering: http://www.ntis.gov/ordering.htm Printed on paper containing at least 50% wastepaper, including 20% postconsumer waste Preface This paper investigates an endemic problem facing technology transfer organizations (TTOs) such as those within the U.S. Department of Energy (DOE) and its national laboratories, as well as those within universities and state organizations: The level of technology maturation, product conceptualization, market validation, and human capital required to raise private sector financing and drive commercialization is often too high for technical founders to reach without an industry veteran as a partner. Although our focus in this paper is on clean energy technologies, the same problems exist for a wide range of other technologies. Moreover, these problems are also often apparent and vexing for many of the private sector R&D partners of these laboratory and university organizations. Most solutions focus on further R&D without directly engaging private sector financiers and markets, or more recently, on “beefing up” current technology transfer efforts to help technology founders and innovators make their enterprises resemble, and therefore connect with venture capital organizations. We believe however that the best answer may be a paradigm shift in how we think about closing the gap between ideas and commercially feasible opportunities. We present a solution framework for a public-private partnership, which we believe can ultimately be quite robust in addressing the problem while being easily adaptable to the specific needs of various financiers and market forces. This belief is based not only on our own assessment of the situation but on many discussions with venture capitalists and other financiers. Unlike other public-private partnerships, we have focused on early and seed ventures, which correspond more closely to both the technologies coming out of the labs and the clean energy venture community’s need for more robust early-stage company development. Thus, the proposed framework helps to reduce risk for the private sector investor while both enhancing commercial outcomes and increasing the yield of federally funded R&D investments. L.M.(Marty) Murphy Paul Jerde Lisa Rutherford Rich Barone iii iv TABLE OF CONTENTS List of Figures ........................................................................................................................................................... vii List of Tables............................................................................................................................................................. vii List of Acronyms...................................................................................................................................................... viii Executive Summary.....................................................................................................................................................1 Introduction .................................................................................................................................................................5 The Funding Gap.........................................................................................................................................................7 Characterizing Needs within the Gap.......................................................................................................................7 Investor Perception of Risks in the Valley, Including the Gap .................................................................................9 Should More Companies Really Get Through This Gap Region? ..........................................................................12 Understanding and Matching up with Investor Needs Is Crucial...........................................................................13 Upward Trends in Clean Energy Funding – Though Not Focused on Start-Ups...................................................15 What is Being Done Now by the States and the Federal Government ....................................................................16 Filling the Commercialization Pipeline & Creating Value ....................................................................................17 A Framework for a Novel Public-Private Partnership ...........................................................................................17 Framework Overview .............................................................................................................................................17 The EIR Role...........................................................................................................................................................18 Resource Network...................................................................................................................................................18 Management and Governing Roles.........................................................................................................................19 Funding...................................................................................................................................................................20 Technology Access/Filling the Pipeline..................................................................................................................20 Synopsis of ESIC Benefits .......................................................................................................................................20 A Special Opportunity...............................................................................................................................................21 Conclusions ................................................................................................................................................................23 Glossary......................................................................................................................................................................25 References ..................................................................................................................................................................26 Appendix A: Getting from