Why Can’t University Research Return An ROI?

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When it comes to university research and innovation, it’s well known that funding is becoming scarcer and researchers are under a lot of pressure to produce important findings. But what doesn't get talked about too often is how research universities can make their funding really count. While university research can produce very important discoveries, it often falls short when it comes to translating those discoveries into actual impact and return on investment. Why is that? And how can the ROI of university inventions be improved?

Return on university research funding

Why Doesn't University Research Pay Off?

Research universities usually have technology transfer offices, which are responsible for translating university research results into impact by forming startups or licensing patents to existing businesses, which then create commercial products with them. However, research conducted by the Brookings Institute found that most often, universities fail to turn a profit on their innovations.

Why is that? According to the New York Times article about the study, “The vast majority of licensing deals yield little or no money, and for most universities the royalty returns are low.” University tech transfer offices, for whatever reason, aren't doing a good job of translating their institutions’ intellectual property into actual impact that reaches a wider audience and brings the university a return on their investment.

Walter Valdivia, the study's author, noted that universities “have historically put all their efforts into hoping for a blockbuster patent and then aggressively negotiating licensing fees, which alienates industry instead of making it a partner.” Barriers to collaboration between universities and the private sector are certainly one big reason for the difficulty of moving university research from the lab into the world as a product or service.

But there are some schools that are getting a good return on the research dollars they spend. What are they doing differently?

How University Research Can Have a Big Impact

Forbes noted a few years ago that there are plenty of schools whose research translates into revenue. That return is often thanks to creative programs that encourage entrepreneurial thinking among students. For instance, Stevens Institute of Technology in Hoboken, NJ, has students and professors work together on commercialization issues as they’re doing research, rather than waiting until a breakthrough has been made to think about how to make money from it.

It’s a simple concept: doing what it takes to bring the fruits of research to a wider audience should start as soon as the research does. Stevens students are encouraged to start companies while in school in order to ensure the university benefits from their intellectual capital.

NYU topped Forbes’ list of high-ROI research universities, with Stanford, Ohio University, and Wake Forest taking top spots as well. Often, most of the revenue of high-ROI institutions comes from licensing one blockbuster hit, such as the arthritis drug Remicade from NYU. But these schools also put a lot of effort into diversifying their investments, including pursuing venture capital and creating startup enterprises.

Is It Just About Money?

While financial return is only one way of looking at the ROI of university research, I believe it can be used as a metric of how effective universities are at translating their inventions into wider impact.

On the other hand, not everyone is a fan of treating universities like business ventures. Some believe that making scientists act as entrepreneurs gets in the way of the “pure science” that they “should” be doing. Others also point to the wider economic impact of university research: a 2014 study, for example, showed that it acts as a short-term economic stimulus along with its long-term benefits.

Similarly, Crain's points out that research funding creates “high-quality, high-wage jobs and [gives] Illinois a real competitive edge in attracting and expanding tech-based companies.”

Furthermore, Crain's argues, even though direct income is important (i.e., a tangible result), it's also important to look at the outcome of the research as the true measure of its success (the intangible result). They give the example of the anti-seizure and pain medication Lyrica: while it's true that the drug generated a lot of tangible income for Northwestern University, where it was developed, it also improves the lives of millions of people. That impact is harder to calculate, but crucial to take into consideration nonetheless.

Essentially, university research can be an excellent investment in many ways, and financial ROI is only one component of that. But even putting monetary return aside, not all institutions are equally good at turning their research into impact.

A VC Approach to University Research Funding

It’s clear that university research is a crucial component of our economy and many important innovations happen because of it. What’s not so clear is whether the current system of funding is really translating federal dollars into the most possible impact.

If we were to take a venture capital approach to university research funding, I believe we could greatly accelerate the impact of those taxpayer dollars. Monetary ROI shouldn't be the only way we measure a university’s wider impact, but it is one important component of a healthy, sustainable innovation system. Universities that are able to take research funding and create truly game-changing innovations that improve the lives of many should be rewarded for it. There should be incentive for institutions to use their intellectual capital in a way that benefits everyone, not just the scientists who get their names on journal articles.

If we were to reward the universities that are best at working with the private sector and other institutions to share their inventions with the world, university research would have a much more important place in America’s innovation system.

Contact me to let me know what you think about university research and innovation.

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