Chinese universities and technology: Making a market

Tsinghua University has a two-pronged strategy for transforming academic research carried out within its walls into commercial technology. Tsinghua Holdings was established as an asset management platform with a broad commercialization objective, while a clutch of local research institutes were set up in partnership with various local governments to focus on technology transfer.

The Research Institute of Tsinghua University in Shenzhen (RITS) is one of 13 now present in major China cities, but this particular institute felt the need to rewrite its remit.  “RITS was set up to support technology transfer from Tsinghua University to Shenzhen with initial government funding. It didn’t work very well because transfers take a long time and the returns aren’t great,” says Renchen Liu, vice president at RITS. “So we started doing other things.”

RITS has created a venture capital arm, it helps develop incubators for science parks, and provides venture debt financing for start-ups. It also targets cross-border opportunities through foreign research offices that support start-ups seeking China expansion and through LP commitments to overseas VC funds.

“We do a lot of things under one organization, which is different from the US or UK university venture model,” says Liu. “It’s hard to define what we are now, but we know what we’re not – we are not a state-owned organization, a pure research center, or a commercial enterprise.”

Contrasting approaches

Stanford University US takes ownership of all intellectual property created using its resources and the Office of Technology Licensing (OTL) licenses about 140 IPs to commercial organizations or students every year. It has generated about $1.86 billion in cumulative gross royalties over the past 47 years. Nearly two thirds of this came from three breakthroughs – two biotech companies and internet giant Google.

“We are doing technology transfer but it’s not about making money,” Katharine Ku, an executive director at OTL, told a Coller Institute of Venture conference in Hong Kong. “You can spend a lot of money on the technology transfer process, particularly when you file a lot of patents but you aren’t able to transfer that technology. So we try to find as many potential licensees as possible. We want to plant as many seeds as we can, because we can’t decide which will be winners or losers – we let the marketplace decide.”

 In this sense Stanford, like other US universities, serves as facilitator rather than operator, using licensing to commercialize academic research but nothing more. This approach stands in stark contrast to the Chinese model of taking a direct and active role in nurturing start-ups. RITS has invested in 400 companies and incubated about 2,000 start-ups with technology based on university research, of which about 30 have gone public.

The research institute isn’t particularly involved in technology licensing. When start-ups spin out from RITS, it opts for the higher-risk strategy of converting the IP into equity. Part of the reason for this is the start-up ecosystem is much more developed in the US than in China.

“There are groups of entrepreneurs who understand how to commercialize technology from universities, and there are also VC firms that are familiar with this area,” says Liu of RITS. “So the universities don’t have to do anything apart from licensing. In China, at present I don’t think there are enough entrepreneurs and VCs who have a deep understanding of technology.” 

According to Ken Xu, a managing partner at China early-stage VC firm Gobi Partners, this situation has been exacerbated by two factors. First, most Chinese entrepreneurs have in the past focused on business model innovation rather than inventing core technologies. Second, those that want to invent struggle to take advantage of university research because most R&D efforts relate to general technology or industries the government wants to support.

“The ecosystem is now changing as the government promotes entrepreneurships and innovation, which encourages entrepreneurs to talk to universities about technology transfer,” Xu says. “Before it was tough. It was rare for small companies to say to universities, ‘Why don’t you give me your IP and we work together?’ There is a gap between the entrepreneur community and universities.”

Bridging the gap

Chinese universities own the bulk of patents covering emerging technology like antibiotics, semiconductors, 3D printing and robotics, but their revenues from IP licensing are tiny. Peking University, for example, filed about 600 patents last year and generated around RMB50 million ($7.25 million) in licensing fees, up from RMB5 billion in 2010. Recognizing that the ecosystem is evolving, it wants to redress the balance.

“Commercialization of academic IP has become an urgent priority for leading universities in China,” says Dongmin Chen, a director at Peking University’s Office of Science & Technology Development. “In the last year the government has introduced favorable IP commercialization policies, which allows universities to get technologies to market quickly.”

However, universities remain hamstrung by a lack of talent, in terms of people who can connect what constitutes a breakthrough in theory with what makes commercial sense in practice. To this end, Peking University has established an education platform that helps faculty members create spin-outs in cooperation with VC investors, while RITS is collaborating with companies across various industries by connecting them with university R&D teams.

Rather than encouraging spin-outs, RITS has adopted a “spin in” strategy under which it will identify high-quality early-stage companies and help them set up research laboratory within the institute. It will also help large corporates establish R&D capabilities in certain verticals.

“Universities will become more active in the whole ecosystem in China,” Liu says. “If you look at the big picture of the Chinse economy, there is a need for industry upgrades. The only way to do it is through innovation. Universities have the responsibility to support this transition, whether they want to do it or not.”  

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• Topics
• Greater China
• Technology
• Early-stage
• China
• seed
• Gobi Partners