IPCRES will pursue research in some of the key software and advanced telecommunications technologies that will underpin the pervasive computing environment of the future. The breadth of technologies that will be integrated and fused into this environment span a highly diverse range of fields within information technology. Based on the research of the IPCRES Laboratories and aligned and associated activities, IPCRES will increase the level of technology innovation occurring within the State, hasten its development, and augment technology commercialization efforts. IPCRES will provide researchers a forum for collaboration with industrial partners on joint research projects and offer a venue for a variety of business development and support services to attract new industry to the State of Indiana, including start-up companies.
A number of business development services will be provided through a collaboration between IPCRES and ARTI (the Indiana University Advanced Research and Technology Institute), as outlined later in this Section. IPCRES will become the anchor partner among companies, entrepreneurs, government, non-profit technology development organizations, and other academic institutions committed to technology-based economic development as a core long-term State and regional strategy.
New technologies, such as the Web-portal collaboration and educational tools described in the previous Section will be created in IPCRES Laboratories. However, creating new ideas and turning them into functional prototypes is only part of the technology evolution process. The most difficult challenge is to take a new idea and develop it into a reliable, robust product that can be easily manufactured, installed and maintained. IPCRES will benefit from nationally recognized models in other regions of the country where innovation networks have been developed to rapidly move technology from research universities to the marketplace and facilitate start-ups. IPCRES will adapt these technology and innovation models specifically to the situation in Indiana.
The core elements of the IPCRES economic development strategy are to:
The IPCRES Laboratories will be central to this strategy. IPCRES will establish an Economic Development Office. As previously noted, the Director of this will be Bill Stephan, currently the Chief of Staff to the Mayor of Indianapolis. Stephan has been recently appointed as a Special Assistant to the IU President and an Assistant Vice President in the Office of the Vice President for Information Technology and CIO. The IPCRES Economic Development Office will develop a program to pursue the IPCRES economic development strategy. It will build on the work of the Laboratories to:
These activities will build on Indiana University's major involvement in national and international developments in telecommunications and systems that will underpin the pervasive computing environment of the future. IU is home to a number of world-class research programs in these areas, is centrally involved in Internet2 and a number of major international research networks, and has strong relationships with a number of leading information technology companies such as Microsoft, IBM, Oracle and Cisco. All this, when combined with the other strengths and advantages of Indiana University and the State of Indiana, will establish the critical mass of education, research, and business development activities needed for the State to more extensively participate in and benefit from the IT-based economic growth that is taking place across the nation.
Successfully transferring innovation from the laboratory to the marketplace is fundamental to effecting change and impacting Indiana's economy. There are three ways in which spin-off technologies from IPCRES will be developed into significant products that stimulate economic development in Indiana.
The first way is the establishment of new companies that will acquire the rights to develop IPCRES research projects into products. Often such new companies are owned by the original researcher or researchers, but are managed and staffed by someone experienced in building start-ups. Funding can come from venture capital or other private sources. Unfortunately, most small start-up companies fail because they lack strong management, the ideas upon which the company was founded are not very well developed, or the application marketplace is not well enough understood. IPCRES will provide critical "incubation" services to such small companies. For example, basic computer and network infrastructure support can be provided to a small company by locating it near IPCRES. The Initiative may retain management consulting services that can be shared by several small companies. In addition, IPCRES can provide an initial link to the sources of venture funding.
The second way of guiding IPCRES research towards product development is through a partnership with an existing company. In some cases, the targeted company may also be involved in the same basic research as IPCRES partners; in fact, the company may have even funded the research. In these cases, it is natural for the company to assume control over product development. In other cases, the company may desire to become involved because it sees a potential application for the new technology that may not be practical for the original researcher to pursue. It is this category of interaction that may be of greatest interest to existing industry in Indiana. The company may help in establishing a small enterprise focusing on product development or work with IPCRES to build a three-way partnership between the Initiative, the company with the application, and an established information technology company.
The third way in which IPCRES can lead and shape the direction of information technology research and product development is to allow research projects to produce public, "open-source" systems and tools. This is one of the most important and common ways for academic research organizations to influence the world. Open sourcing is also the model that is increasingly being embraced by the information technology industry as a way to ensure software compatibility for core technology upon which other markets depend. Well known examples include the open-source Apache Web Server, the Linux operating system, and the Netscape Web Browser.
It is important to understand the way open-source works and how it can benefit IPCRES and economic development. For every hour spent "inventing" new software, ten hours are consumed searching for bugs, security holes, memory leaks, and other reasons that may cause the program not to function or "crash". In addition, each piece of software depends upon other software for services such as basic operating systems functionality like printing and file systems. As these other software and hardware systems change and evolve, the software that depends upon them must do the same. Hence a piece of software never reaches the point where maintenance is no longer needed. Software maintenance often exceeds the original development time and required debugging by a factor of ten. A research laboratory is not the right place to undertake the maintenance of product-quality software.
When a particular software creation is important as a standard service upon which others can build for-profit applications or other vertical-market services, parties may place the source-code for that software in the public domain with standard open-source provisions. If the software is valuable enough, these provisions will enable a group of motivated "volunteers" to take over the management of software maintenance and integrate improvements made by others into the public version. This process has become very important to the software industry. In fact, much of the standard Internet functionality is based on open-source tools and technology.
Depending on the choice of Laboratories, IPCRES could become a primary source of high quality open-source software. We expect that a considerable portion of IPCRES' software technologies research will be funded by government grants and contracts and will be in the public domain. Furthermore, by effectively supporting open-source software products, IPCRES will attract high quality software programming staff . It is often through the support and creation of open-source software that a good programmer is recognized by his peers. Finally, IPCRES' reputation will be enhanced by becoming a center of emerging industry standards. IPCRES' growing reputation will, in turn, provide opportunities for greater collaboration with industry on applications of emerging technology.
To realize these ambitious goals, IPCRES will support existing businesses with a range of services and resources all designed to help develop new industry in the State of Indiana. IPCRES' Economic Development Office, ARTI, and the School of Informatics will work in concert to create a number of sustaining programs that aid businesses and strengthen technology-based economic and workforce development in the State of Indiana.
IPCRES' Economic Development Office will devote significant effort to building awareness between technology-based firms and Indiana University by making potential users more knowledgeable about available technologies, their possible applications, and their benefits and costs. In the early phase of the Initiative, Economic Development Office staff will be heavily involved in marketing IPCRES, building relationships, qualifying information requests from firms and matching need with available resources within the University.
Economic Development Office staff will work closely with the Indiana Information Technology Association (INITA), the Technology Partnership (formerly known as the Indianapolis and Central Indiana Technology Partnership), regional economic and workforce development organizations, the Central Indiana Corporate Partnership, and other stakeholders to effectively assess opportunities for intervention and collaboration. INITA leadership has expressed keen interest in the development of IPCRES, already pledging support and cooperation at the earliest appropriate opportunity. Likewise, the Technology Partnership views IPCRES as an enormous advance in realizing their vision of establishing Central Indiana as a recognized leader in technology in the Midwest and as holding national respect by 2005. Indeed, IPCRES has great potential for addressing the principal goals of the Technology Partnership:
Given existing industry interest in the IPCRES concept, the Economic Development Office will work to establish advisory mechanisms that involve technology firm representatives, INITA and Technology Partnership members, and individuals from leading stakeholder organizations. This advice will inform and influence IPCRES policies and actions regarding strategic planning and the development of priorities, deployment of resources and services, and opportunities for new ventures and relationships.
Working as a liaison between the University and private sector, the IPCRES Economic Development Office will identify gaps between technology development and deployment. In conjunction with other project team members and ARTI, we propose to shorten the time taken to commercialize new technological innovations and, with industry and advisory board involvement, focus research on key needs and opportunities. ARTI's specific involvement is discussed in greater detail below, but we envision drawing upon vast and diverse University resources and coordinating a range of services to our business partners and stakeholders.
For example, one of the proposed IPCRES Advanced Telecommunications Laboratories at IUPUI will be in convergence, in part because several local information technology organizations have expressed strong interest in having greater access to research and technology developed by leading researchers in this field. More generally, the prospect of having telecommunications research proximate to their places of business is welcomed by industry. IPCRES Economic Development Office staff will help identify and qualify private sector firms with interest in telecommunications research and begin facilitating relationships between the University and private sector.
As described below, these relationships may vary in nature and degree but begin to provide opportunities to initiate the longer term process of technology transfer and successful commercialization. Over time, Economic Development Office staff can facilitate ARTI's involvement with the process, identify and pursue public and private funding opportunities, and help manage a milieu of University services that add value to the initiative, including those offered through the School of Informatics. Of course, the model of intervention will depend upon the field of research and many other factors, but the concepts of public-private partnering and reciprocity regarding ideas and innovation are critical to long term project growth and success.
The following are some specific areas in which IPCRES and its partners will work to provide collaborations and services that support economic development.
Training programs. IPCRES will work with industry to establish specialized training in new computing and telecommunications technologies especially in areas of pervasive computing, and will develop and implement new technologies for corporate training and distance education. IPCRES Economic Development Office staff will work closely with the INITA as the Association seeks to better understand its own industry. INITA is currently involved in a SWOT analysis using surveys and focus groups as a prelude to more extensive strategic planning. Focus group members are endorsing strategies that build stronger relationships with higher education institutions in both research and education. Furthermore, Association members are anxious to address the serious workforce shortage they face by acting aggressively to capture a higher share of Indiana's information technology graduates. Providing industry with a technically skilled workforce is essential. IPCRES will work to align education disciplines with industry needs to more effectively address regional employment opportunities and reduce the number of skilled graduates leaving the State. Furthermore, business leaders will be actively involved in curricular design, creation of internship opportunities for undergraduates, funding of graduate research fellowships, and mentoring programs.
IPCRES can also help facilitate greater inter-firm cooperation by fostering collaboration to promote technology diffusion and to resolve common problems within the industry. We anticipate offering a forum for learning, as discussed below, and the means to strengthen business and technology development relationships.
IPCRES Economic Development Office staff will also work closely with local and State government to ensure that University research and commercialization efforts complement public policy and economic growth objectives. IPCRES will develop relationships with the Indiana Department of Commerce, the Indiana Economic Development Council, the Indiana Fiscal Policy Institute, the City of Indianapolis and other units of municipal government in Central Indiana and their respective economic development organizations to effectively leverage information and resources.
Indiana 21st Century Research and Technology Fund. During the last legislative session, the State of Indiana made a significant commitment to support technology-based economic development by making $50 million available over the next several years to promote technology innovation. The 21st Century Research and Technology Fund will provide grants or loans to support proposals for economic development that:
The Indiana 21st Century Research and Technology Fund is an unprecedented investment by the State of Indiana in a range of innovative activities designed to change the economic landscape of our state. Indeed, State policy now links technology with economic prosperity and greater security for our citizens. IPCRES is positioned to lead in this arena and establish the strategic partnerships noted above to accelerate Central Indiana's economic transformation. By working within targeted industry clusters, we expect to develop a system of innovation networks that moves technology rapidly into the marketplace and facilitates start-ups.
Support for Innovative New Businesses. An important goal of IPCRES is to foster new business and industry through methods proven successful in other regions of the country. One is to provide "incubator" facilities within IPCRES in a way that does not compromise its not-for-profit status, but advances the University's commitment to commercialization. IPCRES research coupled with an incubator provides the opportunity to leverage assets, build a critical mass of entrepreneurial interests and services, and impact economic development in the region. ARTI's experiences in this area will prove quite valuable and reduce much of the trial-and-error associated with fledgling incubator projects.
IPCRES will also develop entrepreneurial assistance and education services with capacity to assist service firms, venture capitalists, leaders, and entrepreneurs in understanding the unique risks and opportunities within the industry. IPCRES will provide access to venture capital consultants and experienced management professionals. Close association with venture capital firms and in-house legal support for protecting intellectual property rights will provide an ideal environment for developing promising new technologies into marketable products.
The revolutionary changes in information technology that we are witnessing at the end of the twentieth century set the stage for profound scientific, social, and economic transformations that affect almost every aspect of our lives. Information systems now allow us to solve problems in new ways and communication technologies allow us to think about human interaction in a new light. As Indiana University's School of Informatics begins functioning later this year, we intend to associate stakeholding partners from the private, public, and non-profit sectors with the new School that will complement the established units, programs, and resources of the University. While the School's intervention may be more nuanced and subtle than traditional economic development or technical assistance, its potential for impacting organizational cultures and processes will be significant as discussed in greater detail in Section 8.
Ultimately, the key to successful commercialization is allowing the greatest flexibility possible in designing collaborative arrangements between IPCRES researchers andcorporate partners, while providing an environment secure enough to enable real collaboration. A number of such arrangements (industrial partnerships) with commercial entities are envisioned, including several outlined below.
Knowledge Partner. These companies would pay a flat annual fee for access to all non-proprietary information and developments, and would be invited to attend all general scientific meetings and seminars.
Development Partner. Through contractual arrangement, IPCRES would collaborate with a company to develop a specific product or service. Rights to intellectual property developed under the arrangement would be shared, as agreed to by IPCRES, the external partner, and the participating principals.
Resident Partner. Research and development staff from external companies would be colocated in IPCRES Laboratories to work in a joint development project or as part of a consulting relationship. By providing space and access to IPCRES staff and students, ongoing research relationships would be expected to develop and flourish.
Sponsoring Partner. An external company would support IPCRES in a significant way, in exchange for ongoing product development consulting or access to IPCRES staff or facilities.
The Advanced Research and Technology Institute of Indiana University (ARTI) will be an integral partner in IPCRES' effort to promote commercialization. Though these efforts will be focused on research advances from the IPCRES Laboratories, they will range more broadly to include the commercialization of research from elsewhere in IU and the State. ARTI is an independent, not-for-profit 501(c)(3) corporation created by the Indiana University Board of Trustees in 1997 to serve as the key technology link between the University and the private sector. As an independent corporation, ARTI may seek investment funding, carry on limited commercial activities, hold equity securities in start up companies, and engage in other activities not permitted within a state university. ARTI provides technology transfer and business development services from offices in Indianapolis and Bloomington.
Technology transfer is the process by which intellectual property conceived during university research is disclosed, protected (by patent, copyright, trademark or other method) and licensed to the business community where it may be developed, manufactured and marketed. Most licensed IU technology follows this pathway to the commercial world. Business development is a natural extension of the technology transfer process. Certain select IU technologies are broad and deep enough to become the base for the creation and incubation of new start-up businesses in central Indiana. ARTI plays a major role in creating, developing and preparing each new company for its "spin off" from the University into the private sector. We anticipate that the research projects undertaken over the next five years within IPCRES will provide the kind of broad technology platforms that support new start-up companies.
The inventor and Indiana University benefit from the technology transfer and business development processes because both receive recognition and monetary benefit from the licensed technology. ARTI's business partners benefit by having access to the products of research carried out by the University. Government and society at large benefit from use of the new technology, the creation of business opportunities, and the growth and retention of high-technology jobs.
Over the years it has been clear that one of the best ways to transfer knowledge and skills between the University and the business world is by placing University researchers and graduate students in the workplace. All parties share in the learning experience, as many successful industrial internship programs have demonstrated. The benefits of student internship and part-time employment are especially powerful in high technology environments where knowledge is just emerging and untested. Strong research and development collaborations are required to move from a unique idea or concept within the University to new commercial products in the marketplace. One of the key drivers of these collaborations can be the establishment of academic internship programs and the creation of part-time job opportunities for Indiana University students working on technology licensing opportunities and new potential high technology spin-off companies.
ARTI will partner with the IPCRES Economic Development Office and the School of Informatics to develop a broad technology transfer assistance program that includes top-flight graduate students from Informatics and a number of other appropriate IU schools and departments. ARTI will also support intern and part-time graduate student programs that transfer new IPCRES research technology to our established business partners. The opportunity for graduate students to work along side full-time employees on important commercial projects will provide students with invaluable experiences, including the importance of crisp objectives, precise timelines and reliable performance. As this program of technology transfer becomes established, and as the School of Informatics develops its undergraduate programs and internships, these same internship opportunities will be extended to advanced undergraduate students as well.
ARTI will also develop and conduct a series of technology transfer and business start-up seminars and training programs for IU researchers and inventors to teach them the skills needed to prepare patent and trademark disclosures. In addition, ARTI will assist in the technology licensing process and help create new high technology business opportunities. We will utilize our in-house expertise and hire experienced, highly qualified professionals from the Kelley School of Business, the IU School of Law — Bloomington, the IU School of Law — Indianapolis, patent firms, law firms, consulting firms and venture capital funds to conduct these programs on a regular basis at the Bloomington and IUPUI campuses. These biweekly seminars are planned for every semester beginning with the spring semester of 2000. Over time, ARTI anticipates that these seminars and training services will have a significant impact on the knowledge and enthusiasm of key IU researchers for the licensing of their technologies and potential for establishing new information technology start-up companies in central Indiana.
ARTI also intends to identify, recruit and hire a recognized, experienced and highly qualified IPCRES Technology Transfer Officer as part of its participation in IPCRES. This person would work with faculty and researchers within IPCRES and elsewhere in the University to assist in transferring to the private sector the technology developed under the established research programs. This individual is expected to be in place prior to July 2000. It is anticipated that the number of licensing opportunities and new company start-ups based on IPCRES technology will correspond to the general flow of the research activity, with relatively few licenses in Years 1 and 2, but an increasing number in Years 3, 4 and 5. Specific plans detailed below describe our action steps toward achievement of goals emanating from ARTI's two primary programs technology transfer and business development. They are complementary to and supportive of the overarching economic development goals articulated throughout the entire IPCRES proposal.
It is easy to underestimate the complexity and difficulty of increasing the flow of technology from Indiana University and using that flow to capture a greater share of technology commercialization throughout the State. To move from innovative, highly technical inventions to final products requires a vibrant technology enterprise community and early stage capital seed. When these two ingredients are brought together the results can be most dramatic and efficacious.
Recent studies from MIT (Pressman) and the University of Pennsylvania (Kramer) have validated the importance of government-funded research at universities to economic development and new high technology company formations. The MIT study estimates that almost $1 billion has been invested by the private sector toward development and early commercialization of its licensed inventions. In addition, two thousand jobs have been created or sustained. About 77% of this investment and 70% of these jobs are associated with start-up technology companies. The University of Pennsylvania study showed similar results. They calculate that each licensee of their technology averaged $930,000 in annual induced investment. This exceeded the license revenue received by Penn by a factor of 33, showing the powerful multiplier effect this licensed technology has on economic development. Once again, start-up companies played the major role in moving the technology from these two research universities to the market. In its fiscal 1997 survey, AUTM (Association of University Technology Managers), estimated that the 240 research universities and research institutes in the US and Canada contribute $30 billion in economic activity and 250,000 new technology-based jobs to the North American economy each year.
Work by the Mayor's High Technology Task Force (now the Technology Partnership), stock market activity, and recent success stories by central Indiana software companies, have begun to raise the level of interest in investment in information technology research and development as a vehicle for economic growth. However, Indiana still lacks access to the early risk capital that provides crucial support and assistance for entrepreneurs in the first stages of technology validation, product development and market connection. Such funding also plays a role in securing key management and technical talent and in addressing other essential aspects of technology business development. The research of the IPCRES Laboratories and other promising information technology projects throughout Indiana University will provide the "raw material" around which exciting new high technology companies can be built.
In order to help move exciting new IPCRES and Indiana University technology into the marketplace, it is proposed to establish an IPCRES Capital Seed Fund to be managed by ARTI.
Goal. The goal of this Fund would be to provide early-stage financing for promising technologies related to pervasive computing successfully developed in the IPCRES Laboratories as well as elsewhere in Indiana University. As part of the IPCRES economic development strategy, this Fund will be open to projects outside of IPCRES in order to broaden the available pool of candidate technologies, and achieve some near term successes. This fund would not be used to finance any health-care-related companies.
Need. Exciting new technologies need to mature to a point where their potential value and risks can be established. This often requires additional development work and analysis to confirm the promise shown in initial research projects. For example, a completed medicinal chemistry project with therapeutic compound candidates becomes much more valuable if it works successfully in an appropriate animal model of the human disease. In most projects, the funding of that confirming study is outside the original grant. In the world of information technology, some additional programming, graphics expertise or the use of professional actors in a video sequence can elevate an average interactive educational CD to "best in class". Once again, the extra funding for those additional resources is difficult to obtain through the traditional grant process at universities.
If IPCRES or Indiana University technology research has the potential on which to base a new start-up company, a small, early-stage equity investment from the Fund may provide the decisive additional resources required to raise the value and lower the risk of the product under development. This enhanced product opportunity can encourage the later-stage investors who typically fund the next round of growth in a high technology company. It is this initial risk financing, the capital seed, that is especially difficult to obtain in Indiana. However, these small, pivotal equity investments can provide large returns to the company and its investors if the projects are carefully selected and monitored. This nurturing of promising technology and its creators is a major part of ARTI's mission at Indiana University.
The investment strategy that ARTI would pursue would be to invest funds from the IPCRES Capital Seed Fund in four or more projects over a five-year period. Each investment decision would be based upon a well-defined action plan with a specific, measurable objective and a tight timeline.
ARTI's investment would be negotiated with each start-up using balanced objectives of getting the company formed and operational in an efficient and frugal manner, while still allowing a fair return for the seed fund. We would try to value our investment low enough to provide an attractive financial opportunity to the "angel" and venture capital investors who would provide the next rounds of funding. Sometimes seed rounds of financing are priced so high that later investors turn down the deal, or invest their second round of equity financing at a lower price (a "down round") which causes a great deal of concern to the creators and the initial investors.
Investment Criteria. With recent emphasis on increasing the role of economic development at research universities, there has been a tendency at some institutions to encourage too many new company start- ups. This often happens when there is an incubator facility to be filled or when senior professors want to start a small corporation to employ graduate students. The desire to write and receive Small Business Innovation and Research (SBIR) grants or the hope of generating additional income also compound the problem. ARTI plans to develop, assist and fund only those new companies that have a real chance for success in today's tough and competitive information marketplace. ARTI will use its Licensing and Entrepreneur Seminars and start-up assistance teams (staffed by graduate students) to help us fully assess and qualify the prospects for success of IPCRES and IU technology and new company management teams before considering a seed investment. Furthermore, ARTI will rely on commercialization audits and the same general criteria for investment that successful high technology venture capital investors use, looking beyond the initial seed funding toward eventual success in the marketplace. These criteria include:
Venture capital investors want a successful high technology start-up company to reach annual sales of $100 to $200 million within five to seven years of their initial investment. They also think a lot about what they call the "exit strategy," or how they cash out to return capital to their limited partner investors. In the current environment there are usually two exit strategies from a successful investment. In the first scenario, the start-up company goes public and the VC firm may sell its shares and distribute cash or simply distribute the stock directly to its limited partners. The alternate exit strategy has the start-up company being acquired by a larger private or public company. Shares in the start-up are simply exchanged for cash and/or stock in the acquiring company. ARTI will be mindful of the goals and objectives of these downstream investors as we qualify, select, assist and fund new start-up companies.
Implementation. ARTI will work very closely with IPCRES, especially its Economic Development Office, and the President of ARTI will be a member of the IPCRES Steering Committee. In addition, ARTI will continue to work closely with other organizations within central Indiana who are seeking the same high technology growth objectives, including the Venture Club of Indiana, the Technology Partnership, the Health Industry Forum, the Indiana Information Technology Association, and the new 21st Century Research and Technology Fund. The IPCRES Capital Seed Fund will be a significant part of the IPCRES economic development strategy and may be a decisive factor in bringing into being some dynamic new technology companies in Indiana.
6. The Research and Development Agenda of IPCRES | Table of contents | 8. The IPCRES Education Program
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