Universities Aren’t Commercializing Innovation, They’re Taxing It

Everywhere I go lately experiences at some point, the same conversation. Different city, different state, different accents and startup hype, but the same whisper once the doors close and University administration is out of the room.

I was just in Phoenix, sitting with startup operators and ecosystem builders, and within minutes we were right back where I’ve been in Austin, Chicago, Tulsa, Boise, Kansas, and half a dozen university-oriented ecosystems that all swear they’re “different.” IP. Commercialization. University tech transfer. Broken. Everyone knows it. No one seems willing to say why out loud, much less change the model that keeps failing.

Oh, don’t misunderstand me when I say “broken;” if you’re in a University with a major program, you are among the 25 universities or so, in the world, that make a fortune licensing IP from research usually funded by taxpayer dollars - I’m sure you’re thrilled, and celebrate the year end with a banquet featuring the Mayor where you cheer how much more funding you’ve pulled in to further research. Meanwhile, most colleges struggle with entrepreneurship and let’s be honest, the majority of your celebrated research sits on shelves because you like to think innovation is doing the research that someone else will pay to make valuable. Broken.

The polite version, which I’m certainly not prone to repeat, is that “commercialization is hard,” or to celebrate the wins while ignoring the waste. The honest version is that the university tech transfer model was built for a world that no longer exists, one which assumes invention is rare, local, slow, and valuable on its own. None of those things are true anymore.

The Bayh–Dole Act of 1980 is usually credited with “unlocking” U.S. university commercialization by allowing universities to retain ownership of federally funded research. And to be fair for the time, it worked. The Association of University Technology Managers’ (which for some reason, is adamant that they are only called AUTM now and you’re not to repeat that original name… which was very clear and descriptive) data shows that university licensing income is highly concentrated: fewer than 25 universities account for the majority of licensing revenue in the U.S., and even among them, a handful of blockbuster patents drive the numbers. Most universities lose money running their tech transfer offices.

The model assumes that IP precedes value creation. That research gets done, a patent is filed, a license is negotiated, and then a company emerges – and I assure you, right now, researchers reading this are thinking, “well, yeah, obviously.” Decades of study in entrepreneurship now tell us that this is backward. Steve Blank’s work on customer development showed long ago that technology without a market is trivia, not a business. The Kauffman Foundation has repeatedly documented that high-growth firms are not born from invention alone, but from execution, timing, and market pull.

“There are a number of universities, two of which do $1B+ in research, plus entities like the Flinn Foundation and Arizona Commerce Authority, that do an excellent job of going from research idea through tech transfer to company creation,” shared Brian Ellerman who I spoke with in Arizona. “The problem is that so little is focused on market building and value creation for those companies to get them to venture scale and exit. That’s not remotely in the skillset of universities or most non-profits. I’ve been encouraging AzBIO to take that lead but it takes dedicated resources,” he added, Ellerman, long-time angel who has custom-built focused accelerator for scale-ready companies, is the Executive Director of XLR8 at Phoenix Bioscience Core. “This is about purpose-built programs (like XLR8) that train founder/CEOs on raising capital, help them fill out their C-suite with experience, and build pipelines to industry partners who go from customer to investor to acquirer.”

Globalization accelerated the need for correcting the model forced in the 80s. Knowledge diffuses almost instantly now. Research papers are published online. Open-source frameworks replicate “defensible” technology in months. AI is reading that, iterating it, and advancing the research, whether lawyers like it or not. Manufacturing, software development, and even biotech experimentation are no longer geographically constrained. The OECD has been blunt about this: IP ownership is becoming less correlated with where value is ultimately created. Yet our universities still behave like medieval guilds guarding trade secrets behind toll booths. Perhaps worse, have you noticed that University campuses are expanding from one location to many: moving colleges to specific locations isolated from the rest? The self-congratulatory celebration is that this is concentrating the work of those students and professionals but as it pertains to fostering innovation and entrepreneurship, we know with certainty that silos isolated from the creatives and engineers, are precisely what stifle entrepreneurship (and putting a startup program in place doesn’t change the fact that it’s the mixing of the research, investors, and a sector, with entrepreneurial people that drives innovation: not invention licensed by people who think and expect the same outcomes).

And then there’s the pace problem. Innovation cycles are accelerating while university licensing cycles still move at the speed of committees, attorneys, and risk aversion. Multiple studies have shown that delays in licensing materially reduce startup survival odds because founders lose momentum, capital, and early market windows; we see this painfully in National Security and Defense potential where founders won’t even bother working with Military programs or the Government because the 9 month cycle of approval is a lifetime in startups. In plain English: by the time the paperwork is done, the opportunity has moved on.

What’s finally dawning on everyone is that IP is a supporting asset, not the asset. The real value is the company: the brand, the distribution, the customer relationships, the cash flow. Harvard Business School research shows that complementary assets like marketing and sales capabilities explain more variance in firm success than patent portfolios in most sectors.

So, if the old commercialization model is dead, what replaces it?

There are a few paths that survive contact with reality. The first is radical simplification through public funding. If research is publicly funded for public benefit, then stop pretending universities should behave like venture capitalists. Publish the research. Make the IP open or royalty-free. Fund downstream commercialization through grants, SBIR-style programs, and founder-led companies that compete on execution rather than access. This is closer to how DARPA has been operating as it evolves, and there’s a reason DARPA-backed innovations (from the internet to GPS) created trillions in downstream value without the government trying to extract licensing fees.

The second path seems more uncomfortable for universities but it’s the ethical direction if genuinely supporting entrepreneurs: give founders more equity and fewer shackles. That means default founder ownership of IP, minimal or no upfront licensing fees, and university participation capped at small, non-blocking equity positions. MIT moved in this direction years ago by prioritizing startup formation over licensing revenue, and it shows. MIT’s economic impact studies consistently find that companies founded by MIT alumni (not patents licensed) are the real engine of value creation (I’m reminded of the old Silicon Valley perspective on why Stanford has the impact it has).

A third model, often misunderstood, is sponsored spinout studios. Here, universities stop pretending they can evaluate markets and instead partner with experienced operators (venture studios, entrepreneur-in-residence programs, or external builders) who co-create companies around research insights. The IP is shared, diluted, or even deferred until traction exists. Imperial College London and ETH Zurich have both moved toward this hybrid model, prioritizing repeatable company creation over patent toll collection. The key insight: professors are inventors, not founders; universities are knowledge factories, not startups.

We might explore time-bound IP reversion. If a university licenses IP to a startup and that IP is not commercialized within a defined window (say 24 or 36 months) rights automatically revert to the founders or enter a shared commons. This directly addresses the “IP hostage” problem where promising technologies die in filing cabinets. Legal scholars have argued this could dramatically increase experimentation without reducing long-term university upside as it treats commercialization as a dynamic process, not a one-shot transaction.

Then there’s the uncomfortable but increasingly necessary model of non-exclusive-first licensing. The default assumption that exclusivity is required for commercialization is empirically false. Non-exclusive licenses lower risk, increase experimentation, and allow multiple teams to pursue different market applications simultaneously. NIH has pushed this model for certain biomedical technologies with demonstrably better diffusion outcomes. Universities resist this because it caps upside… again, a tell.

Finally, there’s the model no one in government wants to say out loud: decoupling universities from commercialization entirely. Let universities do what they’re good at: research, education, talent formation. Let commercialization happen downstream through independent capital, founders, Startup Development Organizations, and market-driven mechanisms. The economic literature supports this separation of functions; regions with strong startup outcomes often rely more on alumni entrepreneurship and industry spillovers than formal tech transfer. Stanford didn’t win because of its licensing office; it won because its graduates ignored it.

Tech Transfer Is a Rent-Seeking Industry Masquerading as Innovation

Both paths acknowledge the same truth: you cannot tax something into existence. You cannot committee your way to entrepreneurship. And you certainly cannot host enough demo days to compensate for a broken incentive structure.

Which brings me back to Phoenix. What I heard there was earnest, well-intentioned people saying “tech transfer must change” but I’m hearing that everywhere which means it isn’t being done. Perhaps because most places still confuse innovation with entrepreneurship, business with startups, and that demo days and meetups signal a thriving community of creators; we know we must move past more events, more innovation districts. and more centralized hubs designed to look collaborative while concentrating resources, decision-making, and ownership there. It’s theater. Activity without outcomes. Signals without substance.

The irony is that the very nature of modern research and IP makes geographic centralization less defensible than ever. Talent is distributed. Knowledge is distributed. Capital is increasingly distributed. Clinging to physical epicenters as gatekeepers doesn’t create innovation; it filters it, and not in a good way. Brookings has warned explicitly that innovation districts often exacerbate inequality and underperform unless paired with systemic reforms in capital access and commercialization pathways.

As Phoenix works to lead in BioScience, just as Bentonville could lead in Supply Chain, Tulsa might lead Rural Tech, and Chicago could be Industrial Innovation, the opportunity isn’t to do what we have been doing any more than it is to out-event Austin or out-brand Silicon Valley. It’s to break the model first. Strip friction out of university IP. Stop handicapping founders before they even begin. Measure outcomes instead of attendance. And accept the uncomfortable but liberating reality that innovation no longer lives in one place.

The next model has to enable everyone, everywhere or it will fail the same way the current one leaves important research sitting on shelves.