Fueling the Economic Engine
ON THE EDGE OF CAMPUS, nearest downtown, a handful of buildings have been refashioned to house startup companies. Not a 10-minute drive away, a formerly shuttered industrial space has been refurbished for expanded business operations. “It’s a visual identity of an entrepreneurial environment,” says Mary Jo Waldock, with the Office of Innovation Enterprises. “Companies will see all the things we have to offer.”
But this isn’t Columbia; it’s Toledo, Ohio. However, the message is the same: Universities are expanding roles beyond education into regional economic development. From licensing research to outside companies to building new startups and drawing new businesses to the area, the University of Missouri strives to become an engine for mid-Missouri’s economy, just as the University of Toledo has for northwestern Ohio. In 2011, the University Economic Development Association, of which MU is a member, awarded the Innovation and Entrepreneurship Award to UT for its work with startups and high-tech clusters within its region of Ohio. Although UT has achieved great success, even Waldock says MU’s recent victory of more than 60 jobs is a feat.
When Beyond Meat made public its plans to manufacture the technology it licensed from MU — chicken-free strips — in Columbia, a hoorah went up around town at the prospect of so many new jobs. But despite the success, the university still faces shortcomings and challenges to truly excel in its newly adopted role as an economic engine.
The national trend of universities acting within an economic development role began in 1980 with the passing of the Bayh Dole Act, which allowed universities to own any developments achieved through government grants. This gave universities the incentive to invest in infrastructure for tech transfer, the transfer of innovation into commercially viable products. More recently, in the wake of the recession, state governments have become increasingly active in pressing public universities to contribute more to the local economy.
“In order to be attractive for these new businesses, we have to develop infrastructure to support small businesses,” says Chris Fender, director of MU’s Technology Management and Industry Relations Office. “It’s hard to make a strong case to make sure we have that infrastructure across the board.” But that doesn’t mean MU isn’t making great efforts in its new role.
Research expenditures at MU expanded from $202 million in 2006 to $350 million in 2012, a 73 percent increase. The number of active licenses, indicative of current and future revenue streams from commercialized university research, more than doubled from 101 in 2007 to 254 in 2011, and the number of startups increased from two in 2007 to eight in 2012. Despite its gains, the university experiences major shortcomings, particularly in the area of securing local investments, that continue to hold the region back.
The start of success
“[Other researchers] tried to mimic beef with soy products, but it wasn’t very similar; they tried with chicken, and it was even worse,” says Fu-Hung Hsieh, a professor of biological engineering, who, with senior research associate Harold Huff, created the nationally acclaimed soy chicken technology that Beyond Meat will utilize at its new plant.
“We knew there was a problem with [current methods], and as scientists we always look for areas to make the most impact,” Hsieh says.
This was an area Hsieh says he could impact because the necessary facilities were available at MU. The first time Hsieh tried to make the soy product was in the early ’90s. “It was pasty and gritty and had nothing like chicken fibers,” he says. He and Huff went back to the drawing board time and time again in the first few years, and eventually a tasty chicken substitute was born.
At the MU Tech Expo, Hsieh’s grad students prepared the chicken-free strips into a chicken salad. Few could tell the difference, and Hsieh himself says he can’t tell. “When you put them side by side, people get fooled a lot,” he says, smiling. It’s a compliment to his product.
Following Hsieh and Huff’s success, MU, which owns technology developed at the university, licensed the invention to Beyond Meat.
According to Fender, before the university files a patent on new inventions such as chicken-free strips, it does a market analysis to understand any and all barriers to entry and look at best commercial partners. Large companies such as Monsanto or Boeing are safe options because the university can count on those companies’ abilities to bring the new technology to market. Other times, when the technology is in a niche or risky market, such as protein substitutes, the university works with smaller companies, or the researchers talk to venture capitalists to start a company of their own.
After going through negotiations, Beyond Meat began production on Oct. 8, 2012.
“I’m just glad it’s happening here because we wanted it to benefit MU and the state,” Hsieh says.
When MU licensed the technology to Beyond Meat’s parent company, Savage River Farms, the agreement stipulated the company must have a presence in Missouri within five years. It’s a new tactic for the university and a nationwide trend; Beyond Meat was the first success of this kind for MU in its role as an economic development engine, according to Fender.
“What we try to do is let [the company] know about our local economic development mission and put the option [of locating in Missouri] on the table,” Fender says.
“We’ve tried with others, but they haven’t gone anywhere,” he says. “For some companies, Missouri doesn’t make sense. For example, if a product will only be sold in Southern California, it wouldn’t make sense to be made in Missouri.” In this case, the agreement didn’t stipulate a manufacturing center, or specifically Columbia, but it could have been a research center, a sales facility, headquarters or a different type of presence anywhere in the state.
Columbia made sense as a manufacturing location because inexpensive water and energy, a central location and an abundance of soy — the main ingredient in the chicken-free strips — were important factors of production.
Regional Economic Development Inc. played a role in attracting Beyond Meat to Columbia and often works with the university to convert research into local commercial businesses. “Every project is different, but this was an interesting opportunity because it does in fact provide opportunities for a lot of jobs,” says Mike Brooks, the president of REDI.
Unique circumstances
Beyond Meat was a unique case because Hsieh’s product was so well developed at the university level that it skipped a step many technologies must experience prior to widespread commercialization, Fender says.
Often, to fill the gap between research and commercialization, an incubation period is necessary. Jake Halliday is the CEO of the Missouri Innovation Center, which operates the MU Life Sciences Incubator. The incubator is affiliated with MU but is a legally separate entity.
“Our public purpose is to create a high-tech industry cluster and positively impact economic development in mid-Missouri,” Halliday says. By providing space, general mentoring and a full-cycle commercialization program to companies in need, the Incubator will likely become a major driver in the local economy. “You can see the benefit when you remember there are more than 20 companies in this building.”
In its third year, the incubator just graduated its first company, Dietary Innovations, in August. The company remained in Columbia because of its strong ties to the community and university, Halliday says. Typically, companies spend between three and five years in the incubator before graduating, so Columbia can expect to see more graduates soon. According to a study by Business Incubation Works, 84 percent of incubator graduates stay in their communities.
“Why wouldn’t [the graduates] stay?” Halliday asks. “They have a near-dependent relationship with the university.” Research and development are extraordinarily expensive, with the need for specific lab equipment and expert collaboration. Halliday says by remaining close to MU, the companies can continue to benefit from the resources the university has to offer.
“This one really made sense because of the close collaboration with the inventors to make sure it comes out right,” Fender says in the case of Beyond Meat.
Hsieh agrees, saying: “We’re here to help. If they moved far away, it would be more difficult.”
Money, money, money
As a greater number of high-tech companies mature in the MU Incubator, Halliday says that to continue growing these companies, they will likely need serious amounts of capital — upward of $10 to $30 million.
“A lesson we soon need to learn is to beef up capital in Missouri,” Halliday says.
To meet that need, Centennial Investors was created in Columbia in 2006. Centennial Investors provides funding to both private entrepreneurship and university spinoffs. According to the group’s president, Brue Walker, its 60 members typically invest between $250,000 and $500,000 in companies at the earliest stages. Venture capitalists, however, typically begin investing the large amounts needed as the companies mature and begin to look for a permanent space of their own. Often this requires between $1 million and $30 million.
Since its inception, Centennial Investores has invested $2.5 million in 12 companies, including $900,000 in three MU spinoffs. Both of the companies in which the group invested in 2012 were MU spinoffs, EternoGen and Elemental Enzymes.
Typically, investors want to remain close to their investments, and often the lack of venture capital funds in Missouri hurts the university’s ability to keep licensed technology and tech startups in the region. “They may have to get money from somewhere else,” Halliday says. “And the company ultimately needs to do what’s best for it.”
According to Brooks, one and a half years ago, a technology company was planning on locating in Columbia to be in the health corridor and work with the university, but it was consulting with two venture capital firms. “One had no requirement on location, and the other required the company to be in North Carolina,” he says. The company ended up in North Carolina. “That illustrates an opportunity that we could have had [with more local investment].”
In the past, UT experienced similar growing pains. “[Securing venture capital] was an extreme problem that was widely discussed in the economic development circles here,” Waldock says. “We wondered, ‘How could we get them started here since there currently aren’t any?’” A venture fund was begun specifically for UT companies in 2009, and it was one of the first universities to have its own investing group, known as Rocket Ventures, to invest in strictly UT startups.
A full circle of success
UT’s Office of Innovation and Enterprises hosts many efforts to draw regional economic players together to discuss closing gaps in local industries and moving forward. Jessica Satler, associate director for regional and economic engagement at UT, says they also try to help local businesses understand what university resources are available to them.
A study done by the MIT Industrial Performance Center discovered that universities must be more aware of their current local industries in order to contribute innovations that will be useful to regional economic development.
The outreach efforts of UT are focused on a handful of areas in which it already has research strengths. For example, Isofoton, a Spanish company, was looking to locate in the United States and chose to locate in northwestern Ohio because of UT’s more than 20 years of research in solar photovoltaics, a specific type of solar panel. “They knew that we would have engineers and researchers in those fields,” Satler says. “And that circles back to going after our local industry strengths.”
Because of close partnerships with local businesses, UT students also have access to work experience programs locally, and Satler says the fact that they interact so much with local companies increases students’ likelihood to remain in the area upon graduation. The MIT study also found that a university’s greatest role in economic development and the transfer of technology to industry was “the moving van that transports the Ph.D. student from his or her lab to a new job in the industry.”
Waldock says one of the best tactics UT did was to educate its faculty on the evolving role of universities. “There has to be education on why it’s important for a university to help [develop the regional economy],” Satler adds.
“If we don’t have a growing economy in our region, then we don’t have jobs for our students when they’re out of school,” she says. “You can’t survive to educate if you don’t have a strong economic region, and that’s something people have to understand before you can more forward.”
“I feel like what we do is not well understood,” says Fender with MU. “We want the community to understand the university is so much more than a place to go to school.”
“It’s research, teaching, service and economic development,” he adds. “It’s an ecosystem.”