Let’s accept good things come from universities. There are more than enough powerful and smart people arguing we do not invest enough in research. Maybe we are also too near-term focused. With almost half of venture capital ($79.3B) focused on software media, entertainment, and IT services, and the other half ($79.9B) left to focus on all other industries including biotech and medical, things seem askew.

Venture capitalists argue there is too much money chasing too few deals. Perhaps true if your window is Silicon Valley and your pallet is facebook and twitter. Maybe the problem is not a lack of basic research but instead a lack of research transition.

Vivek Wadhwa does a great job describing the barriers in university innovation barriers, Innovation’s Golden Opportunity. He rightfully points out:

In 2009, the federal government, industry, and philanthropic organizations invested $53.5 billion in university research. The total licensing revenue of all U.S. universities amounted to $2.3 billion that year, and that number includes the ongoing royalties from technologies licensed over the past decades.

The royalty business case seems weak.

Research is invention. Innovation is the intersection of invention and customers, that is a customer willing to pay for the product of the invention. Universities are the warehouse of “Invented but not Innovated”. Bob Metcalfe, inventor of Ethernet, benefactor of MIT, great entrepreneur and believer in research, points out the dilemma in his review of the Idea Factory

The best reason to invest in universities today is not that they are well managed. They are not. The saving grace of research universities is that it is their business to graduate students, who have repeatedly proved to be effective vehicles for innovation, especially in their own start-ups.

In the United States, venture capital funds about 4,000 new companies each year. Is there a reason its not 8,000? 15,000? How do we get more good deals? Do we need more research? The US spends about $460B/year on research, with $65B or so dedicated to universities alone. Perhaps the issue is not spending but transition. Maybe the issues is when university talent tries to leave campus, the university technology license office grabs hold of them looking for the universities share.

US Universities receive about $33B in donations each year. If they graduate more entrepreneurs (i.e. let them bypass the license office), these philanthropic alumni will more than make up for the lost royalties.