Research, ideas, and leadership for a more secure, peaceful world
Author
Livio Valenti
Over the past five years we have experienced a big change in the entrepreneurial and venture capital community. We started to witness the successes of a new kind of entrepreneur. They made a bet on building companies based on scientific discoveries, developing electric cars, exploiting novel therapeutic modalities (mRNA) and launching rocket ships. Similarly, some visionary venture capital (VC) investors realized that the next crop of trillion-dollar companies might be built on transformational science. And they followed along.
Deep technologies are defined as innovations born out of fundamental R&D with the potentials to be translated into a product or service with huge market potentials. Yes, it might take a long time to develop them, and the technical risks are large. But if you invest in strongly protecting IP, and you address the technical risks, you might hold the key to untapped new markets.
What if you could make safe, unlimited energy from nuclear fusion? Develop clean steel from hydrogen? Reinvent food that does not spoil, or seeds that can grow in the desert? And here is my favorite: making vaccines that don’t need refrigeration and can be applied with a patch instead of a needle. Full disclosure: I co-founded a company working on this deep technology.
If you are optimistic enough to think those challenges can be solved with science, and you embanked on the journey of asking those “what-if” questions, you are part of the so called “deep tech” sector. Deep tech is an attractive field not only because it could be a lucrative, long-term investment or entrepreneurial opportunity. It is also a new modality we can deploy to address some of our most pressing challenges. Decarbonizing society, mitigating and adapting to climate change, building more efficient healthcare systems, modernizing transportation, agriculture and energy, they all require science-based technologies to be deployed at scale. Entrepreneurs are building interdisciplinary teams to de-risk technical challenges and advance discoveries to market. Investors are rushing to back them.
To date, most of the deep tech start-up in the United States are born from academic research. The idea of academic spin-off is more than 40 years old, and several universities were able to build a strong culture of technology commercialization. In some universities, building start-ups from academic research is not only allowed, but celebrated and rewarded. Places like the Langer Lab at MIT have been spinning off technologies for decades, pioneering a revolution in drug delivery and bioengineering, from lab to patient.
Universities have been the most successful in spinning off research from IP generated in their labs into new businesses. Entrepreneurs and VC investors are increasingly scouting university labs to look for new deep tech opportunities. New materials, advancements in quantum computing, synthetic biology, AI algorithms, biomedical breakthrough are some of the most popular deep tech sectors.
In 2016, around $16 billion dollars were invested in deep tech ventures (Boston Consulting Group). In 2020 this number was closer to $60 billion, a remarkable increase over just 5 years. The average investment size in deep-tech companies also increased. From $13 million in 2016, it reached $44 million in 2020. When looking at early-stage investments, the increase is not less impressive, going from $360k to $2 million over the same time span.
There is one area that has been systematically overlooked in the search for the most impactful deep technologies. And it is a massive, fascinating ecosystem: our National Labs, or Federally Funded Research and Development Centers (FFRDC).
National Labs are among the largest scientific facilities in the World. In 2019, $115 billion or 10.5% of the total reported amount invested by the Government in R&D was allocated to National Labs. Contrary to what one might think, only 41% funding was for basic research, and 36% was for applied research and 24% was for advance prototyping and development.
The first National Lab was created in 1947: RAND is a wordplay on R&D.
The key mission of National Labs until the 80s was to provide critical post-WWII capabilities in the science and technology field. Scientists, engineers, mathematicians, and other specialists became part of the United States’ massive post-war effort. In that period, the Government wanted to mobilize the country’s scientific and engineering talent and apply it to the development of technologies that would aid U.S. cold-war efforts. As notable examples, the Department of Defense’s (DOD’s) Lincoln Laboratory was created to develop radar for identifying aircraft and ships; the Los Alamos and Oak Ridge National Laboratories were established to support the Manhattan project.
Over time, National Labs further expanded in many additional areas, such as civilian nuclear energy, petrochemicals, pharmaceuticals, electrification, communications and chemical components. It was not until the 80s that a swift change was introduced, thanks to the Stevenson-Wydler Act. This new legislation made technology transfer to the private sector an official mission of the National Labs. Subsequently, the Bayh-Dole Act of 1980 and the Federal Technology Transfer Act reinforced this initial directive and permitted National Labs to file patents and license inventions to the private sector through cooperative research and development agreements (CRADA). In 1989, the Department of Energy was directed by Congress to establish a tech transfer office resulting in many CRADA being developed.
With $15 billion in annual budget (~49$ per person/year) and ~60,000 scientists and engineers, our National Labs (or FFRDC) represent one of the most important and active research ecosystems in the United States, and globally. Currently, 13 federal agencies (e.g., DOE, DOD) sponsor a total of 42 National Labs The type of research that are currently conducting spans multiple scientific and engineering disciplines, ranging from clean energy, nanotechnology, quantum computing, cancer research, astronomy, material science, and many other.
National Labs are “ad-hoc” entities owned by the Federal Government but operated by contractors (GOCO – Government Owned, Contractor Operated). DOE and DOD sponsor most of the National Labs, 17 and 10, respectively. The National Science Foundation (NSF) sponsors 5 centers, the Department of Homeland Security (DHS) sponsors 3, and the Department of Health and Human Services (HHS) sponsors 2. The National Aeronautics and Space Administration (NASA), the National Institute of Standards and Technology (NIST), the Department of Transportation (DOT), the Nuclear Regulatory Commission (NRC), and the United States Courts each sponsor a single FFRDC. The Department of the Treasury (Treasury), the Department of Veterans Affairs (VA), and the Social Security Administration co-sponsor a single FFRDC that serves all three.
FFRDCs are classified in three “activity type” categories under a system established by DOD and adopted by NSF. According to NSF, the three categories — R&D laboratory, study and analysis center, or system engineering and integration center. NSF has the responsibility of maintaining a master list of FFRDCs across the federal government. According to NSF, 26 of the 42 current FFRDCs are R&D laboratories, 10 are study and analysis centers, and 6 are system engineering and integration centers.
Since their establishment, National Labs have developed new technologies impacting our daily lives, spanning from medicine, computing, transportation, aviation, defense, cybersecurity, and the environment. Some examples of notable deep technologies developed in National Labs are described here:
The Global Positioning System (GPS). The GPS was developed as a defense technology to provide navigation and location capabilities to the U.S. military. Since then, its use has expanded fully into the civilian world, becoming an integral part of daily life.
Traffic Collision Avoidance System (TCAS). This alert-and-warning system is required on all large commercial aircraft. Developed at the Lincoln Lab, TCAS has prevented countless midair collisions for more than 20 years, making it one of the most essential elements of aviation safety worldwide.
First Programmable nano-processor. In collaboration with a team from Harvard, MITRE engineers and scientists designed the first processor created out of ultra-tiny nanocircuits. They run using low little power, which will allow them to become the building blocks of small, lightweight electronic sensors and consumer electronics.
In some cases, National Labs have been successful in translating R&D achievements to commercial industry. The private sector was able to further develop, manufacture and market those products. However, the vast majority of new IP developed in National Lab has been historically licensed to large conglomerates, as opposed as to more innovative start-up ventures.
Making this R&D accessible to start-ups can add huge value to the economy and society. Without giving the opportunity to entrepreneurs to launch new deep tech ventures we run the risk that some of the most advanced innovation remains locked into the National Labs.
Innovation ecosystems are also built and evolve around new discoveries and advanced R&D capabilities. Kendal square in Cambridge, MA, is an example of convergence between university research, Government funded R&D, industry collaboration and entrepreneurial ambitions. Those ingredients accelerated the development of a science-based cluster, mostly focused on biotechnology. Universities attracting talented student, academic research performing cutting edge science research, venture capitalist bankrolling innovation, are some of the elements that transformed not only a small town into one of the wealthiest areas in the USA, but also contributed to advance discoveries like the Covid-19 vaccine (Moderna, Cambridge, MA) and many other.
National Labs can provide an opportunity to spur innovation ecosystems outside the main cities like Boston, San Diego, San Francisco, San Jose, and Seattle. Those centers have captured more than 90 percent of recent growth in “innovation sector” jobs. (Atkinson, R., Muro, M., & Whiton, J. 2019). National Labs can support the development of new innovations ecosystems in locations that need it the most, spanning from Oak Ridge, Tennessee to Santa Fe, New Mexico passing through Aims, Iowa and Aiken, in South Carolina. Moreover, technology driven start-ups can attract funding from Federal agencies via programs like SBIR grants. Those could be federal dollars going to States further reinforcing the state innovation ecosystems. This should be welcomed by state Governors.
Additional resources should be placed on improving the translation of National Lab technologies to start-ups and their development into products and services. This would also give an opportunity to deep tech entrepreneurs and investors to build upon discoveries from the National Labs, bringing new science and technologies to fruition.
If we continue to allocate funding to this R&D area, we should expect more products in the hand of our Citizens
As billions of dollars are invested in R&D at National Labs, we need to accelerate the translation of such innovation into new start-up ventures. By building deep tech start-ups leveraging innovation from our National Labs, we can prove that the most ambitious “what if…” scenarios are achievable. Addressing challenges such as climate change, energy transition, transforming healthcare, developing quantum computing can become a reality by leveraging the best innovations of our times.
We firstly need to better incentivize National Labs to play a greater role in spurring innovation. This can be done amplifying technology transfer activities and encouraging commercialization of National Lab funded R&D to new, innovative start-up companies. Secondly, the Government should play a leading role in backstopping the risk of those new ventures providing the necessary weight to persevere through obstacles. This can be in the form of grants and procurement contracts.
Ultimately, to go deep(er) in building new companies, entrepreneurs and investors will need to pioneer a new approach in working with the National Labs. Scouting, developing and scaling up companies based on innovations born from our National Labs will not be for everyone. But what if it worked?
Valenti, Livio . “To Develop Deep(er) Technologies, We Need To Unlock Our National Labs.” February 4, 2022
