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PLSG Explains the Innovation Ecosystem

By James F. Jordan, President and CEO, Pittsburgh Life Sciences Greenhouse

As the PLSG marks its 15th anniversary this year, we have focused efforts on expanding our outreach. One key component of that initiative extends to making sure that all players in the “innovation ecosystem” clearly and accurately see the complex and interconnected journey from a product’s initial concept to its ultimate commercialization.

The diagram that accompanies this article offers the chance to clarify the system and the role of each function, starting with identifying the two main components, technology creation and technology commercialization.

Technology Creation

The process starts with universities, entrepreneurs and corporations conducting various types of research, including: basic research to advance general knowledge; applied research toPLSG Innovation Ecosystem focus on a specific academic, commercial or business objective; or translational research that uses multi-disciplinary collaborations to make findings useful for practical applications to enhance human health.

Research feeds into development, where business and technical resources come together to offer a set of features and benefits in a product. It may take more than one technology to make a product, though. The outputs of R&D include invention, patents, and trade secrets (confidential information that provides a company with a competitive edge) to form the technology, or the specific set of features and benefits offered in a product.

Approximately 2.8% of the U.S. gross domestic product goes into R&D funding annually. That translates to 0.5% into basic research, 0.5% into applied research and 1.8% into development. Academic and nonprofit institutions perform 66% of basic research, while 89% of development is performed by industry.

Federal law allows academia to create a revenue stream for itself, by either licensing its technology to a corporation or creating a startup company. In many cases, to prepare the technology to move from academia to industry requires additional applied or translational research funding. Large corporations frequently invest in university research to develop more advanced technology in a more cost-effective manner than doing it internally.

Technology Commercialization

Commercialization introduces a product to the market for financial gain. It requires supporting activities beyond the individual product features that are equally necessary to satisfy customer requirements, such as service, distribution, logistics, meeting regulatory requirements, and so on.

Commercialization takes one of two forms: either through corporations or startups. Startups have the additional concern of simultaneously raising capital and plotting a liquidity event that provides return for their investors as they develop their products. Successful startups also require a support network to bring the product to full commercialization.

Startup companies typically progress through stages of funding from pre-seed to early-stage, then to growth-stage and later-stage, before achieving liquidity for their investors by eventually being sold or selling their stock on the public markets. These monies come from various types of investors:  friends and family, angel investors, venture capitalists, and corporate venture capital.

Incubators like PLSG provide a critical mechanism to assist startup companies as they participate in pre-seed, seed, and early-stage funding. Business incubators offer programs, resources, and capital to help companies successfully develop their products, obtain capital, and plan liquidity strategies. Incubators measure their impact based on job growth and wealth creation. Startups that tap into the power and viability of incubators enjoy a higher success rate in bringing their products to market.

The conclusion of a successful innovation cycle is a product available in the market, producing a profit, and providing a return for investors. With all these ingredients satisfied, the innovation ecosystem provides increased employment and a strong contribution to the economy.