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      The Next Frontiers of Financing Science and Post DotCom Venture Capital

Digital Notes for a Lecture at McGill on Commercialization of Technology for Graduate Science and Medicine Students Course on Innovation

March 4, 2003

Jim de Wilde (  

Dr. Jim de Wilde is President of JdW Strategic Ventures which assists financial institutions in designing venture capital strategies and, as a private investor, has worked on and served on the Boards of a number of companies resulting from the commercialization of technology. He is on the Advisory Board of the RBC Capital Markets Technology Fund, Fusion Capital (Toronto) and the investment committee of MSBI (Montreal).    He teaches venture capital strategies at the Rotman School of Business at the University of Toronto and has been on the faculty of the Business School  at McGill, where he is now a Dobson Fellow  and the Ivey School of Business at the University of Western Ontario.  

                  The words innovation and invention are around us always.   Now we have a global economy where a significant ingredient of prosperity is the alchemy for turning knowledge into value.   The commercialization of technology is central to national and regional competitiveness. The search for innovation strategies often confuses invention, innovation and the commercialization of knowledge or technology and I want to be very careful today to maintain a distinction between these categories despite their potential to overlap.

.        In Canada today, it is imperative that we start to develop innovation strategies which make the Canadian economy a magnet for innovative ideas that can be commercialized in a Canadian network.    This is a challenge which will determine our competitiveness, our nation prosperity and the meaning of our sovereignty in a global knowledge economy.   Today, I want to set out a framework for an innovation strategy for Canada by looking at some of the next frontiers for venture capital and   by assessing the art of transforming knowledge into value through creative financial engineering and focused managerial excellence.   In this manner we can build a knowledge economy in Canada where people can come from all over the world to do world-leading research, commercialize it and develop companies around entrepreneurially-led sources of specialized excellence.

                  Let me start with four case studies:

 CASE STUDY A:   Scientific publishing as an investment.  

The Gordon and Betty Moore Foundation (established by the founder of Intel and his wife), have just backed Nobel Prize winner Harold Varmus in a form of distributive knowledge that allows for a business model in scientific publishing.   The open-source revolution and the somewhat Scandinavian notion that all knowledge belongs to everyone has collided with an intellectual property-driven global economy to create some extraordinary new business models, from Lego to Linux, where collaborative learning has the potential to create new sources of value organized through the internet.    At one of the frontiers of venture capital interest these days are Linux-applications, distributive software, collaborative learning, data-mining, knowledge management software and the transformation of embedded information into commercial value.     This has led to business models like Groove  and the marketing of consumer data and epidemiological data as products.    Information is a commodity; knowledge management a business.   In this environment the search for a new business model for scientific publishing becomes an exciting and important area at one of the frontiers of venture capital.

CASE STUDY B:    Indian IT and NASSCOM ( as a global partner.     

The development of the outsourcing of IT management cluster in southern India is a much recognized reality of the global marketplace in the last couple of years.  NASSCOM, the Indian industry association, is a significant part of the new global knowledge commercialization network.   The Bangalore-Hyderabad-Mumbai networks have created a business model of "contingency cooperation" and high quality innovation   in the management of largescale information technology needs.     From an investor's point of view, finding a blue-chip mechanism for investing in the start-up companies within the South Asian cluster remains an interesting challenge.    The manner in which these investments are made and the links to other economies will become one of the defining characteristics of a renewed global economy in technology in the early 21st Century.   It also means that the alchemy of turning knowledge to value requires building knowledge hubs that are connected to new organizational models in Bangalore (and in Oulu,  St. Petersburg, Zurich,  Austin,  Charlotte, Copenhagen and the other parts of a growing global knowledge economy made possible by the realities of the internet).

CASE STUDY C:   The battery as a key to innovation.  

Commercializing electrochemistry research will lead to profitable investment opportunities.     The search for portable energy, rechargeable batteries and the creation of wire-free electricity will unleash great environmental opportunities and become a disruptive technology.    Venture capitalists have known this for a decade, but there has been no "Microsoft" of rechargeable power, no "Lotus" of micro-fuel cells or microturbines.   Obviously, if it was easy to create such a business strategy, venture capital would have done it by now.     The federal government is committed to making Canada a world leader in alternate energy, but how do we create the cluster of research, sophisticated investment, coordinated of academic research and entrepreneurial genius to make such a disruptive technology possible, and possible in Canada?   The Wall Street Journal reported recently on the industry structure of this sector. Companies like MobileWise ( and MTI MicroFuel Cells ( are attempts to build expertise in this space, but the sector has remained stalled for years.  A decade ago, Valence was a Barron's cover story (   It has not remade the battery sector and the interrelationship between batteries, rechargeable power, utilities and portable energy remains one of the most exciting scientific activities around.      What has stopped the development of this sector and how could a Canadian   strategy succeed in building world-class specialized excellence in rechargeable power in Canada?

CASE STUDY D.   Envirogenomics has become a new scientific discipline.    

What is it that explains why only a minority of people exposed to a toxic waste develop cancer?  What explains variations and adaptations to external chemical agents?   The intersection of traditional modes of inquiry to create new disciplines requires a different approach to the organization of knowledge and to the financing of research than exists in the neat boxes of physics, biology and chemistry as scientific disciplines.    The National Institute of Environmental Health Sciences ( in the research Triangle Park in North Carolina is a case study of the possible strategy of creating concentrated areas of expertise to break through in new areas,   a series of mini Manhattan projects to make possible a new form of collaboration.   

I raise these case studies to give a framework for discussing innovation strategies and venture capital opportunities in the development and commercialization of new knowledge.    The first pair of case studies is about innovation and the distribution of knowledge.  Case a (Scientific Publishing) is concerned with the commercial opportunities emerging from a market in information and designing a new economics of knowledge and science.  Case B (The Indian IT market in outsourcing) is about creating a global network which can facilitate the comparative advantages of distributing and organizing knowledge in different economies with different capacities.     It emphasizes the importance of developing a strategy based on commercializing domestic sources of innovative excellence as opposed to copycat strategies which attempt to do what can more efficiently be done elsewhere.   

The second two are about the commercialization of knowledge:  Case C (Rechargeable Batteries) is about how electrochemistry science can be commercialized to create rechargeable power, why the economic dynamics for this have not transpired, and the obstacles to creating such a cluster in Canada.  Case D (Envirogenomics) is about how to organize scientific research around emerging areas of knowledge where collaborative research can provide a competitive advantage and, possibly, a network which can be commercialized.       



            There was a time when one could talk about the distribution of knowledge as "education" and the creation of knowledge as "research".       An educated society is innovative.   Scientific literacy is a competitive advantage which is evident when one travels to Sweden or Finland.     

     Organizing knowledge and information has now become a significant industry, whether in financial services (as evidenced by the competitive struggle between Bloomberg and Reuters) or in the intersection of media and education in the emerging competitive market in educational technologies.     The process of turning knowledge into value is a cornerstone of a competitive society.   The new economics of distributing knowledge has created a number of business opportunities and business models.

There was some perceptive comment on the decline of Linux-based companies (one of the great moments in new economy hype) which said, in effect, "so much for companies whose business models are to give away their intellectual property".             Now, we are starting to understand that there are ways that collaborative knowledge can be profitable, the recognition in the example of the Icelandic genomic data-base Decode ( which recognizes that we own our DNA and can be compensated for its scientific use.  To be effectively compensated, a new investment entity had to be created, but this worked.     Similarly, value is being created from aboriginal medical knowledge, as reflected in the example of the Kalahari peoples being compensated for their knowledge of cactus.  (This led to "invention" of a diet-pill from the low-caloric, high-nutrition cactus that the Kalahari aboriginals used for journeys across their desert).

            There are few players in the new business of scientific publishing as a venture capital activity:   the Dutch publishing company Reed Elsevier whose venture capital fund is targeting related activities   (; BioMedCentral,   ( designed to enhance collaboration amongst scientific researchers; Case A sited before of Harold Varmus' attempts to create a new market for scientific research backed by Intel founder Gordon Moore's foundation (,  attempts to organize research in areas like virology (  and innovative  business models from

The DotCom era, like VerticalNet (   which showed

That excellent business models were designed in the 1990s even if swamped by their premature exposure to public capital markets.

     The field of knowledge management, exemplified by business models like Groove ( also raises the question of where original knowledge comes from in the complex sociology of science in which genius rewarded by a patent seems a somewhat out-of-date conceptualization of the knowledge development process.        How do we quantify the value attributed to institutional memory?    Companies which have engaged in the crystallization of their knowledge so that it can be a separate business unit confront this directly (e.g. a railway company which makes money from logistics or an airline which mutates into a travel management information system).   Web-based learning and the Napster / Kazaa challenge to music as property have focused the legal and business communities on these issues, but it will become increasingly a part of our experience in areas like medicine.   Who owns the data about my personal medical care if it teaches us something about disease-management?    If I discover a Kazakh musical tradition, who owns the music, the Columbus -like "discoverer" and distributor or the collective knowledge source?


    The frontiers of knowledge are defined by collaborative genius, boldness, creativity, and the ability to understand research in historical terms as paradigms shift and offer a vision of new opportunities.  We are at such a moment right now, as issues of intellectual property, venture capital strategies, financing of scientific research and the economics of knowledge are under a particularly creative moment.   The next disruptive technologies are not obvious.    They are undoubtedly not on the cover of Business Week today or they would have already created the new markets that resulted from their commercialization.   However, in order to understand the Canadian competitive advantage, we need to understand how innovations have changed the world, or "disrupted" markets to use HBS Professor Lyle Christianson's useful phrase (see for elaboration.

Technologies have been commercialized in the past and created enormous value. The history of companies like Carrier and General Electric are stories of the diffusion of new technologies and their broader economic consequences.  Air conditioning made possible the economic transformation of the American South and Southeast Asia.     The introduction of refrigerators made possible the elimination of a black market in former communist countries.    Consumers choose when they buy food if they own an icebox.   Suppliers determine the price and time of sale of no icebox exists.      Water-born diseases are the largest cause of endemic poverty.     Portable water purification systems with ultraviolet light to destroy bacteria make possible the creation of local water supplies that are healthy.  This may be the most disruptive technology of the 21st Century.

            Imagine an Africa a decade from now, where venture capital has used the wireless internet to link stakeholders in making investment decisions, where Mobil and Shell pay royalties not to an artificially-constructed regime in Chad or Equatorial Guinea but to an African pension fund with regional affiliates.   In such an Africa, equity capital would be put into the manufacture of customized African air-conditioning systems, decentralized local energy systems, water purification technologies with decentralized applications and affordable refrigeration technologies.    Innovation in refrigeration and food preservation technologies, innovation in air and water quality management technologies and environmental alternate technologies will dramatically transform endemic poverty even more than an enabling technology like the wireless web.  

            A global   perspective on venture capital and the economic of knowledge commercialization is required to make this happen.   In new disciplines like environmental engineering, industrial ecology, we see the beginnings of techniques of collaborative research which make possible such transformations.    From these developments and the fusion of knowledge in new disciplines, new sources of value can be created.      For this reason, venture capitalists should be looking for new disruptive technologies and the companies which commercialize them.    For this reason,  Canadian policy makers seeking to harness innovative skills and  facilitate the creation of prosperity by the commercialization of existing knowledge  need to explore ways that the themes we have been discussing could be brought together in Canada:   the links to global networks or knowledge generation and distribution,  the linking of financial strategies to emerging new and potentially disruptive technologies,   the ability to recognize areas of specialized excellence in a maze of new research,  and the capacity to make scientific publishing and open-source learning a Canadian core competence in a world economy defined by turning knowledge into value. 


 The concept:      A web-enabled on-going Canadian Global Technologies Corporation which would provide an organized framework for examining the commercial prospects of research technologies globally.

For a number of years, I have been advocating the concept of a Canadian Global Technologies concept which would provide an opportunity to create a hub of financial analysis in Canada.    It would provide a diagnostic of Canadian inventive sources and research capabilities, but it would also provide a hub for a global network of knowledge creation and technology commercialization, exploring the dynamics of new science in areas outside the mainstream of venture capital interest.   I explored it as a business model in the days of the heavy technology financing and as an adjunct to the research analysis functions of an investment bank.   This year, in the Dobson Center of Entrepreneurship at McGill, with the assistance and support of Professor Peter Johnson,    Josko Bobanovic and a team of MBAs wrote a feasibility study on my concept and an analysis of how this might be implemented as a McGill initiative.

From advanced industrial ceramics to applied entomology, scientists and engineers are working in various closed networks of research.    Commercial potential comes from a reorganization of research into a market-driven focus.     In many ways, that is being done by innovative companies on an ad hoc basis.  Applied electrochemistry is being done through research commercialization vehicles like Ballard, Global Thermoelectric.    A PhD in electrochemistry could therefore target his or her research toward commercial opportunities by looking at the business strategies of major firms that are innovating in these areas.   

            Because Canadian research is geographically fragmented, the need is even greater than in other countries and the development of internet coordinated research even more significant.

            The 50TECHNOLOGIES.COM Project, now referred to as Project is exploring the possibility of creating in Canada a web-enabled syndication of venture capitalists and scientists to create collaborations (public-private partnerships and company-creation exercises) in a number of areas of academic research other than genomics and information technologies where the venture capital has concentrated.    In optimal terms, this could create collaborative knowledge mechanisms and a scientific publishing/ open-source business model such as or in up to fifty areas of research which would:

1.      open up opportunities for venture capital to assist in efficiently commercializing knowledge in activities which are now not worth time and attention because they are too far from commercialization;

2.      assist university administrators in encouraging pre-commercial activities informed by commercialization trends and opportunities;

3.      provide a data base for scientific researchers with to know what areas of activity can trigger market interest


If we do this, we should start in areas where Canadians are acknowledged to have world-leading research (e.g. marine ecology and agricultural chemistry).   If we don't go ahead with this, what Canadians need to develop another strategy to ensure that the nucleus of activity in these areas is in Canada ?

First, we need to design an incentive system which encourages collaboration between researchers just as mergers and acquisition activity in the marketplace creates lakes of opportunity from ponds of disconnected initiatives.  Our research-base is too small in global terms to allow for the reinvention of other people's wheels.

       It is in this manner that the opportunities presented by scientific publishing and knowledge management in a knowledge-to-value economy create an opportunity for a blue-chip network like      it could put Canadians in the knowledge management business where we are well-situated to excel.     

            By focusing on areas where Canadian institutions enjoy the potential of specialized excellence, Canadians can create value in a post-dotcom world.        Competitive companies will either be local services companies that achieve excellence in management (e.g. Tim Horton's or Indian IT outsourcing) or companies which build on specialized excellence (e.g. the geological software in the Calgary cluster mixing information technologies with petroleum exploration capabilities and perhaps rechargeable batteries in the future). 

            For this to work, our innovation agenda must reflect a commitment of scarce resources to specialized excellence.   But also for this to work, the cornerstone of an innovation policy, a commercialization of technology strategy for a knowledge-to-value economy needs to create players that can manage a world where collaborative knowledge is a norm and scientific publishing a new venture capital backed growth sector.  



There is no question that a society which is committed to the development of new ideas will facilitate communication between inventive sources and financial strategies.   Let me offer a simple boundary line:    innovation is about market-resiliency,   the mechanics of diffusing information and the removal of the obstacles to developing collaborative knowledge.   Commercialization is the strategy for creating value from knowledge and can be done most easily in innovative economies.

Innovation depends on a number of factors including the facility with which a society commercializes technology, the clarity of the acoustics in the networks between local finance, international investment and inventive sources, the mechanisms which exist to synchronize corporate strategies, entrepreneurial capital markets and research organizations.

            Innovation policy is virtually never about spending more money.  There are very few successful public policies which benefit from simply spending new monies. Many times additional spending is anti-innovative and  counterproductive because public monies prop up rusting organizational structures and delay the breakthrough of new innovative approaches.   

The development of an innovative economy can, however, is facilitated:  

1.                            by encouraging entrepreneurial universities here networks are designed to share knowledge with local and global communities and this is considered  the organizational criteria for success;

2.                            by building  creative communities, where we create the multicultural mix of Henry the Navigator's court or Spinoza's Amsterdam,  or contemporary Silicon Valley,  or any Canadian city or university;  

3.                            by ensuring that the costs of disseminating knowledge are the lowest anywhere in the world  a public broadband internet strategy for educational technologies and;

4.                            by designing institutions where science, commerce and imagination connect easily in research parks which understand that the most prosperous economies in the 21st Century will be the one with the most scientifically-literate investors and economically-literate scientists

  If we are to create the most innovative economy in the world as a Canadian project, we need to learn the discipline and the vision of small economies, focusing on our areas of demonstrated excellence.  Instead of imitation strategies, we need to build on our specializations.    A Canadian defense policy should focus our expenditure in becoming the global democracies key source of identifying biological and environmental hazards and developing fast-response delivery of decontamination and bioremediation capabilities.   A Canadian foreign policy based on peacekeeping should specialize in rapid-deployment police force and armed vehicle technologies.    A Canadian industrial policy has to ensure that we can be best-of-breed in the areas in which we invest heavily.    It is not to use the old phrase about picking winners.  It is about backing winners.   The ability to connect our sources of specialized excellence to a global knowledge network which will determine our competitiveness as an economy and our uniqueness as a knowledge-to-value society. 

            This is about backing winners, not simply "picking" winners in the old debate of the 20th Century.    Decision-makers and investors pick winners every hour.   Venture capital is about picking winners:  arguing that collaborative learning technologies and microfuel rechargeable batteries are winners and B2C dotcoms are not.    When public policy backs research it can do two things:  it can try to pick winners to back or it can spread resources evenly through categories regardless of the likelihood of success.    If Canada, a small economy, does the first, it is doomed to mediocrity because we are a small economy.    If we do the first, we have to exercise an enormous financial discipline and an organizational flexibility.   Twenty years ago, I wrote that government can   pick winners as well as (and can create demand better than) the private sector.   However, the private sector is vastly superior in ridding itself of costly losers.    Without that discipline and the commitment to organizations that a flexible and rapid-response, even well-intentioned attempts to back winners in our areas of specialized excellence will produce costly and embarrassing failures.



                 The successful commercialization of technology and the building of the commercialization networks in key areas of scientific innovation will be a key to the sustained prosperity of Canada in a knowledge economy.     The following are examples I use in teaching MBAs and are cited only as examples of their business models and scientific networks.   They are selected, however, as areas of considerable economic potential in which Canada has a credible claim to a national scientific competence.  They are a good place to start for a discussion of how to recognize areas of specialized excellence.

1.      Environmental insecticides and green farming (

2.      Food toxicology and the detection and prevention of food contaminants (e.g.

3.      Marine ecology and the development of new products from marine research (e.g. or

4.      Environmental sensoring and key work on bioterrorism (e.g.

5.      Geological engineering and industrial ecology (e.g. and

6.      The commercialization of electrochemistry and the fuel cells clusters (e.g.

            If a technology commercialization strategy is one component of a national innovation strategy, then it is essential we remember the other components:

           1.  A national capital markets strategy       the efficient allocation of capital to the most productive players is the key to a prosperous economy.    This efficiency will be enhanced by having the most scientifically-educated investors and business-oriented scientists.     It also requires that we set as a conscious goal of public policy the development of the most hype-free capital market in the world, a globally-oriented that is complementary to NASDAQ and which has the expertise to bring revenues to early stage deals and create value from entrepreneurial as of economic prospect.   The 21st Century Canadian capital market should be to the global economy   what the TSE was in the 20th Century in financing mining deals for the industrial economy, commercializing the demonstrated Canadian expertise in geology and mining engineering.

            2.   A recognition that we can only prosper if we back our areas of specialized excellence.     An innovative society backs winners and an economy with limited resources specializes.        Without the discipline of focus  (the world leader in bioterrorism defense and rapid deployment peacekeepers as a defense policy,  strategic commitments to democracy-building in key partnerships as an international development assistance strategy,   concentration on areas of demonstrated excellence as a science policy),   Canada risks becoming a bystanders in the global knowledge economy.

3.      The Internet is the greatest tool of sharing information in human history, but we need educational technologies and an approach to collaborative knowledge to make it effective.   In the 1990s, there was a very thin line between a chat-room and collaborative learning.   As we learn the distinction, we will realize that the most prosperous societies will be the ones which disseminate information widely and have a quality control mechanism.   A national educational technologies initiative is the CPR of the 21st Century.   It involves broadband, but more importantly, it is about the production of content that flows through these new pipelines.   Canada,  as a byproduct of our need to create a communications network to assure a loudspeaker for Canadian voices in the media worlds of North America, has created a capacity to integrate media, educational content, and, now, collaborative research.    This will not happen by accident.

4.   The networks for commercialization become networks for innovation when they bring different groups and perspectives together.   This is the importance of having mixed public and private institutes and direct involvement of corporations and scientists.  Someone once said to me that the key to innovation was simple and the execution, as always, extremely complicated.   The key is to bring different people together:  a Senegalese musician, a Buddhist philosopher, a nanotechnologist from MIT and a Dutch bond-trader.   Leave them alone for a day with a tape recorder and see what they come up with.      A nice idea (or a one-act play), but you can see the point.     Innovation happens when people who want to be challenged are challenged.   Then the tricky part called implementation of new ideas begins.     But at least it can now start with a 21st Century form of collaborative knowledge; empowered by the technology we call the internet.


            Let us imagine a Canada a decade from now.

            The National Canadian Innovation Exchange is a hub, connected to inventive sources seeking commercialization in Bangalore, in Zurich, in Oulu, in Nairobi.

   has become an instrument for efficient scientific publishing and organizing collaborative knowledge.

            A commercialization strategy has created a league of new scientific skunk works.  After creating ten centers of excellence in areas like envirogenomics and agricultural chemistry,  the federal government has embarked on a strategy of building two new ones and closing down two old ones each year, forcing a restructuring of assets within the knowledge-producing marketplace  (*).  

            Entrepreneurs have focused on building companies in spaces where there is demonstrated specialized excellence.   A competition between portable energy and rechargeable battery companies makes Canada like the Swiss pharmaceutical industry in the 1920s, an unlikely competitive environment around knowledge-generating high-growth globally-oriented corporations.   

            I hope that this discussion starts us on the way to achieving this highly attainable future.

(*)    I do not want to go too deeply into the not-continuing-to-back loser's issue that was discussed earlier.     This is one of many possible public policy models that attempt to deal with the "governments can pick winners but they keep pouring good money after bad" issue.  A funding formula which ensures that there is turnover in funding commitments will increase competition, encourage higher risk-taking in public fund allocation decisions, and simulate market flexibility.  Another funding formula is to provide two launch initiatives a year with a five-year, no renewal formula.   After five years, they have to establish a commercial model for the continuation of the research.    This is the theme of another discussion.