This op/ed was written by Kelly King, the retired CEO of Truist Financial.
I chair the board of directors of NCInnovation, a not-for-profit corporation more than seven years in the making to help commercialize the research outputs of North Carolina universities, particularly those outside the Triangle.
Doing so will help create more companies and jobs in rural areas. It’s a rural economic development initiative centered on our world-class university system.
I spent five decades of my career in the banking business, and our board of directors has centuries of combined experience in research, academia, and finance. We understand the laborious and sometimes frustrating university R&D process, but those outside of our world have no reason to understand its intricacies or the challenges we face in competing against other states.
Last week, N.C. House of Representatives’ leadership recognized these complexities, as well. Senior Appropriations Chair Jason Saine addressed a question about NCInnovation by saying: “It’s long term, it’s investment into future economic development. And that’s not what’s normal here in our budget, so it’s something that takes a while to digest.”
I imagine it’s much the same story for reporters and others, so I’ll try to clarify some details.
First: How will we do it? NCInnovation has two primary legs. The first is to provide grant funding, administered by the NC Collaboratory, to university researchers in the final stage of the R&D sequence — when the “R” for research starts turning into the “D” for development.
This narrowly tailored focus is intentional. Support largely exists, either through the federal government, universities, or other nonprofits, for researchers to take an idea and advance it to proof of concept.
But a research output at proof-of-concept will not generally attract private capital. More work must be done. What that work looks like depends on the sector — perhaps it’s scaling up production of a promising molecule in advance of U.S. Food and Drug Administration analysis, or adapting a novel transistor for a higher-voltage scenario.
It’s at this phase of the research sequence that most products die. In fact, the term of art in finance is the “valley of death.”
The valley is especially acute at less-resourced universities outside the urban centers. There just isn’t the money or the network to piece together funding for the last stage of the R&D sequence for most researchers. So those researchers either move on to something else or they move to another state.
That’s why NCInnovation will focus exhaustively on the valley of death. We will offer grant funding, delivered through universities in stages and subject to binding legal agreements, to get researchers to the point their product becomes commercially investible. In doing so, more companies will form out of university research, creating jobs with a higher probability of staying in the community that birthed them. It’s rural economic development via homegrown innovation.
I haven’t met anybody who believes public dollars should not be used for university R&D. So, to the extent one has a philosophical objection to our model, it’s a question of when public funding should stop. In my opinion, it’s a waste of money to advance a research product to the 10-yard line and see it die there or move to another state.
Better to finish the R&D sequence at the point a product can turn into a private business, and that’s what NCInnovation will do.
The second leg is developing “regional innovation networks” to, quite literally, connect industry, academia, and finance to help orient university research toward industry needs and capital. We have signed memorandums of understanding with four anchor universities — East Carolina University, Western Carolina University, North Carolina A&T, and UNC Charlotte — and NCInnovation will have a physical presence at each.
As part of those networks, we will offer wrap-around support to see to it that researchers have the know-how and connections to successfully launch a private company. Some applied researchers may have business and finance experience, but many do not. NCInnovation will offer them patenting and IP legal services, plus mentorship in business modeling, pitch development, supply chain logistics and more.
That is NCInnovation’s model. How will we fund it? The Senate budget contemplates a $1.425 billion endowment — in effect, transferring state funds sitting in one reserve to another reserve. NCInnovation’s intent is not to spend the principal over time. Instead, our model relies on the earned interest and independently managed investment proceeds from the endowment. The annual returns will of course vary with the market, but industry standard is 7.5% to 8.5%, which is around $100 million per year.
In this way, NCInnovation will not be a recurring expense to the state. By year 10, our model anticipates actually growing the endowment by almost $75 million while funding research commercialization. NCInnovation will be using money to make money, and it will be substantially the “made” money that will be distributed to support regional innovation networks and our applied research grants.
I mentioned the NCInnovation board of directors has a lot of experience, but we aren’t special geniuses. Other states recognize this gap and have dedicated billions of dollars to fill it. Like it or not, this is the next phase of interstate competition.
We’ve spent nearly seven years having amazing and in-depth conversations with researchers, university leaders, financiers, policymakers, and everybody in between. Make no mistake: this is no “startup” at all.
The response has been passionate and near-uniform: NCInnovation’s model can prove a game-changer, especially for rural North Carolina.
I believe this effort will substantially improve the balanced socioeconomic development of our state, which will dramatically improve the future for our kids and grandkids. They deserve no less.