Aligning Innovation: A Practical Guide (Full Text)

Steps leaders can take to align the innovation ecosystem towards better public results

Photo by Osman Rana on Unsplash

Abstract:

Innovation can be guided by adjusting the ecosystem by which it is supported. The US government did just that following World War II through its Endless Frontier strategy, and many countries have followed by investing in a business environment that enabled the emergence, and current dominance, of Venture Capital (VC) as it is currently structured. We are experiencing the outcome of that innovation ecosystem: on one hand, extreme abundance for some, on the other hand, environmental catastrophe for all. Addressing the existential challenges will require aligning our innovation ecosystem towards outcomes that reflect our need for a stable climate by mitigating our current industrial impact and adapting our infrastructure to the uncertainty ahead.

Each of the key sectors — Government, Academic, Private — have a role to play if we are to overcome these challenges. The practical steps each can take to align innovation towards publicly desired outcomes to adapt and mitigate focus on helping innovators avoid the timebound liquidity demands of VC funding. In brief, innovation can be aligned to the public interest by increasing support for objective validation, facilitating greater transfer of knowhow through standardization and transparency, enabling increased experimentation by subject matter experts through venture builders, and investing in outcomes as opposed to equities. By aligning innovation towards publicly needed ends, we can properly structure incentives to ensure our best and brightest work for the betterment of humanity as a whole.

This is a long read, excerpted from a book I’m writing. To make it easier, you can download it at these links as a PDF or ePub. There are slight changes between the versions.

Introduction

Innovation in the manufacturing of products and services can be a key tool to better the world, and is especially critical at this point in time when climate changes are already affecting every aspect of our lives. Supporting innovation increases the range of choices we can make about how we impact the world. How we support innovation determines the types of innovations that are fostered, and the outcomes of those innovative ventures. By recognizing that the structure of the innovation ecosystem affects the types of technologies that result, we expand the responsibility for innovation beyond the innovative companies themselves.

Today’s innovation ecosystems have come to rely heavily on the tool of Venture Capital (VC). VC operates in a generalizable way: by purchasing the shares of corporations with the intent of selling them at a profit within a set number of years (7–10). VC, therefore, sees the innovations it invests in as instruments for profit. An instrumental innovation that does not return investment is a VC failure, even if it has essential value. This focus on instrumental innovation, as opposed to essential innovation, is not well attuned to the wicked challenges facing humanity in this era of climate transformation. As the climate continues its rapid change away from the stability we came to rely upon in previous millenia, we need to align our innovation ecosystem to produce products and services that can help humanity overcome the myriad challenges we can expect to meet across all facets of life: from energy to education, healthcare to home construction.

Aligning innovation requires us to reconsider the system we rely upon to translate new ideas into new products and services. A previous essay on Aligning innovation suggests that one way to better align innovation is to open up the process of innovation to multiple, collaborative actors, and enable those actors to benefit from greater specialization, and the trust generated through infinite games. This essay suggests practical steps the three main sectors interacting with innovation — the Government, the Academy, the Private Sector — can take to adjust their innovation support to better align innovation towards public good outcomes.

Section I: Why our innovation ecosystem is currently misaligned

It is hard to avoid the observation that humanity is currently trapped in a paradox. Never before have we had so much and so little, never before have we experienced such abundance while facing so many existential risks. The 21st century has brought with it promises of an exponential age, alongside the real and present danger of climate collapse. Moore’s law led to the ubiquity of computing power, which was promptly used to increase marketing spend. As our dream of a Jetsons future degraded into a facsimile of Snowcrash, we’re now finding ourselves at a point where we need to quickly and radically transform our industrial infrastructure or suffer the consequences.

To transition away from fossil fuels, and adapt our way of life to an unpredictable climate, we need to recognize our current VC-based innovation ecosystem is not optimized to support the innovation we now so desperately need. In its place we need to take practical steps to align already existing pieces of our innovation ecosystem to achieve better outcomes for the public. Only by realigning our ecosystem can we successfully pursue a Mission Economy approach to optimize for public good.

To accomplish this alignment of our ecosystem without creating unnecessary path dependencies, this essay will take three interdependent approaches to align ecosystem actors towards outcomes optimal to the general public: focusing on what the public sector can do, what the academy can do, and what the private sector can do. The good news is that many if not all of the pieces of an aligned innovation ecosystem are already in place. Our current innovation ecosystem was built strategically, best articulated by Vannevar Bush, the director of the US Office of Scientific Research and Development.

Updating the Golden Triangle

In 1944, Bush was asked by President Franklin D. Roosevelt how the US could maintain the technological edge it earned from war-time spending. In a paper called “Science The Endless Frontier,” Bush described the golden triangle of innovation that would ensure American technological superiority in the years to come.

The basic premise is that the Government (public sector) would provide catalytic capital to the Academy (universities), which would use that capital to conduct research. Academics would translate that research into inventions, protected by the Government’s patent laws as intellectual property (IP). The outputs of that process are knowhow and IP. Entrepreneurial academics or inquisitive innovators would transfer those research outputs out of the Academy into Industry (the private sector). Industry would then harness the capital made available by private inventors seeking a return on their investment, and use it to license and commercialize that IP. The end result of the commercialization process would benefit the public as the economy grew, taxes collected, and technologies would be made available to public and private bodies to maintain their qualitative edge.

This Golden Triangle did, indeed, drive innovation faster in the second half of the 20th century than any time in human history beforehand. It also fueled what we now recognize as the most potentially destructive period of history: industrial outputs have degraded the operating environment we depend upon for life itself, plunging our species into a climate crisis. To ensure our short-term gains do not lead to long-term losses, we need to tweak the system based on what we’ve learned over the past 80 years.

The Golden Triangle’s primary assumption was that publicly-funded intellectual property would be best maximized when given to shareholders and deployed for their private financial benefit. It did not account for the fact that shareholders optimize for short-term profits, ignoring negative externalities whose cost the public is forced to bear. Misalignment only grew as financialization further entrenched itself in the innovation ecosystem, because liquidity of share ownership led to a short-term pump-and-dump share trading culture.

The result is a private sector whose innovation focus is vastly different from the one NASA relied upon when it engaged with corporate labs to put a person on the moon. As the 21st century began, this financialization led to an innovation ecosystem dominated by VC-backed startups whose returns were judged in 7–10 year periods, often hiding poor product quality or operational outcomes.

If we agree a moonshot culture is needed to solve problems facing humanity and build markets where they currently do not exist, we need to better align incentives for private actors to harness the same ambition that supercharged innovation for the public good. We can do this by building upon the productive aspects of Bush’s system and realigning the destructive elements. This means we will adopt the three sector framework, and the broad roles assigned to each of the key players:

1. The Public Sector funds research and adoption. On the front end, governments and foundations in the Public Sector identify social Objectives and Key Results (OKRs) and allocate funds through grant mechanisms to support basic research that leads to invention. Importantly, the Public has a special interest in ensuring objective validation of proposed solutions. On the backend, Governments issue advance purchase guarantees for innovations that meet clearly stated KPIs, Crowding In and becoming a customer of first resort to encourage investment, and putting in place markets.
2. The Academy conducts research and validation. On the front-end, Universities and private research institutes enable and support basic research and invention, transferring technology and knowledge into the private sector where they can be developed into products and services. On the backend, the Academy should carry out objective validations in their areas of expertise.
3. The Private Sector engages in commercialization. Industry, alongside non-governmental and not-for-profit organizations, translates inventions into minimum viable products (MVPs) that can be validated. Validated products are commercialized and scaled until they are integrated into our everyday lives. Since building and validating MVPs requires a significantly different set of skills than commercializing and scaling a product, these services can also be split in two as a front-end (venture building) and back-end (commercialization) services.

In this model, the Golden Triangle remains, however the roles of the actors are split in two: knowledge pre-validation, and knowhow post-validation. Both are equally important, and both are generative for the economy as a whole. This split recognizes the different ways in which each of the players contribute to identifying areas for research, developing intellectual property, building a proof-of-concept able to ascertain the value of that property, scaling that validated product or service commercially, and finally integrating it into our everyday life.

Critically, the gates between these steps need to be independently able to ascertain if the process meets the core criteria determined for the innovation, recognizing the essential nature of the innovation. Essential innovations need to be protected from pressure by short-term financial interest that may push forward a product that does not solve the problem the process set out to solve. From a practical perspective, this means the following steps need to be conducted in aligned innovation cycle:

1. Public OKRs guide grants: The Public Sector determines the mission, sets objectives needed for the public benefit, and makes grants available for research and validation aimed at achieving Public OKRs
2. Invention: Academics conduct research and are accountable to the Public to report their results. Both positive and negative results are published. If inventions are successful, they are offered to the Private Sector
3. Innovation: Venture builders license inventions from the Academy and develop minimum viable products (MVPs) that can be validated
4. Validation: Venture builders work with subject matter experts in the Academy to validate the MPVs, financed by Public OKR grants; If Venture Builders would like to validate alone, they can pay to do so. Either way, the Academy is obligated to validate technologies objectively, and publishes the results transparently to enable rapid public learning and iteration, whether the validations succeed or fail
5. Commercialization: Validated solutions are licensed by venture builders to commercialization entities, who can invest into building a distribution business around validated products, or add the product to their portfolio for sale
6. Integration: Institutional engagement with the ecosystem enables more rapid allocation of public funds for advanced purchases and venture clienting

While there is a described directionality to the aligned innovation cycle, an innovation can enter the cycle at any stage: an existing technology could seek out validation at an academic institution and then license itself for commercialization; a venture builder could license validated technologies directly from the academy and market them to commercialization entities for sales and scale; governments could announce new sets of OKRs alongside grants for research and validation. Existing companies could dip back into the system when they have new products or services that require validation or scale.

The strength of an ecosystem is in its ability to cycle, and the independent specialization of all its parts. The aligned innovation ecosystem cycle does not posit the venture creation is a serial process, even though it is easiest to describe it in ordinal numbers. The beauty of Aligned Innovation is that it allows us to execute “out-of-order” innovation, massively parallel innovation processes where inventions and innovations and validations and commercializations all happen the moment the solution has passed a critical hurdle. Since the actors are playing an infinite game, their incentives are to be the best at what they do, to exist, not to exit, to cooperate while they seek to build competitive solutions that are pitted against each-other based on the value they provide the end customer. By realigning the existing pieces we deeply disrupt the current VC-oriented, unitary corporation process with path dependency and high incentives for short-term value maximizing behavior.

Here are the practical steps leaders in each of the three sectors can take to better align incentives and catalyze an aligned innovation ecosystem:

Section II: Public Sector steps to align innovation

If you’re in the Public Sector and recognize your role in supporting innovation, you are probably well acquainted with Mariana Muzzucato’s Mission Economy. As Muzzucato has proven empirically, the public sector should not “just leave the private sector to innovate alone,” since the very success of the private sector stems from public sector involvement.

Yet historical successes of public intervention have been degraded by the perverse incentives of Venture Capital and the Unitary Shareholder Corporation. Even when the Public Sector identifies the most promising technologies, and provides grants to academics to support research that results in groundbreaking inventions, the reliance on VC-backed startups causes innumerable solutions to die in their infancy, harming us all in the process. This clearly happened to cleantech, in govtech, edutech, and the case can be made that it happened in the life sciences as well. It can also cause ridiculous legal battles such as the one Moderna is waging against the US public in a claim that the billions of dollars it received directly and indirectly from the public does not give the public any rights over the intellectual property developed for something so very critical for the betterment of the US (and global) public: the mRNA vaccine.

So long as the public relies on the private sector to develop publicly-funded intellectual property into products without putting in place gates for assessment and opportunities for aligned support, the following happens: passionate founders who believe in the mission and are willing to dedicate themselves to the cause sell parts of their company to financial investors who have an instrumental definition of success: liquidity within a set period of time to achieve market-beating returns. The dynamic resulting can be illustrated as follows:

The more capital invested, the more investors gain control by equity ownership. The more equity investors own, the more pressure on founders to focus on the most short-term lucrative positions. Investors have a portfolio of investments, so are more willing to bet the shop on quick wins, the portfolio averaging out failure. This misalignment is one reason why the VC model does not work in long-lead time technologies, and why a Mission Economy approach is sabotaged by the VC-oriented innovation model.

Leveraging Public Capital to help innovations avoid timebound VC liquidity requirements

To enable innovations to avoid the unnecessary time pressure of VC, the Public Sector could start by rethinking how it finances validation, as opposed to early stage venture creation as is done through SBIR/IIA mechanisms, since the equity founders need to sell to finance validation is often pivotal in terms of control. Publicly funded validation grants have the added benefit of ensuring objective validation by decoupling the source of the money from the person with the most interest in affirming the value of the product. Validation grants would also work to expose institutional actors within the public ecosystem as potential advance purchasers and venture clients. This would enable additional non-dilutive funding to keep the founders focused on their mission, insulating them from VC pressure to go for broke.

To make validation grants run smoothly, they should be authorized as a proportion of financing to achieve any publicly-determined OKR. That is to say that when the public determines it wants to undertake a mission to address a particular challenge — say, creating low-cost long-term energy storage from renewables — it would allocate money both for innovation grants at the early stage, and validation grants for ideas who have reached MVP status. Venture builders with products ready to test the validity of the technological claims would seek out validation partners who, together, would apply for a validation grant from the public.

Validation grants would finance both the validation study itself, as well as the maintenance of the portion of a venture builder’s team required to support the validation. Since it is in the public’s interest to have full transparency of validation results, funding will be given to the institution and paid from the institution to the venture builder, and the institution will be held accountable for reporting findings openly and transparently.

There is what to improve in initial, early-stage development grants as well. If we want to free ideas from short-term pressures, grant programs need to understand the pressure innovators are under when they apply for the grant, and after its receipt. This means finding ways to reduce the busywork associated with applying for grants, reducing the lag between award and financial transfer, and decoupling the award of the grant from matching private sector funds.

Aligning grants with the needs of the people who use them

One way to speed up the scouting of promising research is to learn from the rapid R&D during the early days of the COVID19 pandemic, and take an innovation jury duty approach. Innovation Juries build on the best aspects of peer review to bring together previous grant recipients and experts in the sector of interest, who are randomly selected to serve in determining how to allocate a pool of capital. These juries would serve for a time-limited duration, during which they would source, review, and award projects proposed by their peers they determine match the publicly determined objectives and key results. Funds would be milestone triggered and front-loaded, using either SmartContracts (if objectively verifiable) or jury member verification. If the grants have a repayment mechanism wherein funds are offered as a no-risk loan to be repaid from corporate profits, jury members would be compensated through equity in the pool of royalties generated, better aligning them with particular technologies of high potential.

By using transparent sortition to pick juries, grant giving can reduce the chances of special interest capture of the decision making mechanism, eliminating the fear of undue influence on grant officers. It is known that one of the reasons for overwhelming paperwork and disbursement controls on grants present today are to prevent corruption of grant officers and protect the public. By relying on transparent sortition of a broad pool of decision makers, we eliminate the need for such control mechanisms and can focus instead on making the process as effective as possible at finding promising ideas and giving them the resources to achieve validation.

Freeing our grants infrastructure from grants officers through an innovation jury duty program would also leverage the broad social networks of practitioners and researchers, who are by their nature constantly interacting with their colleagues and up-to-date on the latest breakthroughs. By then turning around and requiring grant recipients to join the jurist pool, the public sector would harness the exponential nature of network effects.

Finally, so long as the Private Sector remains committed to building ideas into products using Unitary Shareholder Corporations where the translation of idea into a product resides in a single shareholder-owned company, the public should require board representation on the companies it finances. Board membership could also be chosen by sortition, or, in an innovation pioneered by Luni Libes of Fledge, the founders of funded companies could be required to sit on one-another’s boards to provide peer support during the venture building process. By placing subject matter experts on the boards of Public OKR-oriented companies we can further ensure the founders have governance backing to pursue their mission as opposed to selling out on VC’s timetable.

To summarize, public sector leaders seeking to align innovation could take the following steps:

Step 1: Public OKRs. Define Public OKRs clearly describing the outcomes sought through innovation (For climate OKRs, for example, John Doerr recommends a few here). This sets the goals that everything else can align with.

Step 2: Validation Grants. Develop granting mechanisms specifically for the validation of existing technologies in their minimum viable product (MVP) stage, paid out to academic centers who have proven subject matter expertise and a commitment to publish results. This aligns innovation by focusing validation goals on public OKRs, and ensures ventures are further aligned by reducing short-term pressures by VC.

Step 2+: Validation Ecosystem. A public sector seeking to truly accelerate innovation can jumpstart the process by building a network of validation sites that will scout promising existing technologies and recruit them into their process, with ‘use it or lose it’ budgets to encourage on-going development of validation expertise.

Step 3: Advanced Purchases and Venture Clienting. Develop mechanisms within public infrastructure to issue advance purchase orders for promising technologies who have passed validation, with clear criteria for success to unlock capital willing to invest in achieving those outcomes. This aligns innovation by setting clear financial rewards at the end of the rainbow, against which the most promising solutions will be financed.

Step 4: OKR Innovation Grants. Expand existing grant mechanisms to encourage research in areas with particular relevance to the OKRs, stipulating fiduciary representation of the public’s interest in achieving the OKRs. Payments should be front-loaded payments to enable inventors to work without requiring VC funding. This aligns innovation by supporting the translation of OKR-achieving innovations and reducing the ownership by VC that may refocus the application of the technology.

Step 4+: Innovation Jury Duty. A public sector seeking to truly accelerate innovation should engage more of the entrepreneurial sector in scouting researchers for OKR grants, and more rapidly make funding decisions. A jury duty model may help to quickly identify and approve financing for OKR-related inventions.

The Public Sector has a pivotal role in defining targets and ensuring quality of validation. By aligning the Public Sector’s interest with the validation stage of an innovation, and then expanding from there, a public sector leader interested in aligning innovation can catalyze a shift in the balance of power of mission-driven founders and financial return-oriented VC.

Section III: How the Academy can better align innovation

If you’re in the Academy you are well aware of the crucial service basic research provides to the economy. You know that many if not most of the products and services which have improved the lives of billions have their roots in academic research. You have seen that large problems with huge total addressable markets do not inspire the amount of investment as one may think. You also know how complicated it is for a faculty member, graduate student, or a postdoc to take what they’ve worked on at the University and transfer that knowhow into Industry.

While there are a number of excellent Tech Transfer Offices (TTOs) — including umbrella organizations like Israel’s ITTN which leverage their combined assets — my experience working with researchers hoping to transition from the academy to industry is that many brilliant members of the academy feel that the TTOs are on “the other side of the table.” These academics feel that the TTO often negotiates against the researcher to further the interests of the institution, at their expense. While I know TTOs do not intend to do so, this conception does not serve the faculty or students well, and does not ensure their insights are most usefully applied.

Many researchers have told me they are often uncertain who to approach, how to approach them, and have heard horror stories from other researchers about the time they will need to spend, and legal fees they’d need to pay, to negotiate a license of the knowhow from the university. They also hear that VCs and later stage investors balk at whatever license was negotiated, and are encouraged to seek to minimize the role of the university in future commercial transactions. (Unless the institution is Stanford or MIT).

All of these uncertainties and irregularities amount to unnecessary friction that deters some researchers from commercializing their knowhow, and others from seeking to game the system, due to what Robert Coase might have called call transaction costs. These transaction costs are damaging to tech transfer as a practice, create enmity between an institution and its star contributors, and set up third party actors for profit.

Because we’re going to need a whole lot of research and know-how to transform our industrial infrastructure to build a sustainable future, we need to fix this relationship. To align the Academy’s strengths with the needs of the public, we should expand its role in the ecosystem by emphasizing its contribution in two discrete ways: first, by developing Validation Centers, and second by adopting an Innovation Support approach to technology transfer.

Validation as a public service

While the Academy is usually thought of as a source of research, my experience has been that the Academy is even more crucial as an objective evaluator. This objectivity often gets muddied by today’s VC-oriented ecosystem, when validation is paid for by the company. For-pay validation creates three misalignments:

1. The more money founders need to raise to validate their invention means the less they control the company; the more VCs control the company, the more financial ROI within a tight timetable is emphasized
2. When the Academy accepts money from a company with explicit shareholder ROI interests it needs to be very careful about conflict of interest issues, and the interactions between the inventors and the validators are often shadowed by mistrust
3. When the public reads about validations by the Academy it will nearly always discount their veracity because of the suspicion that only good news will be reported out of validations

Given how there are literally thousands of solutions already in prototype or minimum viable product (MVP) stage in need of a validation that will convince decision makers to purchase, the most important role for the Academy is to take on the role of objective, transparent validator.

Even if the public sector has not stepped up with its Validation Grants (as described in the Public Sector section earlier in this essay), the Academy can independently allocate more of its resources to objectively evaluating technologies relevant to its subject matter expertise under the conditions that no money will come from the company, and no findings will be held back.

By creating Validation Centers at universities, where interdisciplinary teams of faculty and students are given access to cutting edge technologies for transparent validation, the Academy does well while doing good: for the world, the Academy will remove a significant roadblock to technology adoption and reduce VC pressure on ventures to take more money and exit more quickly. It will ensure the public hears the bad news as well as good, so that other researchers and entrepreneurs will be well informed before attempting to work on similar approaches.

For the university itself, creating an expertise in validation will ensure the academic community is exposed to the most advanced and promising innovations of the moment, strengthening the perception of research institutions as central engines to solve the problems facing humanities.

If public funds for validation are not forthcoming, the Academy can finance validations by leveraging two sources of capital. First, it can take a portfolio approach for advanced purchases: by publicizing the needs of the university (and better yet, a pool of institutions) aligned with its own OKRs for transitioning to a sustainable, climate-collapse resilient institution, the Academy can take a Living Laboratory approach by inviting inventions at the MVP stage for independent validations. The validations would be paid for by the Academy, at no risk to the company.

Technologies that fail validation would not owe the university anything, technologies that are validated will have an advanced purchase agreement ready to go, and the validating institution can recoup their costs through discounted future service. These advanced purchase commitments will help the companies in two ways: first, it will reduce the amount of equity they need to sell to pay for validations; second, it will ensure the world recognizes the essential value of the validation, since it can be assumed the Academy would not buy something it does not believe is useful (or in the language of industry, the Academy is willing to ‘eat its own dogfood’).

Investing in innovation as an investment in knowledge creation

If building validation centers seems still a step too far, Academies can work towards aligning innovation by taking an Innovation Support approach to tech transfer. An Innovation Support approach recognizes the full lifecycle of a researcher when entering Industry. It puts the TTO on the same side of the table as university faculty and students. This can be done by removing the information asymmetry between the TTO and researchers through publicizing standards and the terms granted to previous applicants, by increasing entrepreneurship education for interested researcher (including on the risks of entrepreneurship), and by appointing Fiduciaries-in-Residence to support academic entrepreneurs in building the business infrastructure required to take an idea and realize it in a privately held vehicle.

Better yet, TTOs can learn from organizations such as the ITTN to work towards shared standards for how research sponsors are rewarded for their investment. Like the OECD’s global minimum tax, this would reduce researcher anxiety and level the playing field for licensing.

Given that most if not all academic knowledge was developed using public funds, we should strive for such licensing to be shared transparently, in the public eye, so that all actors searching for new solutions pertinent to that knowledge will be able to start the business development process early and engage immediately. A public ledger approach may be useful here, as it could create an open data set of knowhow that can be easily and rapidly acted upon.

Each of these steps can contribute to a major failing causing misalignment: the time and resources wasted when we require our best and brightest academics to apply their specialized minds to the process of venture formation. The legal, financial, accounting, and organizational requirements in building a company are not what academic entrepreneurs should be focused on. And yet under our current TTO process, an inordinate amount of time is spent reinventing the corporate wheel.

By orienting a TTO on Innovation Support we align the TTO with the public good outcomes we want to achieve, and minimize bias towards purely financial returns. An Innovation Support unit would educate researchers as to the realities of startup life, and pair them with a Fiduciary-in-Residence with full access to a pool of legal, financial, accounting, and HR resources (not to mention technical and laboratory infrastructure the university can make available). By setting realistic expectations about unicorn dreams and pooling costs for venture infrastructure we can optimize the process so that ventures through misalignment or missteps in the corporate minefield.

Finally, the Academy does not need to limit itself to exporting its knowhow to Industry. Once we challenge the assumption that a single, unitary corporation needs to take an invention and turn it into an economic opportunity for shareholders, we can recognize that there is a lot of knowhow to be gained from translating research insight into minimum valuable products. Since academic research into business, industrial design, and engineering practices is no less valuable from basic research into chemistry and materials science, there is a strong case to be made for Academy-backed or Academic Generators tasked with regularly and rapidly building validation-ready products from research insights.

Academic Generators are applied research and development units within the University dedicated to translating the most promising innovations within the university on a regular, systematized basis. A good example of this is MIT’s Proto Ventures, a dedicated infrastructure to translate the insights discovered in MIT into solutions humanity needs.

The emphasis of an Academic Generator is to refine the knowhow within the Academy, and enable knowledge to beget knowledge. By keeping the venture building process within the academy, universities are able to deepen their expertise and open new avenues for knowledge creation. When paired with Academic Validation Funds, these venture builders open entirely new horizons for the academy to contribute to society.

To summarize, academic leaders seeking to align innovation could take the following steps:

Step 1: Validation Centers. Interdisciplinary centers where universities centralize and publicize their validation resources transparently. This aligns innovation by increasing support for public-good oriented technologies and ensuring objective validation of technologies. It also reduces VC more control of the company, which raises flags of suspicion over conflict of interest in reporting results.

Step 2: Strengthen TTO through Innovation Platforms. Underscore the responsibility of TTOs to support the researcher from the same side of the table, by removing information asymmetry, providing entrepreneurship education, and pairing every interested tech transferee with a Fiduciary-in-Residence who has access to the full set of resources needed to put corporate infrastructure in place (legal, financial, accounting, HR). This aligns innovation by strengthening the mission orientation of the academic entrepreneurs, and reducing the pressure by VC to achieve short-term valuation milestones.

Step 3: Build Academic Generators. Expand the public mission of the Academy to seek out and develop knowledge by creating Generators within the institution to identify promising technologies and develop them through interdisciplinary collaboration without needing to seek out misaligned investment funds. This aligns innovation by providing greater opportunity for ideas within the academy to be found, tested, and potentially scaled out into mission-oriented ventures.

Bonus: Global TTO standards with transparent licensing. Develop global licensing standards that level the playing field and increase the spread of knowledge; open ledger technologies can contribute to this by freeing knowledge for wider consumption, analysis. This aligns innovation by reducing barriers to the translation of great ideas by brilliant researchers due to a fear of commercial negotiations.

The Academy has a critical role to play in identifying and developing the knowledge we will need to address the myriad challenges facing humanity. By aligning the incentives of the academy with the needs of the public through reducing the pressure on science-based ventures to provide short-term returns to investors, we can increase the chances that humanity will gain the tools we need.

Section IV: Private Sector leaders interested in building long-term value can take these steps

If you’re in the private sector (which includes tax-exempt for-purpose organizations as well as for-profit organizations), you may feel we’ve pinned too many of our hopes in humanity-saving innovation on VC-backed companies. It has become generally accepted that the VC approach to innovation finance works for some types of innovations but not others. According to a mounting amount of evidence, we can safely say what makes VCs rich is not what makes humans safe or healthy.

The private sector has an important role to play in aligning our innovation ecosystem to ensure that technologies able to solve real problems can be available to the people who need them. In the past decade we have seen too many promising unicorns subsidize their operations using VC money while remaining immensely unprofitable. Many of these leave significant damage in their wake from the negative externalities of their business models.

If we are to align our innovation ecosystem towards public good, we need to support more essential innovations. We need to correct for the systemic biases which incent entrepreneurs to take VC money to scale an unprofitable company only to offload their equity to the public markets, leaving public investors holding the bag. We need to build financial incentives to back operating organizations that solve real problems with financially sustainable solutions. We also may need to adjust our expectations on the timing of profit with a more systemic lens.

One way to do this is to change how we structure our ventures. While the general market is structured as a relay race, where multiple suppliers and manufacturers come together to produce products and services, for some reason in our innovation sector we expect a Startup to sprint a marathon, taking an invention from ideation through commercialization. This contemporary structure of the startup is an especially efficient way for VCs to mitigate their risk, but it is a particularly bad way for entrepreneurs to achieve their mission or to make money.

There is a reason VCs have been so intent on storytelling: asking brilliant people with steady, lucrative jobs to take below-market pay in return for common stock in a company with an extremely low chance of ever being worth anything requires a compelling narrative. The truth that the VC-backed myth hides is that a VC earns a decent salary whether their fund succeeds or not; the entrepreneurs living on Ramen noodles are the ones making that possible.

Private sector leaders who want to drive innovation to solve real problems facing humanity need to create an alternative to today’s startup culture. We need to develop an innovation culture that values collaboration between organizations to translate knowledge into commercial success, both as a means of reducing risk and as a means of spreading the reward. In an ecosystem where a better solution for humanity is the definition of success, and gambling for financial gain is seen for what it is: an inherently selfish adventure.

We need to retell the story of innovation, and how it spreads. An Aligned Innovation narrative emphasizes that small business entrepreneurship makes up the overwhelming majority of new business formation. These small businesses are led by exceptional leaders who build dedicated teams to bring value into the world, one product or service at a time. They do not need VC to subsidize ongoing losses; they recognize that the more they better the world, the better they do. They build their businesses to work for their lifestyles, to play to their strengths, and they partner closely with other small businesses to get the tools and ingredients they need to add value to the world.

The majority of the largest companies in the world were built from the ground up. VC-backed propaganda counting publicly listed companies and categorizing them according to whether they took VC or not ignores the fact that profitable companies do not need to publicly list. It also ignores that big is not necessarily better: small, honorable work moves humanity forward a day at a time, as opposed to losing pension fund money to subsidize unicorn size losses.

Instead of funneling our best and brightest into building startups that seek venture financing we should be encouraging the development of expert entities or Project-Focused Organizations specialized in moving knowledge through to its next milestone. Fortunately, most of the pieces are already in place to align innovation within the private sector. All it should take is a few nudges to better leverage the talent and capital we already have towards better outcomes for humanity.

How entrepreneurs can better align incentives with outcomes

Entrepreneurs can better align their efforts with an Aligned Innovation ecosystem by choosing to start Venture Builders or Commercialization Cooperatives instead of startups. There are hundreds of thousands of entrepreneurs every year who consider whether to start a VC-backed startup and search for an idea they believe will have the best chance of success. The reasons for this vary: some want to work for themselves, some want to make a dent in the world and feel their corporate jobs are not fulfilling. Some want to take a risk for financial reward, considering only the instrumental value of their idea. Many of these entrepreneurs have already either built or been part of building VC-backed startups. We should encourage these entrepreneurs to take a different path.

Entrepreneur Path I: Venture Builders for the early stages

Entrepreneurs who are especially interested in the early stages of transforming an idea into a product — those who enjoy the R&D process — should consider creating a Venture Builder (also known as a Venture Studio or Startup Studio) to enable themselves to get great at what they enjoy. VBs have been around for a while, and generally operated under the radar; you may not have heard of them because they do not have as much money to throw at PR. They spend their money on building successful companies, instead. You’ve most certainly heard of a companies built by VBs: Overture, Medium, Affirm, Delivery Hero, and the Dollar Shave Club. VBs focused on challenges catalyzed by climate collapse have already begun to spring up.

Organizations such as the Global Startup Studio Network are seeking to popularize the approach to pooled venture development, one in which a group of specialized founders work on a series of ideas, together. Those ventures with the most promise go on to become companies, raise capital, and start sales. Those inventions which do not deliver their promised value inform the group, and elements of their knowhow invariably recycle into future projects.

Others, such as R/GA Ventures, build venture studios based on the requests of corporate sponsors. As entrepreneurs, the team behind R/GA are pre-filling the customer pipeline for ventures they identify, and gain the capital they need to support innovators in their quest to translate the knowledge they’ve gained into solutions that will be valued.

The generative power of a venture builder is that it recognizes that there is a specialty to starting something new, one that becomes a discipline to be honed over time. Even the most prodigious serial entrepreneurs get to build five to eight companies in their lifetime. Members of venture builders could work on five company ideas in a year, honing their craft and pooling resources that have straightforward economies of scale (legal, financial, accounting).

VBs do require some capital to get off the ground, unless they begin by offering services to corporations or public entities who may want to explore a technological pathway using their subject-matter expertise. VBs can raise money from individuals, foundations, NGOs, and DAOs with the explicit promise that they will work on problems these financial backers are especially keen on solving. Their business model is simple: build things that can be sold or licensed, quickly, and then build more things.

While today’s venture builders primarily operate within a world of VC, VBs offer the traditional limited partners of VCs a less risky, more focused value proposition. In contrast to VCs pooling of risk by investing in a portfolio of independent companies, VBs mitigate risk by pruning unsuccessful ideas early and sharing knowhow developed between efforts to increase the overall yield.

VCs succeed based on their talent-spotting capabilities, and even those are not clear until after liquidation of the fund. VBs, on the other hand, are judged for their operational expertise, proven regularly. LPs can work side by side with VBs to see the practical outcomes of their work. Where VCs only make money after their companies’ equities become liquid, VBs should be regularly shipping products, earning revenue, making revenue-based financing a more reasonable means of investment.

VC is made better and more aligned through VBs. The more VBs, the easier it is for VCs to mitigate risk and invest in those products and services which have achieved validation. Especially in validation heavy fields such as energy, healthcare, etc, having more VBs will make VC investments more successful, as VBs will be able to leverage their expertise in building MVPs and validating them with subject matter experts. It is in the interest of VC to enable VBs to grow through a flipping of the Entrepreneur-in-Residence model: it stands to reason that VCs with VBs in their portfolio will have higher chances of success than VCs who start from zero on every investment.

Not every entrepreneur, however, is expert at the early stages of R&D. Many entrepreneurs find that they enjoy more the work of business development, of marketing and sales, that typify a scaling venture. For those individuals, Commercialization Cooperatives may be more appropriate than seeking to start and scale a new venture from scratch.

Entrepreneur Path II: Commercialization Cooperatives

Many of the technological efforts I’ve come across in essential innovations such as health and energy fail because the brilliant entrepreneurs able to build and validate a product or service were not sufficiently expert at finding customers and marketing their products. It is hard to overstate how very different pre-commercial and post-commercial stages are. Great entrepreneurs work closely and collaboratively with customers, showing vulnerability and tweaking to meet the needs of the earliest of testers. Once an MVP exists and is successfully validated, those same tendencies to dive deep with a customer into their needs can work against the company: at some point the product or service needs to transition into a set-form, so that it can be manufactured and delivered with no or at best minimal tweaks to a growing base of customers.

Commercialization Cooperatives (CC) are companies who work alongside and in cooperation with technology or service providers to find the best customers or distribution channels to sell their product. Whether the commercial cooperation is done through large corporations or small businesses, the goal is the same: instead of a startup building an entire commercial organization for a single product or service, CCs have the infrastructure in place to onboard products and services targeting a defined market segment. CCs and the products or services they take on benefit from economies of scale: the more products or services they have in their portfolio, the better the CCs can serve their customers by delivering holistic value. By working with CCs, instead of directly with each of the companies, customers have a single point of contact, and can rely on the reputation of the CC to pick and choose the most relevant products or services to meet the customer’s needs.

To optimally align value, CCs are paid commission on the revenue they earn for their product partners from the sales they generate. There are a panoply of consulting companies who conduct market research, develop marketing plans, even operate a salesforce on behalf of a company. The best CCs are more comprehensive: they partner closely with their product partner, develop in cooperation the materials needed to generate revenue, and then roll up their shirtsleeves and sell. Their infrastructure has excellent economies of scale: the more companies they cooperate with, the more products and services they sell off of their platforms, the less the cost of customer acquisition. CCs are especially helpful in competitive spaces, where a product has trouble standing on its own, or high-investment spaces, where trust in the commercialization team goes a long way towards convincing customers to buy.

The best entrepreneurs driving CCs are former VPs of business development, marketing, customer success, and sales who enjoy owning the process and are confident in their ability to close deals. As an example, my company, CoVelocity, is a Commercialization Cooperative. Our expertise is diagnostics for emerging markets, and we have been able to profitably support companies in their new product introduction and scale. We haven’t been successful with all of the products in our portfolio, so we’ve learned that operating non-exclusively on a global basis, with limited exclusivity on a per-market basis, builds the right incentives for us and our partners. If we succeed in selling, our partners earn and have no problem sharing those earnings; if we do not succeed, the partner has minimized their actual and opportunity cost, and everyone can continue forward at their own pace.

Because they are revenue based, CCs are an especially low-risk, lifestyle friendly way for entrepreneurs to build companies in fields they love without needing to raise external capital. CCs, of course, align well with VBs: instead of framing building a company as a marathon, VBs and CCs hand off responsibilities like a relay race: each sprinting their segment, knowing there will be someone there for the handoff whose incentives are aligned to finish the race.

Corporates and Capital have a role to play in aligning innovation, too

Independently of whether entrepreneurs pursue more aligned approaches to innovation through Venture Builders and Commercialization Cooperatives, Corporations and Capital Investors have their own roles to play to better align our innovation ecosystem towards solving the problems facing humanity. The best way for both to provide the incentives to align innovation is by clearly stating the desired outcome, and paying for the outcome either directly, or by sponsoring missions for Generators to work towards.

Outcome-based financing — or in the corporate permutation, venture clienting — focuses the capital equation on the immediate value the product or service provides, not the perceived value of the equity and its future value. Corporates and Capital Investors making outcomes based financing decisions define the “job to be done” by the product or service the company they are financing, and pay out based on its ability to do its job. Sometimes these can be revenue producing to the buyer, sometimes they can be cost cutting, and sometimes they can meet operational needs for public commitments such as Net Zero.

We cannot overestimate how important it is to shift from buying future equities to paying for future impact of a product or service. The Venture Clienting dynamic both ensures the entrepreneurs are focused on providing real value to organizations operating in the real world, and frees those entrepreneurs from optimizing their operations to create the narrative value required by VC to sell their portfolios to LPs.

The more private actors publish their willingness to pay transparently, the more positive externalities will be generated: academics will be supported to seek out venture builders to take risks on their knowhow, commercial banks will be able to construct loan portfolios with a lower-risk payout, revenue-based financing firms will be able to pool risks and rewards, commercialization cooperatives will develop into niches to scout possible solutions. R&D Cooperatives will be able to pool approaches and research to improve their chances of winning contracts.

This shift from a present-value-of-future-equities approach to a reward-for-outcomes approach is similar to the Advanced Procurement commitments from the public sector, with added flexibility and lower scale to enable greater experimentation at lower levels of commitment. Importantly, Venture Clienting in this way minimizes the risks of adopting new technologies all while spreading out the opportunities for mutual reward.

Similarly, Investors and Corporations can further align innovation and reduce their long-term portfolio risk by sponsoring missions at Generators, or investing into Venture Builders and Commercialization Cooperatives in fields that complement their existing portfolios. By allocating a portion of their budgets to aligned innovation tightly defined by OKRs relevant to their industries, Capital Investors and Corporations can strengthen the ecosystem through diversification, and generate much needed knowhow to enable a successful transition to a climate adapted economy.

Let’s not forget the role of charitable foundations

Recent years have seen a cambrian explosion of charitable organizations focused on environmental and ecological concerns. Joining long-time advocates of a more sustainable human existence, many of these foundations have sought to amplify private capital to enable innovative alternatives to the industrial processes that continue to drive climate change and thereby threaten human habitability. Fundamentally, these efforts are well meaning and are backed by caring, generally successful business people. Unfortunately, so long as the efforts receiving their support require matching VC-investment to supplement these funds, they will not achieve their aims.

This sabotaging of good intentions by a misaligned system of incentives has a long history in the global health technology sector. Despite the billions invested in medical technologies by foundations such as the Gates Foundation and the Canadian Government’s Grand Challenges program, there has yet to emerge a class of healthcare technologies focused on solving the problems facing our fellow humans at the base of the pyramid. One of the contributing factors to this is that these funds all provide phase-limited support and require matching by VC funds. This returns us to the VC Liquidity Trap we explored when discussing government grants.

I have personal experience with this. The company I co-founded and led, MobileODT, won a millions in grants and awards in our formative years, catapulting us to the headlines repeatedly. Each award — whether it be the MedTech Innovator award, Genentech’s ‘Best Innovation in Cervical Cancer’ or The Financial Times’ Transformational Business of the Year — added to the strength of our story, and introduced us to corporations and foundations. The money we won helped us make payroll for a short time, and the story helped us raise more money. That money came with the same instrumental intentions as is natural from VC, creating the very same pressures we have identified as being counter to the public purpose of a technology requiring maturity following validation: liquidity of shares at the earliest possible date.

For foundations to lend a hand to technological ventures, they would best leverage their expertise and capital by focusing on the earlier stages of experimentation through sponsoring missions at Generators or catalyzing Venture Builders. A successful Generator will generate myriad prototypes with a high pooled likelihood of success, and a Venture Builder should, after a few cycles, be able to achieve profitability by licensing its technology and knowhow.

If foundations are interested in awarding excellence, better than awarding an X-Prize would be for charitable philanthropic funds to be used as advanced purchase commitments for outcomes the donors desire. This is especially useful in markets where the public sector is slow to introduce new regulation or pricing. For example, Nori has created a carbon removal marketplace where it has set a price for carbon, and reports openly and transparently on its audits. Similarly, Climate Vault enables direct purchase of credits, “locking them away” so they cannot be used to justify additional pollution by corporate buyers. By purchasing carbon at a time when policymakers have yet to adequately price it, Foundations create the economic stimulus to support industrial transition to a low carbon industrial base. Alternatively, foundations seeking to aid in the adoption of technologies as diverse as solar microgrids or diagnostic testing could subsidize the first quantity of purchases by the market, enabling economies of scale in manufacturing that will reduce the overall price in the long run.

All of this is to say that philanthropy has an important role to play in creating the environment in which new technologies can be developed, and existing technologies can be adopted. By blending philanthropic capital with VC we nullify its impact, subjugating the donor’s interests to the incentives of VC. Since philanthropists do not intend to donate their hard-earned money to subsidize VC funds, focusing private foundations on catalyzing venture builders or paying for the outcomes they want to see supports the further alignment of innovation.

To summarize, private sector leaders seeking to align innovation could take the following steps:

Step 1: Form more Commercialization Cooperatives: Entrepreneurs with expertise in, and excited by, the sales and marketing stage scaling a product or service’s revenue should free themselves from a single-product focus at startups to scale their expertise of building channels through which they can offer awesome products in cooperation with the companies making them. By building solution portfolios, these Commercialization Cooperatives can both generate sustainable revenue for themselves, and support more-R&D focused entrepreneurs to reduce their dependence on dilutive investment.

Step 2: Create more Venture Clients: Corporate and Nonprofit leaders who would like to help align innovation to produce better products for a better world could make known the jobs they have to be done by innovative solutions, and the price they are willing to pay. The positive externalities of this information will enable entrepreneurs to better focus their efforts, Venture Builders to focus their technologies, and Commercialization Cooperatives to target the right customers.

Step 3: Build more Venture Builders. Entrepreneurs who are excited by, and expert at, the early stages of translating ideas into products and services should abandon the VC-backed startup model and instead pool their talents and knowhow to build Venture Builders (VBs, also known as Venture Studios or Startup Studios) that pool resources to move forward more than one product or service idea under one roof. Because VBs play repeated, if not infinite, games, and prove their expertise over time, intra-portflio gain becomes a significant multiplier for outcomes.

Step 3++: Existing companies who are past the VB stage can always form Venture Federations. Entrepreneurs leading startups which are not yet captured by VC can join together in Venture Federations through M&A, pooling their operational infrastructure and leveraging each-others assets.

Step 4: Invest in Generators & Venture Builders. Corporates and Capital Investors seeking a return on their investment in these uncertain times have an opportunity to mitigate their portfolio risk by investing directly into Generators and VBs working in aligned areas complementary to their portfolios, as opposed to VCs who seek to pool risk discreetly without intra-portfolio gain effects. Private Foundations, too, can multiply their impact by sponsoring Generators and investing in Venture Builders, but unlike commercial entities they may get the most out of investing in outcomes through advance purchase agreements.

The Private Sector has a crucial role to play to translate knowhow into the products and services we use every day. By aligning incentives within the private sector to reward actors for the work they are doing, as opposed to gambles on the present value of their future equity, we can shift the economy away from a finance-driven, unicorn obsessed innovation sector that produces mainly unprofitable companies. In its place we can nudge our innovation ecosystem into one that produces products and services that do the jobs that need to be done to generate a sustainable, productive, and human positive economy.

Conclusion: if we’re serious, let’s do it all at the same time

It is sometimes hard to remember that the world we are living in today is a result of choices we made and continue to make every day. The reason our money is worth anything to anyone is because we ensure its stability through building and defending markets. The past 30 years of innovation has simultaneously led to some of the greatest advances and the greatest setbacks humanity has ever faced: we’ve seen Moore’s Law connect the world through ingenious applications of software made possible by hardware, and we’ve seen corporate greed accelerate the anthropocene to the point where we may lose everything we truly value.

Despite knowing that our extraction economy put us on the trajectory for human catastrophe, we allowed our VC-focused innovation ecosystem to fail in cleantech, to fail in responding to public health. While public investment (nearly solely by China) showed us solar power could be economically feasible as an alternative to fossils, we in the innovation ecosystem allowed an alignment towards VC interests to dictate the horizon of opportunities available to us.

If we value human life, we will need to innovate to escape destructive trajectory. We need to support the full range of activities that create new products and services and get them to the people who need them at a sustainable price. Doing so is not beyond us. We need to be thoughtful about how we structure our economy and the relationship between the key players who support new knowledge creation, who do the research, who translate the research into products and services, who validate those products and services, and who commercialize those services to make them widely available.

Since we value human life, we need to use all of the tools at our disposal to act quickly. We need to better publicly support validation of promising technologies, to ensure their objectivity. We need to improve how we make research grants available and make more of them, more quickly. We need to strengthen the incentives to academics to transfer their knowledge into industry. We need to reduce the dependency of a product or service’s success on a single company with its internal fragility. We need to double down on expertise and trust, to improve development and commercialization. We need to invest our capital into vehicles that are rewarded for real-world outcomes as opposed to the perception of future equity value.

Aligning innovation requires a thoughtful alignment of incentives through generative interventions that create value for all sides. Just as a team running a relay race can beat a marathon runner to the end of a race, so too we should emphasize the overall benefit of collaboration and cooperation and reward it through our policies and our capital allocations.

The Golden Triangle introduced in Science, the Endless Frontier helped us create the innovation engine that gave us the resources we now have to address the problem we largely caused since it was introduced. It is time to tweak our system and add another bottom line to the Golden Triangle: without aligning our innovation ecosystem with the prosperity and sustainability of humanity, we will be no more than a flame burning hot, extinguished by its own success.