Diversified institutional risk verse concentrated company risk
Australia’s innovation debate circles endlessly around institutional coordination, ecosystem integration and patient capital. These conversations identify real challenges but systematically avoid a more fundamental question: when commercialisation fails, who suffers the financial burden?
The answer may be why decades of well-intentioned policy has continued to deliver disappointing outcomes. Maybe we credit the wrong entities for risk-taking, which may explain why supporting them doesn’t deliver the anticipated results.
Research institutions and funding bodies seek policy recognition for “taking innovation risks”, where in reality there are few consequences. Until the government contains policy makers who can recognise this reality, we will keep funding those who can claim unmeasurable outcomes and overlooking those who have much more to give but also much more to lose.
The Capital Abundance Paradox
It is claimed Australia holds $4.2 trillion in superannuation assets. Property investment in Australia generates attractive returns for sophisticated investors. Family offices and high-net-worth individuals are continually seeking opportunities. By any measure, capital is abundant.
Yet research spin-outs struggle to access growth funding. “Patient capital” remains the persistent policy refrain. Founder funding and scale-up challenges dominate innovation discussions. This isn’t a capital availability problem, it is a risk allocation question.
Institutional investors can absorb portfolio losses. A failed investment represents underperformance against benchmarks, not institutional survival threat. Diversification protects against concentrated risk. Due diligence costs spread across multiple opportunities. Investment professionals retain their positions when individual bets don’t pay off.
Companies face different mathematics entirely. A failed commercialisation attempt threatens bankruptcy. Founders lose their businesses, employees lose their jobs, suppliers lose their customers. The company’s brand suffers lasting damage in customer and investor markets.
Policy discussions frame commercialisation using investor language, “patient capital, risk tolerance, portfolio approaches”, as if diversified investment risk and concentrated operational risk are the same thing…they are not!
Conflating them directs policy support toward entities managing portfolios, while overlooking those Australian organisations who are betting their futures and existence on local innovation.
What Risk?
A systematic examination of commercialisation reveals who bears actual risk across five critical dimensions.
Market Access Risk
When research transitions toward commercial application, someone must validate customer demand, establish distribution channels, build sales capability and defend market position against competitors. This requires sustained investment before revenue materialises.
Research institutions don’t face this risk. Their funding comes from government grants and student fees, neither dependent on commercialisation success (more on marketing prowess). A research project that never finds commercial application doesn’t threaten university operations. Publication counts and academic reputation, not product sales, determine institutional performance.
Companies shoulder market access risk directly. Failed market validation means wasted development investment. Unsuccessful product launches damage customer relationships and brand credibility. Competitive displacement eliminates future revenue opportunities. These aren’t portfolio adjustments; they are operational failures with immediate financial consequences.
Technical Integration Risk
Moving from laboratory demonstration to reliable production requires engineering capability, quality systems, supply chain coordination and manufacturing expertise. Research excellence doesn’t automatically translate to technical integration capability.
Who bears the consequences when integration fails? Not the research institution that produced the original discovery. Universities don’t face customer complaints about product reliability or supplier penalties for failed delivery.
Companies however certainly do. Manufacturing defects trigger warranty claims. Integration delays breach customer contracts. Quality failures destroy market reputation. Supply chain problems interrupt revenue and cashflow. Technical integration risk sits entirely within the entity responsible for commercial delivery of reliable products to paying customers.
Financial Infrastructure
The pattern continues for financial infrastructure like working capital management, revenue recognition systems, cost control discipline, cash flow sustainability. Research institutions operate on annual budget cycles with predictable grant funding. Companies operate on cash flow reality where revenue delays create liquidity crises, cost overruns threaten solvency, and working capital shortfalls force difficult choices about payroll, suppliers and development investment. Financial infrastructure risk is existential for companies in ways it never is for institutions.
Organisational Capability
Commercialisation requires capabilities aligned with market demands – customer service, competitive response, continuous improvement, rapid adaptation, product support. Building and maintaining these capabilities represents sustained investment and cultural commitment.
Previous analysis established this through organisational DNA principles. Research organisations cannot develop commercial capabilities without fundamentally changing their purpose and structure (and shouldn’t). Universities aren’t failing when they don’t develop commercial execution capability, because they are succeeding at their actual mission.
The risk for commercialisation should sit with local companies, who succeed by hiring commercial talent, building market-facing processes, developing competitive intelligence and maintaining customer intimacy. When these capabilities prove inadequate, companies face market consequences. Institutions don’t.
Brand and Reputation
Commercial success requires building trusted market presence, delivering consistent quality, maintaining customer confidence and protecting brand value. These assets take years to establish and can be destroyed quickly through commercialisation failures.
Research institutions face different reputation dynamics. Academic standing derives from research excellence and publication impact. Commercial failures don’t threaten institutional reputation in ways that methodological errors or research misconduct would.
Companies stake their market existence on brand and reputation. Product failures damage customer trust permanently. Service problems trigger competitive defection. Quality issues destroy years of brand investment.
This asymmetry makes commercialisation risk profoundly different for entities whose survival depends on market reputation versus those whose reputation derives from research excellence. Research institutions enable discoveries within protected funding environments. Companies bear concentrated, existential risk translating those discoveries into commercial reality.
RoI Paradox
Research institutions and funding bodies regularly publish impressive economic impact claims. Peak industry body Science & Technology Australia tells government that early-stage research returns more than $3 for every dollar invested, with later-stage research offering five-fold returns. Universities quantify their contributions to regional economies through multiplier effects. Innovation precincts calculate job creation and GDP impact from their programs.
These numbers sound compelling. Returns of three times, five times, even ten times initial investment would make any commercial investor envious. Yet here’s the paradox: if research institutions generate these extraordinary returns, why don’t they capture them?
The answer reveals the attribution problem at the heart of innovation policy. Research institutions enable discoveries that companies then risk capital to commercialise. When commercialisation succeeds, companies realise returns through revenue, profit and enterprise value. The economic multiplier effects flow from commercial success achieved by entities bearing market risk.
Research institutions don’t capture these returns because they don’t bear the commercialisation risk that creates them. They receive credit for economic value that companies generate by shouldering financial exposure, market uncertainty and operational challenges. The impressive multipliers represent value created by successful risk-bearing, not by research funding alone.
This matters for policy because we credit institutions for economic returns they enable but don’t realise, while overlooking companies that bear risk to generate actual economic value. The vanity metrics inadvertently reinforce misattribution – celebrating research contributions while rendering invisible the commercial risk-taking that translates discoveries into measurable economic outcomes.
Misattribution Trap
Current policy systematically credits research funders and institutions as “high-risk investment in Australia’s future.” University commercialisation offices receive credit for “risk-taking in technology translation.” Government innovation programs celebrate “bold bets on emerging industries.”
These descriptions fundamentally mischaracterise risk allocation. Individual project failures don’t threaten institutional budgets, failed technology transfer attempts don’t trigger university bankruptcy. Program underperformance rarely produces serious institutional accountability.
Australian companies attempting to commercialise research invest their hard earned working capital with no guarantee of return. They hire staff with no certainty of sustained revenue. They commit to markets with an ambition the technology will deliver value. They build capability with no protection against competitive displacement.
When commercialisation succeeds, companies capture some returns but must reinvest them to maintain competitive advantage. If it fails, companies can face significant losses, and even bankruptcy, where institutions continue operations unaffected.
The Policy Reality
Previous analysis established that research capability, investment expertise and commercial translation require distinct professional competencies. We examined why organisational DNA determines institutional effectiveness and explored international evidence of what works when commercial discipline drives decision-making. This risk analysis completes the foundation.
Today government policy funds institutions to lead commercialisation within protected funding environments, despite significant gaps in commercial capabilities. These institutions continue regardless of the outcome.
Government policy should consider redirecting funding for commercialisation from researcher organisations attempting translation to Australian companies with proven capability in doing so. Australian vendors who create value, who possess the commercial maturity and market access required, and whose competitive livelihood depends on it.
Support should be directed to those entities bearing actual commercialisation risk, creating incentives for proven companies to engage and likely to generate substantially higher measurable returns to the local economy compared with organisations who will continue regardless of the outcome.
Australian Innovation Exchange – Building the bridge from research to market