Innovation finance and foundational nanotechnology research

Rethinking fundamentals of innovation finance leads us inevitably into a conundrum of balancing motives with accounting realities. Even if research may be driven in very particular cases by noble reasons independent of monetary incentives, somebody has to pay for it. Either developers cover the necessary costs themselves – which is just not feasible in the case of foundational research as capital-intensive as nanotechnology; otherwise, funding needs to come from institutions and/or investors or, horribile dictu for many, from the taxpayer.

In the case of academic research institutions, their primary incentive may originate less from a potential for commercialization than from the likelihood of industrial and scholarly recognition. Honors such as a Nobel Prize or other major awards and distinctions are just one category of non-monetary rewards. Published reports of breakthroughs in research define another.

However, the more capital-intensive research turns out to be, the more commercial funding becomes indispensable, and financial interests of significant investors will inevitably gain influence over the type of research undertaken. One way to sidestep prioritization of research with good short-term return-on-investment potential in favor of more basic research or of research done ‘for the right reasons,’ i.e., for the benefit of society, is to increase funding by publicly financed institutions such as the National Institutes of Health or the National Science Foundation. However, such institutions are not really independent either: since funding of research grants originates from the treasury by way of budgetary legislation, allocation of resources to innovation and scientific discovery is subject to, and often enough victim of, a wide array of political pressures. In the end, areas that will receive the largest share of financing will be those marketed by scientists or lobbyists as having the greatest potential to improve either the economic or the political standing of their nation, and above all increase its military capabilities.

Between the economic and political objectives of various stakeholders, finding a golden middle to accommodate research done in the public interest may be easier if scientists keep their eyes on the bigger picture: that is, the reality and priorities of whoever holds the power of the purse in funding science. Since scientists do not normally hire public relations agents, they need to perform this function themselves, and they do that with notoriously bad results. But mediating interests and, above all, conflicting interests, always begins by stepping into the mind and awareness of one’s target constituency. That may be investors who, up to a point, are not always and entirely motivated by numbers only. It could also be politicians caught up in perpetual reelection campaigns and torn between pressures to “create jobs” for their constituents on the one hand and to “protect the public” from various risks and threats on the other, all the while trying to stretch budgetary limitations on spending and to avoid political pitfalls. Or it could be administrators of governmental science organizations whose behavioral patterns follow those of decision makers in any bureaucratic organization.

It is all too often overlooked that the seemingly obvious national interest, and even much less the ‘interest of mankind’, however frequently invoked, does not have an impartial, knowledgeable lobby anywhere. This has to do with the complexity of issues under consideration as well as with the uncertainty about which one of several competing technologies or innovative approaches will ultimately prevail. In its comparatively short history, information technology has given us some choice examples of the fact that it is not the technologically superior and most functional solution that is adopted as the general standard but rather the one that is marketed best – be it as a result of users’ prior investments or, for example, of their esthetical preferences and social appeal.

Because the science and technology community have done such a poor job educating the very public on which they depend for sustainable funding, it comes as no surprise that intermediaries like investment bankers, politicians or industry groups have stepped up to the plate and presented their version of the public interest in highly biased accounts often enough blatantly reflective of conflicting interests. It is very difficult to identify, not to mention enforce, ‘right reasons’ when already our accounting rules so heavily distort generally accepted tools of valuation and allow, if not encourage, the privatization of profits while socializing most pertinent expenditures – as the ongoing environmental discourse reflects – or by failing to account in adequate fashion for creative potential and for as yet unmarketed but largely market-ready products. The result is profound uncertainty about the funding of creative processes including research – an uncertainty that, until the last moment prior to commercialization, cannot be disproved rationally. But this is a characteristic that processes and intangibles in general share with forward-looking issues. Yet, at a time when value creation more and more vitally depends on intangibles, a body of accounting rules that only values tangibles and faits accompli is wholly insufficient. It is this key aspect of valuation and accounting as a basis for almost all decisions in finance that the rules and standards of the pre-internet age still continue to apply.

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