[MUSIC] - Hello, I'm Nido Qubein.

Welcome to Side by Side.

My guest today is unlocking research to fuel innovation in North Carolina.

As President and CEO of NC Innovation, he's bridging the gap between academia and industry.

Today we'll sit down with Dr.

Bennett Waters, a leader for economic growth in our state.

- Funding for Side by Side with Nido Qubein is made possible by - Coca-Cola Consolidated makes and serves over 300 of the world's best brands and flavors locally from 13 facilities and 4,500 hardworking teammates.

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- The Budd Group has been serving the Southeast for over 60 years.

Specializing in janitorial, landscape, and facility solutions, our trusted staff delivers exceptional customer satisfaction.

Comprehensive facility support with The Budd Group.

- Truist, we're here to help people, communities, and businesses thrive in North Carolina and beyond.

The commitment of our teammates makes the difference every day.

[MUSIC] - Dr.

Waters, welcome to Side by Side.

You have had a very interesting life.

I've read all your biography.

You've been places, you've done things, and you're still a young man, which is amazing.

But today I wanna talk to you about NC Innovation, perhaps one of the most creative concepts that have come to our state.

I know you're gonna be doing great things with your leadership there.

Let's begin by you telling us, what is NC Innovation?

- Well, Dr.

Qubein, thank you for having me.

It's wonderful to be here today.

NC Innovation is a public-private partnership that is designed to accelerate innovation commercialization off of the research campuses in North Carolina.

- What does that mean?

- So it turns out that we're doing an amazing amount of applied research around the state, 16 campuses in the UNC system alone.

Obviously, we have private universities that are very engaged.

But what we found is that a lot of that research is remaining on the campuses and not actually translating into the commercial markets and thus producing economic development around the state.

- I see, give us an example of one.

So I guess what you're telling me is that there are certain faculty members doing significant research on a college campus, and you're helping them take that and integrate it in the marketplace.

- That's exactly right.

So there are really multiple steps.

We think of this as something of a relay race, if you will.

There's early stage funding that gets an idea started.

It progresses to the point of a proof of concept.

So it's worked once under ideal conditions in a lab.

What we're really trying to do is to accelerate that such that it works at scale, perhaps under imperfect conditions, and is ready for commercial markets.

- Is that in a specific sector as in medical or technology, or is it cross section of all sectors?

- We're sector agnostic.

We're very lucky in North Carolina to see things that range from life science and biotech to defense innovation, certainly agricultural technology, applied manufacturing.

And so we've taken a very broad approach to fund anything that shows commercial promise for North Carolina.

- And so just take us on the journey of how this works.

So you find a professor doing amazing work, and you show them the pathway to integrate that in society somehow.

Are we talking about integrating it only in the Tar Heel State, or are we talking about bringing people from out of state to maybe invest in it, or to start a business here?

What exactly is the process?

- It's all of those things.

We have great applied research here.

What we'd like to do is to keep that in the state and in the regions that actually create the innovation in the first place.

So that's part of the opportunity.

But certainly to create a pull effect so that other professors can come to North Carolina and see it as an opportunity to grow their innovation and to create commercial opportunity.

- And how long have you been doing this?

How old is NC Innovation?

- So the organization started pre-COVID as a concept.

We launched in April of 22 in earnest.

We were very fortunate to receive an appropriation by the General Assembly in the fall of 23.

- $500 million?

- Yes, sir, so it created an endowment.

That endowment is invested in the interest in the income from the endowment is what we use to fund our programs.

- And you've raised another 50 million from private.

- Not quite that, we're close.

And the private contributions have been very meaningful because they fund all of our administration and overhead.

Which means that 100% of the state dollars go into the programs themselves.

- I see, I see.

And the chairman is Kelly King?

- Kelly King chairs our board, yes sir.

- Former chairman and CEO of Truist.

And before that, BB&T is a great leader as you well know.

So it's wonderful to know that he's at the helm of what you're doing there.

It's too early to say have you had great success, but have you had some energy in this process?

You found somebody and you've taken him to market, you're investing in him.

And if so, give us an idea.

You don't have to tell us the name, but give us an idea of what it is and how it's really helping all those of us who live in North Carolina.

- Absolutely, well, first and foremost, we have been incredibly fortunate to put together a world class executive team.

Our chief innovation officer previously served in that role at University of North Carolina at Chapel Hill.

And as part of that, we've established regional hubs across the state.

I'm pleased to say that as of this May, we have awarded just over $22 million to 25 different applied research projects across the state.

So we are seeing early success in the partnerships that we're developing between academia and industry, and certainly the support to these applied researchers.

- It's too early to see results, correct?

- I would say it's too early to see the kinds of things that people think about at the end stage of results.

So companies created or new jobs, but we have seen real success in our projects making their way through the research and development pipeline.

- So what you're telling me is that we have a lot of intelligent people in the state, they have great ideas.

You are finding a mechanism to bring them together, support them with some financial investments so they can do their work.

So this $22 million that you've talked about initially sort of funding these projects, how do you do that?

Do you write someone a check at the front end or, hey, that's a great idea.

Here's $3 million, or do you do it monthly or how does that work?

- Yeah, so we go through a very robust application process for our first round of grants.

I think we had over 150 applicants for what turned out to be 17 recipients.

We review those applications for scientific rigor.

We wanna make sure that the science is real.

We also look at them for product market fit, so that we are funding solutions to problems and not solutions in search of problems.

But then we award the money in tranches, and they're based on the achievement of milestones.

So a researcher has to continue to progress to commercialization in order to continue receiving the grants.

- I see, and normally what percentage of the need are you fulfilling?

- So again, I go back to the relay race analogy.

The federal government typically funds the front end of research.

We know that the private sector and venture capital will fund sort of that last metaphorical lap.

We're funding the majority of what's called the valley of death, that gap between federal funding and the commercial markets.

- And Dr.

Waters, what do you get for that in the end?

Is it just the pride that you're doing something amazing, creating workforce and all of that?

Or do you get any dividends back, as in financial benefits from the success of these companies?

- Yes, sir, so it is entirely non-profit.

So we're a 501(c)(3), again, organized in partnership with the state.

All of our grants are non-dilutive.

And so what that means is that the universities and the professors that originate the research retain 100% of the intellectual property.

And that ultimately benefits the state under the theory that a rising tide will raise all boats.

- But if you're not getting any money back yourself, how do you perpetuate then NC innovation?

- So again, the endowment model allows us to continue to make grants in perpetuity by investing the corpus and making our awards solely out of the interest in the income on the endowment, we have an evergreen model.

- Yeah, so you're taking what, about 4% or so from the- - It's ranged between 4 and 5, depends obviously on the markets and really the Fed, because we have obviously taken very low risk investment positions.

- But you've had 150 applications.

- Yes, sir.

- You funded 17 of them.

Did you leave a lot of good ones on the table?

- There are good ones that remain.

What we're also seeing is that by having a vehicle like NC Innovation in the state, we are creating incentives for applied researchers.

And so what we are seeing is an increase in the number of applications, and that obviously is to the benefit of the state.

- I see.

And what are the prerequisites?

You mentioned market viability.

- Yes, sir.

- So on, is there like, do I have to be in business for X number of years before you consider me to have Y number of employees?

What are some of these prerequisites for you to consider my application?

- Actually, the vast majority of what we fund are not yet to the point of being businesses.

What we're trying to do is to help accelerate them from the lab into commercial markets.

- So it's one person with an idea and they're working on it.

- We typically look for proofs of concept.

So something maybe a little further to the right than an idea, an idea that's actually worked at least once.

And then from there, what we're trying to do is accelerate that path to commercialization.

- Give us an example of a project you're funding that you're pleased with.

- So there's a company here in the triad called Minerva Lithium that is working on the purification of lithium.

Right now, we're extracting a lot of lithium in the United States, but we're sending it overseas to be purified and then bringing it back to actually put it into products.

This company has the ability to purify lithium here in the United States, and we think at scale that could be very meaningful for the lithium markets.

- Now you yourself, you're a very interesting human being because you've served in both presidential administrations of President Bush and President Obama.

You were in the US Department of Homeland Security.

What did you do there?

- So I started as the Chief of Staff in the Office of Health Affairs and then concluded my service as Counselor to two separate secretaries.

- And what does Homeland Security do?

I mean, I think I have some understanding of it, but practically every day, what does that department do?

- So created in the aftermath of 9/11, Homeland Security is principally responsible for axiomatically securing the homeland, providing aviation border, transportation security, consolidating emergency management, and ensuring that, as we used to say, we're protecting the home game from our adversaries abroad.

- As a layman, how would I observe that?

Where would I observe that?

- When you go to the airport, the Transportation Security Administration is part of Homeland Security.

- I see.

- When you come back- - People who check the bags and you walk into all of these machines.

- Yes, sir.

When you come- - Those work for the Department of Homeland Security?

- Yes, sir.

- I see.

- So there's seven operating components within the department.

TSA is one.

When you come back into the country from traveling abroad, Customs and Border Protection is another part of Homeland Security.

- I'm not sure I knew that.

The people who stamp my passport and all that.

It's fascinating to me now when you come back in the country, you give them your passport.

The first thing they do is they put it in that computer.

- That's right.

- What does that do?

Does that tell them everything about me, where I've been, what I've done, if my wife loves me or not?

- It tells them what they need to know to make a decision about your admissibility back into the country.

- I wanna know some of those things.

What can you tell us without you going to jail for telling it to me?

- Really, it's mostly for foreign travelers coming into the country.

We're matching against watch lists.

We're looking for known or suspected terrorists.

We're looking for folks that might pose a threat to the homeland.

- I saw somewhere, and you may be able to shed some light on this, with your vast experience in the field, that now when you come back into the country, sometimes they ask for your iPhone.

And that you have the right to refuse showing the iPhone, but that they take it and they go somewhere and they download all kind of stuff.

Is that true?

- So those are all based on specific indicia, and so there would need a reasonable probable cause for those types of things.

And again, those are primarily focused on foreign travelers, not US persons.

- I see, and that's, so the watch list would tell them something and they say, well, we need to dig a little deeper here into that person.

- Yes, sir, and all of those programs, as you would expect, are protected by privacy rules and regulations.

Things that find the right balance between individual liberties and the security of the homeland.

- Are we losing some of that in the country, Dr.

Waters?

Some of the free speech and privacy, and is the government watching our Facebook and TikTok and Instagram?

Or are we just imagining stuff?

- I tend to think it's more of the latter.

I think when there are clear indications that individuals pose a threat to the homeland, as we have for centuries, we're a country of laws.

And we follow probable cause, but individual liberties and the protections of those are paramount, from my experience in the government.

- And after serving in the Bush and Obama terms, you also worked with the Chertoff Group.

What is the Chertoff Group?

What do they do?

- So the Chertoff Group was founded in 2009 by the former Homeland Security Secretary Michael Chertoff, and it's an advisory services and risk management firm that's focused principally on the aerospace defense and intelligence sectors.

- And the clients would be corporations or?

- Everything from large companies that have risk profiles that operate in what we might call semi-permissive parts of the world, to very small technology companies that are trying to determine if and whether they have an application that might serve a US national security interest.

- I see.

There's a concerning a lot now that we're living in times where executives almost always have to have security with them, that we hear about people being attacked coming out of a hotel or giving a speech somewhere.

What is your take on all of that?

- I think it's very concerning.

I'm fortunate to be the father of three daughters, two of whom are in college, one that will be very soon.

And I wonder and worry about our ability to continue to move about, to assemble, and to express our free speech.

I think we are unfortunately living in a world in which the tails of the curve have become bigger and the area under the curve has become compressed.

It's a very polarized time and I'm very concerned about that.

- Yeah, yeah, it's kind of sad sometimes.

In the land of the free and home of the brave that we have to be concerned about some of these things.

You're a pilot, you were born in Louisiana, you went to Davidson College undergrad, what was your major there?

- I was a medical ethics major.

- And then medical ethics, and then you, medical ethics would be what?

A combination of.. - Medicine, law, public policy.

- I see.

- Decisions at both the beginning and the end of life, things of that nature.

- And then you went to the University of South Carolina.

- That's right.

- And you received your doctorate there in health administration.

- Yes, sir.

- You have a very colorful resume, to say the least.

And now you're swimming in the ocean of innovation.

- Yes, sir.

- How did all these things that you've done in your life, in government, in business, and in education, academics, and so on.

You were also an assistant professor at the University of North Carolina Chapel Hill for a while.

How did all of that form who you are as an expert and capable leader for NC Innovation?

- I would say if there's a theme in my career, it's been innovation, it's been sustainable change at scale.

When I was at Davidson, there was no such thing as a medical ethics major.

And so I went through what we called the Center for Interdisciplinary Studies and created my own major out of a collection of courses.

Similarly, my pursuit of graduate education was something of a trailblazing path.

And I think I've always, from a very early age, challenged conventional wisdom in the way that things are.

And imagine how a better world might look, and have been very fortunate to be surrounded by great leaders like Kelly King that have encouraged and enabled me to do that.

- So Kelly chairs the board, correct?

- Yes, sir.

- And the board is comprised of what, leaders in North Carolina?

Who are they?

- So the board is a total of 13.

Eight of those are appointed by the General Assembly, four by the Speaker of the House, and four by the President Pro Tem of the Senate.

The other five are elected private industry leaders, Kelly King, Kirk Bradley, who's also on the Board of Governors, and other leaders from around the state comprise that group.

- How is it that Bennett Waters define innovation?

- Again, challenging conventional wisdom.

I noticed as we arrived this morning to be literally at the intersection of extraordinary and innovation.

That's a passion for me.

The idea that we can constantly improve, that we can do important work, that we can do important work well, and that we can do it at scale.

I think that's where innovation comes from.

So I wanna give you my definition, and you correct me.

You be a professor here, tell me where I go wrong.

I make a distinction between creativity and innovation.

I say creativity is about doing things differently.

Innovation is about doing things better.

What am I wrong?

- I don't think you are.

I think you've aced the test.

- You think that's true?

- I do think it's true.

And again, I go back to a mantra that I have used over the course of my career, to do important work, to do it well, which I think tracks your definition, and to do important work well at scale.

So we're not making a difference in just one community, but we're making a difference across multiple communities, and in fact, the world.

- So how would you define scale for an NC Innovation recipient?

You quantify it with dollars and cents.

Do you define it by geographic sphere?

How do you do that?

- So statutorily, our remit is within the state of North Carolina, as we've talked about attracting- - Every recipient must be located in the state of North Carolina.

- They must, and as a condition of receiving a grant from NC Innovation, they must agree to remain in the state for a minimum of five years.

- I see.

- If they do form a company, that company has to be incorporated under the laws of North Carolina, so things that benefit North Carolina.

But as we saw 60 years ago with the creation of RTP, what starts in North Carolina has the ability to impact the world, and we have that vision for NCI.

- Yes, of course, yes.

And do I have to have a certain number of employees?

I mean, you did make the point that you catch them beyond the idea stage, but before the explosive stage of growth.

I'm just looking for these prerequisites.

When you have 150 and you picked up 17, surely the other 133 were not useless ideas.

- Absolutely not.

- So they were disqualified based on some set of characteristics or foundational principles or ideas, right?

What is that?

- So what we're seeing as we look across the state in all 16 of the university system campuses, there's incredible applied research, again, the 150 applications.

It's not as much that we're disqualifying applicants as we are taking the cream of the crop.

- I see.

- As you mentioned, we have about $20 to $25 million a year to put into these programs.

- And that's because you have 500 million, you're taking roughly 4%.

- That's right.

- It gives you $20 million a year plus the private money on top of that.

- That's right, again, the private money funding, the administration and overhead.

- But 25 million, I say this respectfully to you, Dr.

Waters, it's not a lot of money.

- It's a lot of money in one sense.

It is not enough to fund what the North Carolina capacity would require.

- Because they're getting federal money, they're getting venture capital, they're getting other funding, these innovative companies that we're talking about.

- They're typically getting that money on the front end, and we're stepping in after those dollars have been exhausted again in that- - To fill the gap, I see.

- In that relay race.

- I happen to know of individuals in this state, and I'm sure you do as well, who have, call it what you will, venture capital, private equity, whatever you wanna call it, angel investors, whatever.

Who do the same thing, who would go to a large R1 research, one university like UNC, for example.

They would find a professor who has a terrific idea at doing something better, or creating something from scratch, or bringing, in the case of lithium, from purifying it overseas to inside the state, therefore creating jobs and so on.

And they invest money with those companies as well.

Where do they fit in that formula?

It's not federal.

- That's right.

- They fit under venture capital, I guess.

- So they typically would be at the end of the valley of death, and as you point out, most of those are on our R1 campuses.

What we are also realizing is there's a tremendous amount of applied research on our R2 and our regional campuses.

- So give me an example.

R1 will be Carolina.

- Yes, sir.

- What would be R2?

- An R2 might be a Western Carolina, a Fayetteville State, a UNC Pembroke, an NC A&T, so universities that have applied research, but maybe not as much infrastructure to bring that to the commercial markets.

- I see, I see, I see.

I don't think of some of those schools as a research universities.

You're educating me.

I think of Carolina, I think of State, the big schools A&T, because of their engineering focus.

But I don't think of some of these others you enumerated as research.

You're telling me there's something happening there that is worthy of your attention.

- Yes, sir.

- And therefore, could be very beneficial to the state.

- To quantify this, in our early days as we were doing some basic research to determine what NC innovation should look like, we looked at four regional universities across the state.

And we found that in just one year, in those four regional universities, there were 87 invention disclosures that were filed that never made it through the valley of death or to the commercial markets.

That's 87 shots on goal that North Carolina didn't get to take that could create economic development in the rural parts of the state.

- That's what fascinates me about this, is that we're living in the age of technology and there's a lot of stuff going on.

That if only we knew about it and focused on it and supported it, we can in fact create great economic wealth for the state in terms of workforce, in terms of manufacturing, in terms of technology and so on.

So what is the biggest challenge you have in your role as the CEO of NC Innovation?

- I would say our largest challenge remains a policy debate about whether or not this is an appropriate use of state funds.

- Debate by whom?

- Different members of the General Assembly, different folks that are involved and active politically.

But what I would say, Dr.

Qubein, is we are proving that the model works.

We have grown the endowment beyond the original 500 million while funding our programs.

We've seen 150 applicants in our most recent round.

We've been able to award $22 million to 25 researchers.

And so I prefer to stay focused on all of the things that are working and let the results speak for themselves.

- And I suspect you would say enthusiastically that opportunities are ample as we look ahead.

- Absolutely.

- Well, I am fascinated by what you do.

I honor you for your leadership in NC Innovation.

I thank you as a citizen of this state for all the good that you and NC Innovation is doing.

And I'm very grateful that you chose to come here today and sit with me on Side by Side.

- Thank you, it was a pleasure to be with you.

[MUSIC] - Funding for Side by Side with Nido Qubein is made possible by: - Coca-Cola Consolidated makes and serves over 300 of the world's best brands and flavors locally from 13 facilities and 4,500 hardworking teammates.

We are Coca-Cola Consolidated, your local bottler.

- The Budd Group has been serving the Southeast for over 60 years.

Specializing in janitorial, landscape, and facility solutions, our trusted staff delivers exceptional customer satisfaction, comprehensive facility support with The Budd Group.

- Truist, we're here to help people, communities, and businesses thrive in North Carolina and beyond.

The commitment of our teammates makes the difference every day.

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