Technology-transfer policies stemming from the Bayh–Dole Act (Nature 468, 755–756; 2010) may not always help emerging markets. They risk alienating the venture capitalists needed for commercializing early-stage innovation in places where governments control patents for taxpayer-funded research.

For example, export controls tethered to national technology-transfer policy can prevent venture capitalists from selling investments abroad, hindering the growth of a domestic industry. Ironically, under-developed local capital markets discourage capital flow for early-stage technology because of poor financial returns. This diminishes late-stage funding from banks and multinationals, thereby strangling the entire innovation system.

South Africa's nascent biotechnology industry has been a victim of such policies at the hands of the Technology Innovation Agency (TIA) — the last remaining funder for commercialization. The TIA now has an annual budget of just US$60 million or so to cover health, manufacturing, agriculture, mining, information technology and industrial biotech. BioVentures, the only life-sciences fund in sub-Saharan Africa, ranks in the top tenth of funds globally. It returns roughly three times the capital invested in it and is responsible for several successful domestic start-ups. But export controls meant that it was unable to raise a follow-up fund.

Venture capitalists also act as global intermediaries in collecting the best research and development technologies. Even with sufficient capital, government-run commercialization funders can crowd out private-sector investment and provide less-effective mentoring. This is reflected in losses of around 60 cents per dollar of biotech investment by Canadian labour-sponsored funds — a major source of venture capital.

Successful innovation requires both government and venture-capital financing. Governments must be patient and strike the right balance between overall economic and domestic innovation.