In this conceptual paper, open innovation is considered from the point of view of collaboration between the Industry and the Academy. However, if considered under the framework of the Resource Based Theory, specifically regarding Transaction Cost, it can be shown that the two parties (Industry and Academy) are in fact compatible. The discussion on Transaction Cost is mainly focused on the aspect of the management resources available for the activity and the cost incurred compared to alternative management activities. It has been observed that small and medium enterprises (SMEs) are faced with the ever increasing stress of intensive competition and limited by their resources (e.g. managerial capabilities, financial etc.) in their abilities to deal with the transaction cost, and thus effectively turn to collaboration as a solution. The discussion synthesizes aspects of open innovation based on a theoretical model and a case study of the User Association of Advanced Technologies program in Israel, and emphasizes on collaboration as an open innovation activity within the Resource Based Theory. It further concludes that collaborative research reduced the transaction cost in terms of utilizing open innovation in entrepreneurships, especially in case of SMEs, before providing a few research hints. The research piggybacks on the acquired knowledge on open innovation and thus strengthens further the concept of reduction of transaction cost through collaborative research.