How Seattle VCs Are Adapting to the UW TechTransfer Revolution
[This is Part 1 of a two-part series on how the process of identifying venture-backed startup opportunities at the University of Washington is evolving---Eds.]
Back in February, we reported on the “VC revolution” happening on the campus of the University of Washington. Six months into her tenure as vice provost of UW TechTransfer, Linden Rhoads sat down for a Q&A with Luke to discuss how her team has been connecting researchers with venture firms and technology companies at an early stage in the commercialization game.
“We’re combing the nation for the venture capitalists who are truly aware of a specific research area,” Rhoads said. “We are hosting meetings for researchers too. You’ll find all over campus that there have been meetings with a researcher, with people from industry, and a venture capitalist. We don’t do this in the hope that a license will come out of it, but that a relationship will come out of it…It’s something most tech transfer offices don’t undertake. It’s a more proactive and longer-term approach.”
It’s also part of a broader shakeup in how the venture community views working with the UW—which has a reputation for winning lots of federal support for research, without translating much of it into startup businesses, as compared to MIT or Stanford University. Certainly not all great startups come from academia, but few would argue that more shouldn’t be coming out of the UW, given its research stature in fields like computer science, advanced materials, and biochemistry. So how are Rhoads’s efforts going over with local venture firms? Will we see more competition among venture capitalists, both locally and nationally, to invest in UW spinouts? How are VCs adjusting their strategy to work with the “new UW” and gain access to top entrepreneurial researchers at an earlier stage, and how will it all play out?
The feedback so far from Seattle-area venture capitalists has been very positive. Brad Silverberg of Ignition Partners speaks for many when he says UW TechTransfer’s work is “very encouraging and definitely going in the right direction.” He adds that it’s a “good thing for all concerned—the UW, entrepreneurs, VCs.” Bill Bryant of Draper Fisher Jurvetson says the investing community is excited and optimistic about changes like “more visibility on promising technologies, additional pre-work to move the technologies closer to the point of commercialization, and soliciting input from numerous outside parties on how best to structure TechTransfer for outside consumption.”
But real change won’t come quickly, or easily. “The enthusiasm is tempered only in light of a 30-plus-year institutional legacy and history that needs to be overcome,” Bryant says. “Will change happen sooner than the rear guard can mount its inevitable counterattack? Finding the appropriate balance in mission for a research university like the UW between ‘fundamental, theoretical’ research and ‘applied, commercially useful’ research is going to take years and a cultural mindshift.”
On this point, Lucinda Stewart of OVP Venture Partners says, “There’s obviously risk in hiring aggressive people like Janis [Machala] and Linden. They’re not academics, they’re on the for-profit, commercial side. They’re kick-butt women, which is awesome.” Indeed, from any venture capitalist’s perspective, the change has been dramatically for the better. “When I was working for the Washington Research Foundation in 1998, TechTransfer was much less ‘user friendly’ than it is now under Linden and Janis’s leadership,” says Erik Benson of Voyager Capital. “They know the university’s ecosystem, they know the best entrepreneurs, and they know which VCs are best for each opportunity.”
So how are venture capitalists going about their business on campus these days? Madrona Venture Group and Arch Venture Partners have had a strong presence at the UW since the 1990s. Madrona has been particularly active in the computer science and engineering department: Oren Etzioni and Dan Weld are full-time UW professors who spend part of their time advising Madrona about startups. Madrona is also known for holding “office hours” in the computer science building, where researchers can come in and talk with a VC about technology commercialization and starting companies. (New Seattle software startup PetraVM has its roots in one of these meetings with Madrona’s Matt McIlwain.)
But that’s barely scratching the surface of the hard work it takes for a venture firm to build expertise and relationships that will lead to a successful startup. “You don’t just show up and fund a company the next minute,” says Greg Gottesman of Madrona. “We want to build long-term relationships with graduate students and professors in areas they’re interested in. They provide such great insight about what’s possible. They’re looking three, five, 10 years out…We can provide a real sense of what are people doing in the startup/venture world with technologies like this, and a real business perspective—how can we turn what you’re doing into a business opportunity? It’s not one meeting, but often over several years.”
OVP, for its part, is holding its first office hours at the UW on April 23. Stewart says it will be a quarterly event, and the inaugural session will focus on areas like enterprise infrastructure, software as a service, analytics, and cleantech. In terms of OVP’s broader approach to working with researchers, she says, “We like to come in really early. Rick [LeFaivre], myself, and Mark [Ashida] are all assigned to the UW. We’re triple-teaming it. If we wait until the time companies are ready to raise money in Series A, it’s often too late. We’ll back projects at the prototype level. We know four or five professors in different areas—security, search, cleantech—and we’re trying to make sure the handful of people we should know, we know.”
Down the road, closer to commercialization, UW TechTransfer can offer a venture firm a complete package. “By the time I see a project,” Stewart says, “Janis will say, ‘There’s this great enterprise security, or a new way of tracking data on the Internet for advertisers. It works, and here are the milestones the guy has hit. And I have someone in mind to run the company.’” In recent months, OVP has backed EnerG2, an energy-storage and materials startup, and is involved with Arzeda, which designs enzymes for biotech and cleantech applications—both UW spinouts.
Madrona’s Gottesman says he and his colleagues are spending more time on campus these days, in part because their firm is involved with more startups with roots there. Madrona says it has put $50 million into 11 companies from the UW in the past decade, including Farecast (bought by Microsoft for $115 million last year), radio-frequency identification firm Impinj, cloud-computing startup Skytap, and PetraVM. “You’ll see us, if anything, step up our involvement and desire,” Gottesman says.
Other VCs say their approach is not all that different now—they’re not trying to get to know researchers and projects at an earlier stage, for instance. Bryant of Draper Fisher Jurvetson says he’s “not really” over at the UW more often these days. “I’m a great believer in the entrepreneur behind a startup,” Bryant says. “The IP/technology/idea is secondary. The scarcity lies in entrepreneurs, not technology. I don’t see high leverage in getting to know individual professors and their respective projects. I figure that entities like Tech Transfer and key on-campus figures like [computer science professor] Ed Lazowska…will get in touch with me if they identify an appropriate technology that comes with an entrepreneurial professor as a founder.”
So how will all of this positioning shake out in the coming years? Will Madrona, for example, face more competitors trying to get in deals than in the past? “The fight for UW spinouts will ultimately come through Tech Transfer,” says Voyager’s Benson. “The attention UW is getting is at an all-time high. It will be wide open within a couple of years.”
For now, though, VCs are talking more about open opportunities and collaboration, rather than any competition. “UW has not been a competitive place,” says Stewart. “It’s the opposite of Stanford, where there’s a venture guy per day. More attention around UW is good for the whole region. It still takes work. It takes the type of firm and venture partner who will roll up their sleeves. It’s not a mass market opportunity…All the [VC] firms here could do spinouts. But the reality is, it won’t get overly competitive.”
Gottesman agrees, “There will be plenty of opportunities for us and other VCs to spin out companies…There’s more than enough to go around for a lot of folks.” But it’s clear that a firm like Madrona, with its extensive track record at the UW, will continue to press its advantage in terms of the relationships it has built on campus over the years. “We’ll do more than our fair share of startups,” Gottesman says.
[Stay tuned for Part 2, where we'll hear from Linden Rhoads of UW Tech Transfer, and more VC thoughts on specific areas of interest---Eds.]