How Seattle VCs Are Adapting to the UW TechTransfer Revolution (Part 2)
[This is the second part of a series on how the process of identifying venture-backed startups and commercialization opportunities at the University of Washington is evolving---Eds.]
How does the University of Washington Tech Transfer office view its ongoing relationship with venture capitalists?
On Wednesday, we reported on how venture firms around town are going about their business, working with researchers at the UW and looking for the next big startup. The focus was on recent changes at UW TechTransfer—with the high-profile hires of Linden Rhoads and Janis Machala, both prominent leaders in the tech-business community—that seem to have led to increased involvement with industry and venture capital. I wanted to hear Rhoads’s top-level perspective on this, as well as some more specifics from a few local VCs. I also dug up a couple intriguing bits of news, and things to look for down the road.
Rhoads first stressed the importance of outreach to the community. “We’re hosting many representatives from area firms, as well as Boston firms and other areas, and venture arms of pharmaceutical companies, but given the economic realities, none of that activity has turned out to be the most important to us,” says Rhoads. “Most important to us is the depth of our relationships with our traditional VC partners. It goes far beyond their actual portfolio companies.”
In this “far beyond” realm is the work that Seattle-area venture capitalists do to help recruit star faculty, serve on UW committees, and, of course, meet with the school’s researchers to advise them on commercialization possibilities.
Last month, UW TechTransfer held its first half-day retreat (including an advisory board meeting) since Rhoads took the helm. She says they hosted about 50 top business leaders in a room on campus for five hours: people like Nick Hanauer of Second Avenue Partners, Bob Nelsen of Arch Venture Partners, Matt McIlwain and Greg Gottesman of Madrona Venture Group, Ron Howell of the Washington Research Foundation (WRF Capital), Cameron Myhrvold of Ignition Partners, Bill McAleer from Voyager Capital, and Chad Waite from OVP. (The list of who’s who keeps going— Alan Frazier, Carl Weissman,Patrick Ennis, Bill Gossman, Alex St. John, Jeff Canin, Chris Rivera, Jeff Schrock, Brian Bershad, Will Poole, Oren Etzioni, Dan Weld, Chris Porter, Susannah Malarkey, Connie Bourassa-Shaw… The format of the event was actually inspired by another retreat put on by Bourassa-Shaw’s Center for Innovation and Entrepreneurship at the UW.)
What came out of the meeting? Rhoads says, among other things, metrics to measure the success of UW TechTransfer, ways to improve the efficiency of communication with investors about hot projects, and a lot of top-tier networking. “People talk about walking the halls—but as I’ve said before, it’s hard to park, let alone walk the halls,” she jokes (but of course it’s true). She adds that her team is trying to help VCs and industry leaders better understand the opportunities at the UW—and do it in a cooperative way. “The other thing we’re really seeing, rather than more competition, is much more collaboration. We’re having WRF, OVP, Arch, Madrona, much more together to give chase to a market to get things spun out of the university,” she says. “We’re excited about working together to build syndicates.”
Nobody knows more about this sort of collaboration than the Washington Research Foundation, which has invested in more UW spinouts over the past 20 years than any other firm—most recently in startups like Arzeda, EnerG2, Skytap, PetraVM, Lumera, and Farecast. “We’ve never had to compete with other firms to do deals. We’re seen as partners,” says Thong Le of WRF Capital, in part because of their unique model of funneling investment returns back into the UW. “We’re very active in terms of being at the university.”
Le has noticed a marked shift in working with the university. “A lot of change comes from the very top. It’s a different attitude about how you help commercialize technologies,” he says. “Linden and Janis have brought a different culture to the UW. They’re trying to change the mindset. It’s actually OK to help turbocharge the environment in which commercialization can flourish.”
Another VC also notices a strong inward focus, which he says will help researchers and investors connect at an earlier stage. “With Linden, what I’ve been most impressed with is the focus on researchers,” says Madrona’s Gottesman. “It’s so hard to boil it down to what really matters. If we take care of the researcher, everything falls into place. She has hit that nail perfectly. It’s good for the UW, good for Madrona, good for everyone.”
Gottesman continues, “The best thing that could happen will be to have more wins. When you have a win like a Farecast, a lot of other professors and top graduate students, when they’re in the shower in the morning, they’ll think about not just the great research they’re doing, but ‘How can I commercialize this?’” In the case of Farecast, which was spun out of the UW in 2003 and bought by Microsoft last year, he says. “This wasn’t even two guys in a garage. This was an academic paper, this is really early stuff—is there an interesting business behind this? At the UW, you feel comfortable that from a technology angle, even though it’s very early, you’re getting a sense for the very best stuff that’s out there.”
Patrick Ennis, formerly of Arch Venture Partners and now global head of technology for Bellevue, WA-based Intellectual Ventures, provided some more perspective. “UW has always been one of the world leaders in tech transfer, and now they’ve really jacked it up a notch,” Ennis says. “This activity is more important than ever. During slow economic times, what you need is economic activity. If you don’t have it, you can’t tax it, and there’s no money to invest in more economic activity.”
Intellectual Ventures, which partners with universities around the world to commercialize inventions, is building its relationship with UW TechTransfer. About three months ago, the firm hired Karen Kerr, formerly of Agile Equities and Arch Venture Partners, to head up business development in the U.S. So Kerr is now IV’s liaison with Rhoads’s team, and with professors at the UW. (It will be intriguing to watch what sorts of licensing deals and other agreements may come of this.)
All this progress seems fine and good. But might the UW back off from its ambitious commercialization agenda the minute a prominent public voice accuses the university of selling its soul to corporate America?
“Absolutely not,” says Ennis. “UW preserves, with vigilance, academic freedom and the ability to do basic research. That has not changed by any means. What has changed over 20 years is those professors who do want to get involved with commercializaton can. It’s about more freedom, not less freedom. I don’t see the opportunity for pushback. It’s not relevant.” What’s more, he says, “All of this is voluntary. If a professor doesn’t want to work on a startup or patent, they don’t have to. The potential conflict of interest is where there’s funding from an organization—it could be a company, it could be the government—that wants to control the research. Are there any strings attached to your basic research funding? History has shown that the best research is performed when there are no strings attached to your money.”
As for promising areas of technology spinouts to watch at the UW, WRF Capital’s Le says, “We’re seeing early stage platform-type opportunities. Antibodies in a particular area, or fundamentally new materials for batteries and cell phones, or security applications. The university is so broad. We take a step back and look for very fundamental technologies that give us an unfair competitive advantage.”
Gottesman, for his part, points to “great stuff going on in search, with Oren Etzioni. The graphics side is extremely exciting, and systems work that Hank Levy and others have been working on. We’re really open to a bunch of different areas.” Outside of straight computing, Gottesman also points to medical technologies as a field to watch at the UW.
As for Rhoads, she says that Accelerator, the Seattle-based biotech incubator, is “in the process of closing another UW technology…Accelerator’s anchor tenant was Lee Hood’s Institute for Systems Biology, but we’re in active discussions [to create] an Accelerator for biomedical devices, and for cleantech/energy startups. It would have the university as its anchor tenant, and a number of venture firms. We’re seeing cooperation as the model right now.”
Rhoads couldn’t be more specific about this just yet, but she added some broader perspective on the coming year. “We’re on track to do as many deals as we have in the past,” she says. “It’ll be a hard time for companies to close large rounds in mezzanine financing, to reach a broad marketplace. But if you’re in the product development stage, as long as VC firms are still able to raise capital, it makes sense to invest in companies that will be looking for customers in two or three years.”