Pacemakers, insulin, Breathalyzer tests, computers and MRI machines are university developments. All of these technologies were so obviously important that they were adopted long before universities began making an effort to get laboratory inventions out the door. But many more sat on the shelves.
One of these was a plan for a radiation camera that was capable of overlaying an image of the room with a map of radiation sources. Initially proposed in the mid-1990s by Zhong He, a professor of nuclear engineering and radiological sciences at U-M, it might have been ready to deploy in the areas around Fukushima following the disaster in March 2011.
But the companies that were theoretically capable of rapidly developing such a camera through the 2000s couldn’t do it. He estimates that $50 million in grants and contracts went toward room-temperature radiation cameras, but no one realized the potential of cadmium zinc telluride crystals, which are at the heart of He’s camera.
“Our conclusion was that we cannot count on other companies to work on the technology,” He said. If his team wanted to see these cameras in the hands of nuclear safety professionals, they would have to start a company.
So in the fall of 2011, He began a journey that more and more faculty around the U.S. are making — from inventor to innovator. These entrepreneurs are helping universities to deliver on the promise that taxpayer-funded research will drive economic growth, and lately, universities are doing much more to help them succeed.
ENTREPRENEURSHIP: A NEW HOPE
Universities weren’t always going on about innovation, and professors weren’t always ready to bring their own ideas to market. Until recently, academics typically took a dim view of business.
“In the old days, faculty members didn’t want to do a startup because they would be looked upon as someone who had gone over to the dark side,” said Fred Reinhart, a senior advisor for technology transfer at the University of Massachusetts Amherst and former president of the Association of University Technology Managers (AUTM, pronounced “autumn”).
But there was another factor as well — faculty inventors and universities didn’t always have the rights to their own inventions. The government bodies that provided funding for research typically retained the rights to the results. That didn’t work out particularly well: Only about 5 percent of government-patented research discoveries were successfully licensed to companies to develop into products. So in 1980, Congress passed the Bayh-Dole Act, which gave inventors, universities and laboratories intellectual property rights.
In the old days, faculty members didn’t want to do a startup because they would be looked upon as someone who had gone over to the dark side.
That kicked off the academic foray into commercializing research findings. It started with tech transfer offices, which popped up at most major research universities across the U.S. within a few years. Reinhart joined the U-M office in 1985 as a newly minted Wolverine MBA. When he started out, it was just him, a licensing professional and two lawyers. “We were like pioneers. We were making our own road,” said Reinhart.
The first 20 years were mostly about licensing: patent the idea, give it to an existing company to develop and market, and then collect the royalties.
This route didn’t take the faculty away from their research and teaching duties. But it also left many technologies to languish in what tech transfer professionals call the “valley of death,” which lies between the exciting lab-scale results and a working prototype. Licensing based on lab results requires great faith in the invention and confidence in the company’s own ability to make it work. The distance to the finish line — and the obstacles in the way — are uncertain.
When He initially patented the underlying technology for his radiation camera in 1998, the tech transfer office couldn’t make a match for it. It was in the valley.
THE WALK THROUGH THE VALLEY
But professors and their recent graduates and post-docs often have the confidence and skill necessary to make it through the valley of death. It’s their discovery and they have clear ideas about its potential and limitations, so the technological challenges don’t look so scary.
In the late 1990s and early 2000s, He wasn’t quite ready to take that gamble. There was more he could do in his lab. But in 2011, he and his graduate students realized it was time.
“The original purpose of setting up the company was to keep the team together,” said He. “They were extraordinary graduate students.”
Unlike the labs and companies that had tried before, He had a team that understood every component of the detectors, and they were all about to graduate. If he couldn’t hire them, they would scatter to various companies.
Fortunately for He and his students, U-M had a solid infrastructure for faculty startups. In 2009, with strong support from Stephen Forrest, then the vice president for research, the University launched the Michigan Venture Center.
The Venture Center helps faculty inventors draw up business plans, assess the potential of their technologies, and connect with investors. It also helps faculty acquire “gap funding” to bridge the end of eligibility for academic grants and the beginning of interest from private investors. Seasoned entrepreneurs serve yearlong rotations as “mentors-in-residence” to advise on all these steps.
“We didn’t have any of that when we were getting started in the early 2000s,” said Rob Malan, one of the founders of Arbor Networks (see “Pathfinding” below). He has since served as a mentor for other U-M startup teams and is currently working on another new Ann Arbor business called Deepfield.
Through the Venture Center, He and his students learned about a business plan competition called Accelerate Michigan. They won the Defense and Homeland Security category, giving them $25,000 to get started. Michigan Engineering also kicked in close to $20,000 for parts.
“The first prototype was built during evenings and weekends,” said He.
H3D secured its first government contract to build a prototype and then four military-grade radiation cameras in 2012. These large cameras were roughly the size of a carry-on suitcase, and building them kept the company going through August of 2013. In January of that year, they won a bid for a $2.7 million contract with the Department of Defense (DoD) to build a smaller handheld version. Things seemed to be coming together.
Case Study: PATHFINDING
While U-M has great support for startup companies now, things were different in 2000 when Farnam Jahanian, then the Edward S. Davidson Collegiate Professor of Electrical Engineering and Computer Science, and Rob Malan (MSE CSE ’96, PhD ’00), a research scientist at the time, founded Arbor Networks.
Malan started out with Jahanian monitoring Internet traffic through the network node at Michigan — how much data was flowing, where it came from, and where it was headed. “When you find things that don’t make sense, a lot of times it turns out to be bad guys,” said Malan.
Cyberattacks were just becoming a reality of the web in the late 1990s, so by 2000, there was a market for solutions that could shut them down. Jahanian and Malan discovered patterns in the traffic that indicated an attack. Then they developed software that could automatically detect these patterns and block the unfriendly traffic, allowing real users uninterrupted access to the website.
The inventors had help from the tech transfer office to secure patents and agree on how much of the company the University would own. But when it came to initial funding, they were on their own.
Jahanian and Malan already had research connections with HP, Cisco and Intel, and these colleagues introduced them to the venture capital arms of the companies. The computer giants offered money but no governance — they needed to find a lead venture capitalist to take them on.
Lead venture capitalists serve on the startup’s board, in addition to funding the company. Malan learned getting in touch with venture capital firms was as simple as picking up the phone. Ultimately, he and Jahanian found a match in Boston-based Battery Ventures.
The partner that he and Jahanian met, Todd Dagres, had experience building and running Internet infrastructure companies. “It’s not that you want them to give money and get out of the way,” said Malan. “VCs who have been executives are very valuable because they have scars and understanding that come only from experience.”
With the backing and oversight of Battery Ventures, Arbor Networks was in business. The next hurdle was a round of hiring. Malan remembers walking into an interview for the vice president of sales, wondering “What does a vice president of sales do?” But he and Jahanian learned quickly with the help of the recruiter at Battery Ventures.
Looking back on the effort, Malan estimates that the foundational ideas only represented about 2 percent of the work needed to get Arbor Networks off the ground. “We had no idea what we were in for,” he said.
“I never started out to be a businessman. I love doing research,” he added. “But it’s so fantastic to be able to listen to someone and solve their problem.”