September 15, 2015 / 1:43 AM / 5 years ago

From ivory tower to incubator: Transforming students and researchers into entrepreneurs

(Reuters) - Sample6 is a Cambridge, Massachusetts-based startup with a new way to detect food-borne pathogens such as Listeria and Salmonella. Its technology was conceived in a Boston University lab, and the company was cofounded by Boston University and Massachusetts Institute of Technology PhD students Michael Koeris, Timothy Lu and Tanguy Chau. But they didn't do it on their own - Sample6 had lots of help, advice and $150,000 in convertible notes from Boston University's Office of Technology Development.

Koeris tapped into what Boston University calls a gap fund, created to help university entrepreneurs develop proof-of-concept prototypes. The fund expands on the traditional role of the university technology transfer office, which is to work with its researchers to file patents and license their ideas to the private sector.

“What tech transfer offices historically don’t do well is facilitate company formation,” says Koeris, Sample6’s vice president of operations. “Tech transfer at BU is different.”

Koeris said Boston University’s gap fund, plus a staff that has some entrepreneurial experience, helped him and Lu prove that their idea could be commercialized. That enabled their nascent company to attract conventional venture backing.

So far Sample6 has received a total of $25 million in grants and funding from Boston University and about a half-dozen venture-capital firms, such as Canaan Partners, Chevron Technology Ventures and Flybridge Capital Partners. Sample6 now sells two products, a Listeria detector called Sample6 Detect/L and a management tool called Sample6 Control. Next year it is on track to release a Salmonella detector.

Other universities have also begun expanding the role of their technology transfer offices to include investing in homegrown startups. The goal is to give the new companies a better shot at success, with the university standing to gain license revenue if the startup begins making money and shares that would yield a payback if the company goes public or is acquired.

There’s also the hope that company founders will make a hefty donation to the university if they hit it big. But few patents and licenses actually create revenue. Most comes from a few big hits, such as the hepatitis B vaccine from the University of California at San Francisco, which has earned close to half a billion dollars.

Technology transfer officials say that in the past couple of years, they've had to develop more expertise in starting companies. "Part of our role is increasingly supporting the creation of new businesses," says William Tucker, executive director for innovations, alliances and services for the University of California system. He says large companies "don't have much basic research anymore," and rely on startups to do commercial proof of concepts.

The California system is one of the leaders in direct investment in startups. It has various incubators and accelerators on its campuses, and has established a $250 million venture capital fund, as well as campus-based seed funds for prototypes.

It has a lot to work with: The California system produced the most patents in 2014 of any university system. That same year it earned $118.3 million in revenue from technology licenses and patents, according to its transfer office’s annual report.

Many universities make less than $1 million a year in licensing revenue, according to data from the Association of University Technology Managers, a trade group for technology transfer officials.

“What’s happening is that universities have developed whole ecosystems for entrepreneurial research,” says Donald Siegel, dean of the school of business at the University at Albany, who specializes in the study of university technology transfer.

Siegel says universities offer business development help, make small loans to or investments in companies founded by faculty and students, start incubators and accelerators to help spur companies, and count starting a company toward tenure consideration for faculty.

Technology transfer offices are changing, in part, in order to fill a gap in research funding created by the recession of 2008-2009, after which tech transfer officials say many large companies, especially pharmaceutical companies, became less willing to license basic research. Technology transfer offices will still license basic research, but it typically takes five to 15 years to commercialize, a timeframe too long for most venture capital funds. Universities started setting up investment funds like Boston University’s gap fund to help faculty and students commercialize the technology. (The Boston fund is technically not a venture fund because it is not judged by its internal rate of return.)

“It’s gotten harder and harder every year to license technology right out of university to an ongoing concern,” says Carl Gulbrandsen, managing director of the Wisconsin Alumni Research Foundation (WARF). Founded in 1925, it’s one of the nation’s oldest and most successful technology transfer organizations. Gulbrandsen says the prime industries for licensing are agricultural companies and pharmaceuticals, and the Great Recession made pharmaceuticals in particular more risk averse and less willing to spend on research and development.

Now, Gulbrandsen says, “they expect universities and small companies to take the risk.” Wisconsin is unusual in that WARF operates separately from the university, does not receive funds from the university, and instead gives university researchers funding from its endowment. In 2014, its endowment reached $2.8 billion last year and WARF provided $60 million in research grants to university researchers.

WARF, which handles technology transfer for all the UW campuses except Milwaukee, has taken a variety of steps to help its academics become entrepreneurs. It brings in 30 paid mentors twice a year to advise faculty and staff on ideas they're trying to commercialize. It provides money to the university's business and law schools to help with legal and accounting needs. It partnered with the State of Wisconsin's pension fund to establish a $30 million seed fund to invest in the university's startups. And in 2014, WARF and the University of Wisconsin-Madison invested $3.2 million to open an accelerator, a shared workspace aimed to help startups, called Discovery to Product.

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