Varnum law firm sponsored this story.
Universities drive innovation in Michigan
A contact lens that talks to a glaucoma patient’s smartphone. A thruster that directs a satellite to its precise destination in outer space. A fly lab for testing drones and other autonomous aerial vehicles.
At Michigan’s universities, students and professors are driving innovations in health care, space exploration and robotics — not to mention biotech, food and forestry.
Every day, these researchers are discovering, testing and bringing to market products and technology that extend lives and give us a glimpse into the future. University tech transfer offices tasked with identifying research with potential commercial interest support many of these discoveries and work to “transfer” or spin out that technology to a business environment. But unlike in the private sector, they aren’t developing this technology for profit.
“We’re in the business of taking innovations at the university and getting them out in the hands of the people,” said Richard Chylla, PhD., executive director of MSU Technologies at Michigan State University. “That’s really our primary mission.”
Think about the world-shattering iPhone. Although Apple created it, about 150 of the smartphone’s individual components are the result of research projects at universities around the country, explained Chylla.
However, taking a technology from concept to market is a sluggish process that requires significant funding, talent and help from attorneys to navigate intricacies in the IP and trademark arenas.
Varnum LLP, the law firm whose MiSpringboard program was designed specifically for startups, partnered with Crain Content Studio, the custom publishing division of Crain’s Detroit Business, to gather leaders of the tech transfer offices at Michigan’s largest universities, along with spinoffs and startups, to talk about advances, the need for public and private resources and the challenges that come with getting inventions to market — all of which can help make Michigan ready to move into a high-tech future.
A spinoff story
The story of Brio Device is a case study in tech transfer. The company, which develops instruments to ease the insertion of breathing tubes, was born in a university setting almost seven years ago.
“The idea originated when the four of us that founded the company were fellows at (University of Michigan’s) Medical Innovation Center,” said Hannah Hensel, CEO and co-founder of Brio Device. “And that unto itself was a multi-disciplinary program involving myself, with an MBA background from UM; a surgeon; a biomedical engineer, who hails from Michigan Tech; and a materials engineer.”
The group made a device that assists in “intuitive, intelligent intubation.” It helps medical personnel steer an endotracheal tube.
After creating the device, Hensel said the real work came with product development.
That required various resources, including a Small Business Innovation Research (SBIR) grant; $150,000 from UM’s Monroe-Brown Seed Fund; support from UM’s TechLab, which provided funding, a space to work and a mentor-in-residence program; and assistance from Varnum, which helped structure the equity and debt.
Matthew Bower, a partner at Varnum, called working with university spinoffs “incredibly exciting, because the technology usually has a lot of promise.”
He also acknowledged tech transfer work requires patience because the technology is typically “raw” and takes longer to get to market. Brio Device has finally received FDA regulatory approval and is in development for testing at three pilot hospital system sites.
Bower said firms like Varnum that work with startups focus on three areas with university spinoffs and startups:
- General corporate work, including entity formation, shareholder agreements and contracts;
- Venture financing, which includes compliance with securities laws, disclosures and investment structuring; and
- Intellectual property, which includes licensing arrangements.
Working with a legal team that has experience in tech transfer is critical, said Jim Baker, PhD., executive director of Innovation and Industry Engagement at Michigan Technological University.
“If we’re talking to people who have counsel that don’t have experience with those types of transactions … it often either delays or winds up killing the deal,” Baker said.
The ROI of R&D
The University Research Corridor (URC) — a Wayne State University, UM and MSU collaboration — spends upwards of $2.3 billion a year on research and development. And while universities track the return on investment of this R&D as a way of showing value for their inventions in the market place, their ultimate goal is driven by a mission to get the inventions to the public.
MSU’s Chylla said that while some of the drugs the universities develop can be lucrative, many of the everyday technologies don’t produce much revenue.
Bryce Pilz, director of Licensing at UM’s Office of Technology Transfer, agreed. Although the UM-developed nasal-spray flu vaccine known as FluMist was financially profitable, he said it was “the exception to the rule.”
University Research Corridor (2012-16), by the numbers
- 1,348 researcher inventions within the sciences alone
- 380 U.S. patents issued
- 433 new license agreements
- 32 new startup companies
- $142 million in royalties
Michigan Universities are inventing something new every day. Find out what they are innovating today.
MTU’s Baker explained the ROI of university research and development as looking outside the box of only the licensing revenue. Baker said you have to consider other tangible and intangible returns, including research contracts, indirect cost recovery on research contracts, partnerships with private industry, goodwill and community service.
“You draw the box generally around all of the outcomes from having a viable tech-transfer function, then you can have a satisfying return,” he said.
Counting both the tangible and intangible, the URC has fostered more than 200 startups since 2002, netted more than 68,000 jobs, facilitated more than $500 million in new tax revenue and contributed an estimated $16.5 billion to Michigan’s annual economy, nearly as much as tourism generates for the Great Lakes State.
And those results are for just three of Michigan’s 15 public and 57 private/independent universities.
“When you combine the Michigan universities and compare them to any other research cluster around the country or the world, we’re up there with everyone — whether it’s the Bay Area, whether it’s Boston,” said Pilz. “From inventions reported … to licenses, to transferring technology … to products on the market, to follow-on funding, we compare with anyone.”
The Valley of Death
While Michigan is an entrepreneurial culture, inventions coming out of universities don’t happen easily. The URC alone spends 19 times the state funding received by the three university partners. Outside investment has been scarce.
Nataliya Stasiw, portfolio manager for Entrepreneurship and Innovation at Michigan Economic Development Corp. (MEDC), said risk factors scare many investors and VC funders away from university startups. At the same time, when universities are no longer in the research stage, grant funding for the technology becomes limited.
“We have this gap in funding — the valley of death,” Stasiw said.
Hensel said Brio Device has lived in this “valley of death” and witnessed what she called an “if they can just get there” mirage.
“To get some of the university commercialization funding, we had to have a licensing agreement in place with UM. In order to have the licensing agreement, we had to work with an attorney. And in each case … we’re talking about thousands of dollars. But as a cash-strapped startup, you don’t have it. But you can’t get the money until you have all that in place.”
Stasiw cited a few MEDC-related resources helping startups and universities navigate the startup stage and get their research into the hands of the public.
In addition, Varnum’s MiSpringboard program offers free legal services for early-stage companies. “Oftentimes, it’s enough to get a company organized and protect the two pillars – the company and the intellectual property,” Bower said. “Like a lot of the other resources, it’s a little push out the door, and we just need a lot more of that if we’re going to really transform the office of tech transfer into the economic engine that it could be for the state.”
Although SmartZones help start businesses and change people’s lives, Bower added that more funding from venture capitalists and angel investors is essential to continued university success.
Steve Tokarz, a business developer and CEO-in-Residence at StabiLux Biosciences Inc., broke down a few numbers. “Look at any venture capital measure. California puts in $24 billion. New York, Texas and Austin, Colorado and Boulder, Boston — combine them all — they’re at $15 billion. And then the rest of us don’t even matter,” he said.
Bower said that’s because some investors find it challenging to get over their fears.
“If you’re not used to investing in a company that has spun out of a university or office of tech transfer, that licensing relationship can seem a little scary at first, because the thought is ‘well, they could just pull the license,’” Bower said. “But, of course, that kind of thinking goes against the whole mission of the office of tech transfer.”
Alisyn Malek, COO and co-founder of May Mobility Inc., said a lot of Michigan money is sitting on the sidelines and not being invested.
“I was at an investor dinner a few months ago, and it was pointed out to me that the state of Michigan is like No. 5 in the U.S. for people with net worth over $50 million. Those individuals, some of them are angels (investors). As a person in Michigan, it is really hard to track those people down,” she said. “As a person in Silicon Valley, it is so easy.”
Zach Meyer, a partner at Varnum, called it “quiet wealth.”
“There continues to be a need for education in the investor community,” Meyer said. “Even though high net-worth people in business are very successful, they didn’t become successful in this kind of investment environment. They did it in a much more traditional kind of environment. And, let’s be frank, this is not E-Trade. (Their) expectations have to be tempered.”
University technology transfer is a cooperative endeavor, and Pilz said there’s more going on in Michigan to foster an entrepreneurial community than any place else.
Joan Dunbar, PhD., associate vice president for Technology Commercialization at WSU, agreed.
“Having the collaboration between my cohorts has been incredible — the shared experience, best practices, crying on each other’s shoulders sometimes,” she said. “We meet every quarter and have several programs that are jointly managed or jointly administered.”
Baker said universities also leverage collaboration with industries, whether they’re hiring the university’s students or sponsoring research. While universities do spinoff businesses as a result of their inventions, 80 percent of tech transfer licenses are to existing companies.
“We have a unique set of resources and networks,” he said. “We can connect companies we do business with to each other. We can connect startups to companies we do business with. It’s an important part of the overall ecosystem — new companies, old companies, small companies, big companies, universities, technologies, ideas, knowhow. …”
Despite the dearth of angel and venture capital investment, one advantage university spinoffs have over investor-rich corporate counterparts like General Motors is their ability to pivot as needed in product development, said Tokarz.
May Mobility is an example of a startup with intellectual property out of UM and the ability to change direction if necessary.
The transportation services company is focusing on short-distance, autonomous transportation and receiving feedback from riders. For a pilot program, its vehicles have been shuttling Detroit-based real estate company Bedrock employees between headquarters and parking.
Malek, former head of GM’s Innovation Pipeline, said by being outside of the culture of mass production — producing millions of vehicles — May Mobility can focus on how to properly use the technology before trying to scale up to thousands of vehicles.
“We are an autonomous vehicle company,” said Malek. “But as we think through what makes this technology useful and not just a technology, it is the service that it provides.”
Unlike GM, which is innovating on a city scale, she said May Mobility can focus on finding people and actual use cases.
“We think that groundwork really needs to be laid before this can be a successful revolution in helping people move around,” she said. “We can figure out who needs to move, who needs these services and how we build trust with them. We can only do that in a startup.”
What else is needed? Talent
While capital, innovation, pivoting and collaboration are essential to preparing Michigan, having a strong well of talent in the state is also a concern.
“Everybody recognizes that there are two valleys of death,” explained WSU’s Dunbar. One is funding; the other is having the mentors and the talent to bring into a program.
May Mobility is finding it a bit tough to find all the talent it needs, and Malek said that has implications on the future.
“There’s a bigger ripple that we have to continually consider,” she said. “It’s all the people that really are going to make a difference so that in 10 years, the company doesn’t have a big gap.”
To attract and retain talent, Chylla said legislators need to invest in state infrastructure and education.
“We have very, very talented people who graduate from all the universities in the system,” he said. “But part of the way we keep them in Michigan is having quality jobs, good education for their kids. This is what attracts talent to an area, what keeps talent in an area. Talented people want to go to where there are good schools for their children. They want to go where there are livable cities. And we often struggle to find the right talent to populate our startup companies.”