The University of Minnesota Office of Technology Commercialization is increasingly playing matchmaker between researchers and local entrepreneurs. Is it what the Minnesota startup ecosystem needs?
Flying somewhere over Nebraska, University of Minnesota-Duluth undergraduate Shane Loeffler was surprised to see roads criss-crossing over what looked like the tops of clouds.
He realized shortly that they were not clouds, but undulating grass-covered sand dunes created after glaciers ate away at the Rocky Mountains and blew the resulting debris across the Nebraskan plains.
Moments up in the sky wondering what lay below sparked the inspiration for Flyover Country, an app Loeffler created to label points of interest, including geological formations and fossil dig sites. Users can access the app’s features while on the ground or in the sky; it works whether or not you have WiFi. After developing the app on a National Science Foundation grant he received through the university, University of Minnesota Technology Commercialization (fka the University of Minnesota Office of Technology Commercialization) coached him on everything from connections to revenue models to licensing software. Flyover Country is one of 19 companies to graduate from UMN Technology Commercialization’s startup pipeline in 2018.
The University of Minnesota system’s five campuses have always been known for their research, which is meant to benefit the public good and bring in revenue for the universities. Researchers report their inventions to UMN Technology Commercialization, which manages filing for IP protection such as patents, plus licensing to corporations and other interested parties. But since its formation in 2006, a center within UMN Technology Commercialization called the Venture Center has played matchmaker between researchers and entrepreneurs to spin off university research as startups. The result is a growing class of companies that, in exchange for giving the university partial ownership, get connected into a wide network of experts and receive direct coaching on entrepreneurship.
“We’re really in debt to those folks for all of the advice they gave us,” Loeffler said.
“The work that we’ve done and the decision to put the Venture Center in place is now starting to show the fruit that we would expect in helping these companies have a higher probability of success,” Venture center associate director Russ Straate said.
From the start, Flyover Country’s NSF funding was mutually beneficial. The app took data supplied by the NSF and presented it to the public in new, useful ways. In Minneapolis, you can bike along Lake Harriet and Bde Maka Ska and access facts about the glaciers and human change that have swept through the area.
When Loeffler told others about his app, they urged him to visit the OTC for guidance on turning it into a business. Straate said University of Minnesota researchers bring more than 400 inventions to UMN Technology Commercialization each year, which the office must decide how to best protect. They might file for a patent or copyright a particular work. Then, the office investigates how to bring it to market. Usually, that means licensing IP to existing companies; think large corporations like 3M that are hungry for new technological innovations. While the university might eventually see a bigger payoff if it builds a company around a technology, licensing money comes in much sooner. It often chooses not to spend years investing in a bet that might never pay off.
Still, Straate said the University of Minnesota is always trying to spot which technologies are worth pursuing as a startup. Generally, he looks for ideas that solve a big, meaty problem in a new way. Potential companies need to be competitively advantaged, and might be early enough that the startup is taking on the task of de-risking the technology. Finally, the university inventor behind the research must be willing to roll up their sleeves and work the long hours necessary to translate an invention from the laboratory to a company.
Companies like Flyover Country might receive more informal (though still thorough) networking and business advice, while others might participate in Discovery Launchpad, which launched in early 2019. Within a year, the incubator plans to graduate eight startups from its two-year program, which covers creating a business, marketing and sales plans, plus a business pitch. Participating startups receive office space, plus ongoing advising after they graduate.
The vast majority of the startups that come out of the UMN Technology Commercialization are related to the life sciences, reflecting the universities’ expertise. But there are also plenty of contenders in IT, food agriculture, engineering and other fields. As of June 2019, the Venture Center lists 148 startups that have passed through its halls. There’s CoreBiome, which developed a new approach to evaluating and developing reports on microbiomes. Rooted in research from the University of Minnesota computer science and biology department, it has since been acquired.
There’s also MiroMatrix, which Straate calls a “big swing.” The University of Minnesota-born company is currently selling reconstructive tissues that can be used for hernias and biopsies. Eventually, it hopes to build entire human organs and help end the shortage of organs available for transplants.
Who owns the IP?
Up until the latter half of the 20th century, the government- owned patents filed based on federally funded research. But it lacked a clear plan for technology transfer, and by 1980 had commercialized less than 5 percent of the 28,000 patents it owned, according to US Government Accountability Office records.
“There wasn’t strong motivation for researchers inside of an institution like the university to do any patent disclosures, any filing, because they would all belong to the federal government,” Straate said. “A lot of inventions, a lot of new discoveries … weren’t taken advantage of because there wasn’t IP filed around them.”
The turning point came in 1980 when Congress passed the Patent and Trademark Law Amendments Act. It set the stage for federal funding recipients, including universities, to retain ownership over their own inventions. Straate said the University of Minnesota quickly began filing IP and managing the inventions coming out of its labs, but still didn’t see its researchers forming new companies and succeeding in business at the rate it wanted. As a result, it established the Venture Center in 2006.
Today, the majority of the nearly $1 billion the University of Minnesota campuses spend on research comes from federal sources (though, nationally, an ever greater percentage of research money comes from private and corporate funding). Current University of Minnesota policy states that money from licensing agreements is divided equally between the inventor(s), their college and department, and the Office of the Vice President for Research, which oversees UMN Technology Commercialization.
The system still isn’t perfect. Because “tech transfer offices typically seek royalties and a more immediate return, they are naturally biased towards working with larger corporations who have deeper pockets,” Eagan-based Vilicus Ventures partner Matt Otterstatter said. That might mean there’s less pressure to help startups sprout, while simultaneously allowing large companies to become further entrenched.
The problem with matchmakers
Otterstatter argues that a cultural shift needs to take place in Minnesota to fully take advantage of the research coming out of the University of Minnesota. While he believes the university is on the right path pursuing relationships with startups, creating an office to play matchmaker is too artificial. It’s better to empower faculty and entrepreneurs to connect directly and organically.
“When you look at regions like the Bay Area and Boston, their respective flagship universities take a very different approach,” Otterstatter said. “Faculty at Stanford and MIT are routinely involved in startups as advisors, investors, and even cofounders. The potential is tremendous, but it can only be unlocked if the frequency of connections between faculty and other entrepreneurs are exponentially increased.”
Some of Minnesota’s most famed founder stories highlight what happens when entrepreneurs and researchers interact freely. In 1949, Earl Bakken (a University of Minnesota electrical engineering alumnus) and Palmer Hermundslie formed a medical equipment repair shop in a garage in Minneapolis. The brothers-in-law were adaptable, pursuing everything from medical equipment sales to making custom tools for hospitals. Their big break came along when Bakken met University of Minnesota heart surgeon C. Walton Lillehei, “who in 1957 asked Bakken to create a portable, battery-powered pacemaker. Bakken created a prototype by adapting a metronome circuit from Popular Electronics and altering its voltage to match the human heart’s,” according to the Minnesota Historical Society.
The day after they tested the prototype pacemaker, Lillehei started using them. The company’s introduction of implantable pacemakers, and other medical devices in later years, grew their business even further; as of 2018, it drew an annual revenue of nearly $30 billion. The company is, of course, Medtronic.
There’s no ignoring the role research universities play in creating strong local economies. They produce an educated workforce, train entrepreneurs and researchers who often leave academia for jobs in the private sector, and seed basic and advanced research by drawing federal dollars. Minnesota has been a powerhouse in agriculture, supercomputing and medical devices in part due to direct investment by the university, but also due to the talent and innovation that spring up at its periphery. That serendipitous encounter between Bakken and Lillehei happened because the University of Minnesota educates inventors like Bakken and employs pioneers like Lillehei. The university’s urge to connect even more talented brains like them–and help today’s inventors strike on their big business idea even sooner—has an obvious payoff.
In the end, Otterstatter and the university are after the same thing: a more vibrant support system for Minnesota startups. Straate said UMN Technology Commercialization usually places one or two startups into accelerators such as Gener8tor, but felt there wasn’t enough capacity in external programs to meet the needs of its companies. Discovery Launchpad, an internal incubator, helps bridge the gap. UMN Technology Commercialization still encourages its startups to seek out local or national programs.
“You get a different type of polish that can be very valuable,” Straate said.
Straate said he appreciates how broad a range of resources the Twin Cities can offer, and that it’s still small enough for networking. Still, he’d like to see a bit more of everything; small medical device startups to complement the large corporations, more local expertise in the physical sciences and more diversity of opportunities. He’d like to position the University of Minnesota to create a flow of opportunities in each of those areas.
Now a graduate student in geosciences, Loeffler is still working on Flyover Country with NSF funding and pursuing partnerships for the next stage of its existence. While direct deals with airlines have fallen through, he’s interested in working with an in-flight WiFi company to make Flyover Country accessible to more passengers. He’s also looking for new ways to make it a compelling app on the ground. Right now, schools can use the app, which has 300,000 downloads, to augment field trips.
Loeffler directly credits the success he’s found to the University of Minnesota. Despite his lack of a background in business, UMN Technology Commercialization motivated him (in exchange for a chunk of equity and percentage of sales) to find the right partners and keep pushing ahead.
“We’d be lost in the dark,” Loeffler said.