Spinning out university research to form new companies is a tricky proposition. But the partners who formed West Lafayette-based IN-vivo Ventures believe they can show would-be academic entrepreneurs what's behind the curtain.
"If an entrepreneur is looking for funding, that's not what IN-vivo's about," said co-founder Chad Barden. "What we are about is identifying good, strong commercial opportunities that lack a business focus, and inventors who lack the business expertise to take it to market."
Every day, scientists and engineers on college campuses explore innovation. Their expertise is in medicine or physics, not finance or management. And at the earliest stages of pure discovery, even venture capitalists balk. They know only a fraction of university research ever leads to new businesses. Investors want to see proof of a concept before they provide cash.
"When you look at the percentage of commercialization attempts that actually make it to market, it's very low. Less than 10 percent," said Rich Early, managing partner of Chicago-based venture firm Dunrath Capital LLC. "That unique skill set, to carve out the right idea and negotiate the right deal with the university to allow it to be fundable and grow, is a difficult task."
IN-vivo's business model is to identify the most promising new university technology, then groom it into startup companies in exchange for half their equity. After a year to 18 months, IN-vivo hands its operations off to traditional venture capitalists, then moves on to its next prospects.
Sounds easy enough, but as angel investors know, the magic is in the execution. Barden learned the trick at a company called Nuron Inc., one of the most successful spinouts in the University of Notre Dame's history.
In 1999, a team of Notre Dame graduate students was working on a high-speed encryption computer chip. With Barden's help, the students raised $1.3 million from angel investors to form Nuron. Barden became its chief operating officer. Dunrath was one of the seed investors.
By June 2001, Santa Clara, Calif.-based Intel Corp. was so impressed it paid $90 million to buy the operation outright.
"It was an example of a very disruptive technology Intel was going to leverage across multiple product lines," Early said.
Eager to repeat those results, Barden formed IN-vivo with a partner, Eric Davis. Rather than spread its time and attention across many startups, IN-vivo aims to devote each partner entirely to one business at a time. They share their workloads with interns from Purdue University's Krannert School of Business.
Barden's current baby is a tiny West Lafayette company called QuadraSpec. It's attempting to create a highly sensitive device that can instantly scan multiple biological samples for thousands of complex molecules. Barden sees huge prospects for applications in veterinary diagnostics and drug discovery. And that's just to start. QuadraSpec hopes to sell both a scanning device and its supplies to gather samples.
It's In-vivo's full-time commitment in a startup's earliest days that's unique, Barden said.
"We tell inventors we're going to put ourselves in the same boat as you. We're going to risk our success on the same level as you," he said. "Having that fulltime level of commitment is essential to get it off the ground. Otherwise, every single technology I've ever run across would never get out the door."
After investing $50,000 of his own, Barden licensed QuadraSpec's technology from Purdue in November. By December, he had raised $1.5 million from investors to get the company up and running.
Barden hopes QuadraSpec will be ready to hand off by this time next year so he can move on to the next new venture. His partner Davis is already well along that path.
During the dot-com boom, Davis helped form a company that developed automated supermarket kiosk software. A former attorney in Purdue's Office of Technology Commercialization, Davis then co-founded the university spinout Arxan Technologies Inc. in 2001.
A security software maker, Arxan has already raised $15 million from venture capitalists. It now has 35 employees and a headquarters in San Francisco, but its labs remain in West Lafayette. Its primary product, an anti-tamper software tool kit called "EnforceIT," is aimed primarily at the Department of Defense.
Indiana's capacity to leverage university research must be increased, Davis said. The only way to do it is for successful startup veterans to jump right back in to early-stage company development.
"Indiana's not like Silicon Valley, where you can just get done with one opportunity and another opportunity will find you," he said. "The opportunities still need to be created, and I wanted to make sure I was involved."