Even Universities Can Learn
An Interview with Richard Morganstern of Tech Coast Angels
December 1, 2003

By James Klein, Larta VOX Editor

Richard Morganstern serves on the Executive Committee of the Los Angeles Network of the Tech Coast Angels, a group of investors funding early-stage, high growth companies in Southern California, and presented on the VC Panel Discussion breakout session titled "Transforming University Research into Profitable Companies" at the Project T2 technology transfer conference.

In an interview conducted at the Project T2 conference, Morganstern discussed some of the challenges universities have faced in the past and how they are changing their ways in light of the growing importance of technology transfer.

How has the environment changed for VCs working with universities?

Many universities are struggling to improve their methodologies in this area. A basic problem is that universities, whether private or public, the public perhaps more so than the private, are intrinsically bureaucratic in nature, and a bureaucracy is not the preferred structure to evolve and develop the entrepreneurial spirit. They understand this issue, and are evolving various initiatives in an effort to address the problems presented. One form of initiative is to involve organizations such at the Tech Coast Angels in the process of evaluating technologies, mentoring professors and otherwise attracting individuals with relevant domain business experience to their various projects.

USC, for example, has formed the Technology Commercialization Alliance, an organization comprised of representatives from many of their research colleges and institutes. It is specifically tasked at helping improve the way in which USC facilitates the commercialization of its many research projects. The Tech Coast Angels serve on the Advisory Board of the Technology Commercialization Alliance. Language Weaver, one of the companies presenting at today's conference, I was fortunate to have had the opportunity to mentor for three years. Language Weaver was spun out of the USC's Information Sciences Institute. It has developed breakthrough technology in machine natural language translation which is translating from one language to another. Language Weaver will, in my view, be a major success for USC, the research professors and associates and their investors.

What do they have to do to improve their tech transfer efforts?

They have to attract organizations such as the Tech Coast Angels to bring relevant domain experience to the process. They have to get buy-in from the professors, who on occasion have had some bad experiences with their administrations. The administrators are aware of this issue and are taking steps to change this negative perspective by adopting improved policies and procedures.

Do you think it's just a question of money to incentivize the professors, or is it something else?

I don't think its money in many cases. It's getting the roadblocks out of the way and providing a supportive environment. There are various types of researchers in the sense of what they have the desire and ability to do. Many are satisfied to limit their activities to the pursuit of their research. That's their life's passion. For those you have to bring in the rest of the facilities to get a business result, because their interest is in doing the research, getting grants, and making sure they're well funded for that purpose. They could care less about the commercial part of it. This means you have to have personnel on staff or otherwise available who will identify the commercially significant technology and help figure out what to do with it.

Other researchers do have a business bent and are interested in helping put together a management team and financing. Some have faced obstacles when they have gone to their administration in an effort to acquire sufficient IP rights for their projects. Now that environment is changing in a significant way in the sense that the administrations of the more forward looking institutions understand that they have to be more friendly to these kinds of efforts or they'll kill them in a nascent condition.

With Language Weaver, for example, the Office of Technology Licensing at USC did a magnificent job in working out a structure to provide that the IP went where it had to so venture financing could be attracted. USC and the researchers became founding shareholders in Language Weaver. Language Weaver ended up with exclusive IP rights, not only in the research that had been done up to that time, but also in the research which will be conducted by the key researchers over the next five years. That provided a vehicle which formed a predicate to funding for what was, at the time, a high risk project. In December 2002 the Tech Coast Angels, The Athenaeum Fund and In-Q Tel, a VC fund associated with the CIA, provided "A" round financing. USC was instrumental in making the funding possible. Five years or so ago it would have been a much more difficult proposition.

UCLA has had a somewhat problematic reputation in terms of it being a place where you could experience difficulty in negotiating rights on acceptable terms. It understands the adverse consequences of such a reputation and has brought in new leadership and a significantly expanded staff in an effort to address the issue. This will take some time to sink in but I think as their new approach gets disseminated among their researchers you'll see an appreciation that a meaningful change has occurred.

Do you think there has been a problem or there is a problem with deals going out the back door?

Well, historically, that has been an issue. You can damn up so much for only so long. Some researchers have said 'Look, we can't deal with them, so we're just going to go off and do it ourselves.' That has created a problem, and that's been one of the motivating factors for the universities reevaluating their policies and appreciating perhaps that they bear some responsibility for what's occurred in the past.

What's the most important lesson you've learned working with universities?

You must have patience and be willing to bring most of the business related components to the table. You must be able to provide a quality management team. The most important thing we did with Language Weaver was to recruit the right management team. This implies, of course that the researchers are open to the notion of having someone other than themselves control the business fate of their beloved research. You need to recruit a management team that the researchers feel comfortable working with. If you can't solve that part of the equation you are wasting your time.

What do professors and researchers have to do to make their technologies more attractive to investors?

Spend some time considering the business issues the investors will be looking at. What customer pain is the technology directed to? Is it a vitamin, a painkiller or a cure? What does the market look like? What will the first product look like and what has to be completed before it is ready?

Most researchers will not have the background to make significant progress themselves on these issues but most of their related business schools will make their students available to help, if asked. Having a sense as to these matters will give researchers a leg up on their competition.

Finally, show a willingness to have professional business management brought into the equation. A lack of this element is a major reason why the Angels have passed on a number of projects which might have otherwise qualified for mentoring and funding. The Language Weaver founders were a 10 on this issue.

What advice would you give venture capitalists working with universities?

Have patience and be willing to commit significant resources to the relationships. Most university based research is more suitable for licensing as opposed to venture funding. You need to be willing to spend the time to develop a win-win relationship so you are there when the next Language Weaver comes down the pike.

Richard Morganstern can be reached at (310) 858-7796 or rmventures@adelphia.net.
Tech Coast Angels can be reached at www.TechCoastAngels.com

Read an article on the Project T2 conference
Read about the Project T2 Techology Transfer Awards
Go to the Project T2 website
Go to the Technology Transfer section of Larta's Research Archive

Return to this week's issue of VOX >