High Tech Venture Funding Needed

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It would overstate to call the Knoxville area a hotbed for high tech startup ventures. But with lots of new technologists emanating from ORNL and to some extent UT and with an emerging set of entrepreneurs poised to turn inventions into profitable products it could be well on its way to becoming one.

The list of fledgling firms with promising prospects in Innovation Valley, as its boosters have dubbed the Knoxville-Oak Ridge corridor, keeps growing all the time. Companies like Protein Discovery, The Aldis Group, Sunlight Direct, FFD, Telesensors and Nanotech are on the verge of offering a dazzling array of innovative products in such hot-button fields as biotech and nanstech. Their achievements are cataloged further along in this column.

Along with inventiveness and entrepreneurship, though, another key ingredient to the success of start-up ventures is money. It typically takes a multi million-dollar investment to develop a product to a state of market readiness and then to launch its sales. And a lack of access to venture capital has been a stumbling block to Innovation Valley's rivaling areas such as California's Silicon Valley, Boston's Route 128 and North Carolina's Research Triangle where venture capital abounds.

Much has been done of late to try to rectify this situation. Oak Ridge-based Tech2020 annually holds venture forums where companies seeking funding make presentations to assemblages of investors. Its affiliate, The Center for Entreprenial Growth, does a lot to help them dress for success in terms of their business planning and presentation skills. An allied Oak Ridger, Grady Vanderhoofven, has been a prime mover in the formation of venture capital funds. But only two local companies, Protein Discovery and a more mature Eonstreams, have so far gotten funding from them.

Strangely missing from this picture to date is Innovation Valley Partners, a $35 million venture fund that was established two years ago with Knoxville business patriarchs Jim Clayton, Jim Haslam and Rodney Lawler as its lead investors. Clayton stressed that this was not a do-good or economic development proposition but rather a profit-seeking venture in which IVP would invest in tandem with Battelle Ventures, now a $220 million fund based in Princeton, NJ. Battelle Ventures was established in large part to invest in the commercialization of technology licensed by the national labs that Battelle manages of which ORNL is one (in a UTâ"Battelle partnership). While investment decisions get made in Princeton, IVP's Knoxville-based managing partner, Glenn Kline, works closely with ORNL's tech transfer team.

It's now reported that IVP has, in fact, made its first investment hereâ"in the Aldis Group, which has developed a traffic signal management product known as The Guardian Eye. Not to be confused with devices that nail drivers running red lights, The Guardian Eye identifies all vehicles approaching a traffic light, can cause it to turn red in all directions if a collision is impending or hasten a green signal if there's no cross traffic in view.

The Aldis Group's CEO, Vig Sherrill, says the year-old company has recently received an infusion of venture capital but â“can neither confirm or denyâ” that it came from IVP. A call to Kline was returned instead by a Battelle Ventures spokesman in New Jersey, Rick Sacks, who said, â“At this point there's nothing to be said.â” But it certainly seems more than coincidental that a Guardian Eye test site is due to be installed at the intersection of Dutchtown Road and Murdock Road where IVP's office is located.

Because Battelle Ventures co-invests in any IVP deals and typically brings in other co-investors with it, it has the capacity to meet the needs of just about all the start-ups listed below. But Battelle partner Jim Millar has stressed that nifty technology alone or even in conjunction with good management isn't enough to meet the firm's criteria for a big enough market potential to generate big profits that will yield big returns for investors.

For companies in the early stages of product development, or even testing, venture capital isn't generally deemed to be a fit. For them, initial funding typically comes out of their own pockets or family and friends and then from what are known as angel investors. A lack of any structured source of angel seed money is what Sunlight Direct's CEO, John Morris, believes is most missing in the Knoxville area's scheme of things. â“Nashville has a well organized angel investor network and Chattanooga has a burgeoning one, but in Knoxville you have to approach people individually, so it's more hit and miss,â” he says. Actually, Morris went to California and got seed money from an individual following a presentation to a Tech Coast Angels Group. But each of the companies listed below would now appear to be poised for growth.

Consider: Protein Discovery has a pair of protein products for disease diagnostics and drug testing that have been under development for several years at the company's unusually located lab on Gay Street. Now, its CEO Chuck Witkowski is ready to launch production and sales with a team of eight that he has assembled from across the country. The 31-year old Witkoski, who formed his company soon after getting his M.B.A. from UT, is a poster child for young high tech entrepreneurs. He alone among local companies has managed to attract venture capital investors from outside the area along with one of Vanderhoofven's funds. He also recently received a $750,000 grant from the National Institutes of Health to further his research. But now he's seeking an additional $10 million primarily for initial marketing and sales to meet a goal of becoming profitable by the end of 2008.

Aldis Group CEO Vig Sherrill is the epitome of what Tech 2020 president Tom Rogers likes to refer to as a serial entrepreneur. A few years back he built and sold one successful company, ASIC International, then launched and sold another one, Tradewind Technologies. He has assembled a management team of four at Aldis that includes an R & D director who headed a research group at ORNL before joining Sherrill at ASIC. Deployment of The Guardian Eye should come within the next nine months, he says.

Sunlight Direct has drawn upon ORNL-licensed technology to develop a solar concentration to collect and distribute sunlight into the interior of a building. Its CEO John Morris is another serial entrepreneur who rewardingly sold his former firm, Net Leaning, to global media giant Thomson. Sunlight Direct is now providing lighting on sunny days at several test sites across the country including a Braden's Furniture store in Knoxville. (On cloudy days and after dark, fluorescent lighting takes over seamlessly.) The goal now is to get the one-time cost down to about $4 per square foot over the next two years from $16 presently, in which event Morris reckons it will take about eight years for a user to get a return on investment in terms of electricity savings before taking into a ccount the environmental appeal.

FFD is a provider of software for worker instruction, especially in a manufacturing setting. â“We've grown considerably in terms of people and sales, and we're reaching larger and larger U.S. manufacturing companies,â” reports its CEO Barry Lucas; Lucas is another youthful entrepreneur with a Ph.D. in computer engineering from UT. Two local angels and a foreign one have contributed $300,000 to the company's financing but more will be needed to ramp up its marketing to larger companies. â“It's hard to get venture capital for growth until you're growing, but our sales are doubling every year now,â” Lucas says.

Telesensors ' four co-founders all emerged from ASIC International following its acquisition by Flextronics in 2001. Telesensors is almost a generic term for integrated circuits that can be designed to detect and measure many things. According to its president William Milam, his company is focusing primarily on homeland security applications including a handheld sensor that can determine if a fax contains a bomb. Milan expects to have a product on the market early next year and has presented to prospective investors at Tech2020's Venture Forum but experienced a disconnect with venture capital firms: â“They are looking at cashing out in three to five years, and we're thinking long term,â” he says.

Nearly all the companies on this list have close ties to ORNL, though some have developed their technologies independently or drawn on other sources. UT also figures into the equation, and one recent startup, Myco Genomix, is actually based in the University's Plant Biotechnology Building. The company's focus, according to its website, is on the development of â“next generation biological insecticides as well as insect resistance traits for transgenic crops.â” But co-founder and CEO Harry Richards doesn't foresee any products coming on the market until 2010 or so. The other co-founder, Neal Stewart, is a professor of plant sciences. â" Joe Sullivan

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