insights (2005-34)

Nurturing High-Tech Ventures

The business climate in the Knoxville area hasn’t been nearly as conducive as it should have to fostering high-tech enterprises to spur the area’s economic growth. With the Oak Ridge National Laboratory at our doorstep and the University of Tennessee as another catalyst, one ought to expect a proliferation of new ventures derived from their research.

While there have been a few singular success stories and more small ones, the area hasn’t begun to live up to the Innovation Valley moniker that our Jobs Now! boosters have placed on it. However, as one canvasses the resources now in place to support fledgling entrepreneurs, there’s room for encouragement that the area may be poised for a technological takeoff.

Last week’s fruition of a $35 million, locally funded source of venture capital, Innovation Valley Ventures, represents a major step toward overcoming what’s been the biggest single impediment to successful venturing: namely, a dearth of high-risk funding. At the same time, Oak Ridger Grady Vanderhoovuen, who oversees a smaller counterpart, the Southern Appalachian Fund, is making a concerted effort to create another $30 million VC fund. Since, by all reports, venture capitalists are birds of a feather who tend to flock together, a nesting here should help attract others from afar.

Vanderhoovuen’s fund is just one arm of a multi-faceted venture-support effort operating under the aegis of Technology 2020, an Oak Ridge not-for-profit that’s funded by ORNL, Bell South, and other corporate sponsors. Another is the Center for Entrepreneurial Growth that provides mentoring services to fledgling enterprises. CEG’s stable of more than 30 volunteer advisors is comprised mainly of semi-retired corporate executives and technologists who’ve been there and done that. CEG also manages a business incubator at the Fairview Technology Center in West Knox County, at which eight start-up companies are now domiciled. Another incubator is in the works on the UT campus for companies seeking to commercialize UT-licensed technology.

For companies that aren’t far enough along to qualify for venture capital or bank loans, Tech 2020 has a specialized lending operation, Southeast Community Capital, whose direction is the day job of Oak Ridge’s Mayor David Bradshaw. With funding from the federal Small Business Administration and banks who are incentivized by its federal designation as a Community Development Financial Institution, SCC has made loans to 99 companies totaling $7.3 million, as last reported on its web site. Its sphere of operation has been extended to Chattanooga, Nashville, and Memphis, all of whose mayors have backed it, as has Knox County Mayor Mike Ragsdale.

Each fall, Tech 2020 hosts a Venture Forum that showcases a select list of companies to assembled venture capitalists and other prospective investors. Several Knoxville area companies are expected to be on the list for presentations at this October’s forum at the Knoxville Convention Center.

An emerging company that has prototypically benefited from all of the above is Protein Discovery, which is now gearing up to produce and sell tools for drug research based on ORNL-licensed technology. The company’s founder and CEO, Chuck Witkowski, is a 29-year old UT MBA who started and ran a medical equipment leasing company while he was still in school. He launched Protein Discovery in 2001 from the Fairview incubator before recently moving, with the five employees now on board, to larger quarters in downtown Knoxville. His mentor of mentors has been Lee Martin who founded (in the 1980’s) the company that has morphed into IPIX amid many ups and downs. He also credits CEG’s director, Bob Wilson, with helping him flesh out his business plan.

Small business research grants and a loan from SCC helped cover expenses until, following a presentation at a venture forum, he garnered an initial $1 million in venture capital from Memphis-based MB Venture Partners. A recently completed, $2.1 million second round of VC financing, on which MB Venture Partners and Southern Appalachian Fund collaborated, should be sufficient to cover beta testing scheduled for this fall, then outsourced manufacturing and a product roll out next spring if all goes well.

But overcoming the obstacles to raising money has been only one of the challenges Witkowski has faced in attempting to build his biotech business here. Attracting the R&D and marketing talent needed to complement his management team has meant recruiting in Silicon Valley for people with relevant experience. Getting Dean Hafeman to move here from Mountain View, Calif., as vice president for R&D was “one of my biggest coups,” Witkowski says. And his vice president for sales and marketing, Andrea Mravca, is based in the San Francisco Bay area because “most of our prospective customers are on the two coasts, and we need to be accessible to them.”

Fairview Technology Center harbors several other fledgling entrepreneurs, such as Barry Lucas whose company, FFD, is now poised to start marketing a document management product known as Smart Docs after four years in the development stage. And Fairview is also a repository for some veterans of other ventures that have been sold or even failed and are looking for repeat successes or to reap benefits from past mistakes.

Tech 2020’s president, Tom Rogers, rattles off a list of what he terms “serial entrepreneurs” whom he believes stand the area in good stead. Among the names he mentions: John Morris, who last year sold his firm Net Learning to publishing giant Thomson; Vig Sherrill, who has been involved in several other start-ups since the sale of his successful ASIC business in 2001; and Craig Dees, whose firm Provectus Pharmaceuticals recently bought back technologies that heard several partners in a predecessor firm had previously sold. But Rogers acknowledges that “one of the challenges they all face is experienced management. In Silicon Valley if somebody needs people, they just go out and get them.”

Still, the area’s biggest high-tech success stories, CTI and De Royal have managed to build the management teams and get the financing needed to become global leaders in their fields. And especially now that CTI has sold out to German giant Siemens, it provides a hunting ground for would-bes. So has Philips Consumer Electronics, since that Dutch-based multinational moved its U.S. corporate headquarters from Knoxville to Atlanta.

© 2005 MetroPulse. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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