[Update: There are only 4 FY13 companies on UW’s list for FY13–but UW’s list for FY14 adds
8 9 more, even while being wrong about 17 of the 18 companies it claims for FY14–crazy!]
The University of Washington’s C4C unit made a big splash in the press last year with an announcement that it had started 17 companies in fiscal year 2013 (July 1, 2012 to June 30, 2013). UW’s President Young was featured in press releases and events following the announcement. Clearly, the claim was intended to promote the UW’s commercialization investments, which run to more than $100m over the five years that C4C has been in existence. UW also used its announcement to claim it had now joined elite university programs such as MIT’s, and to lobby the state legislature for more funding for research and commercialization. Here is how the Crosscut blog described it:
At a press conference attended by Congressional delegations, tech industry leaders and local luminaries like Bill Gates Sr., UW President Michael Young announced that this was the most productive year in UW’s history for forming new companies. Seventeen new companies were unveiled, more than double the average number created over the past five years.
Crosscut then profiles three companies, one of which (Nortis) is not on the published UW list of startups. In annual reports for FY 2006, 2007, and 2008, UW’s previous technology transfer program, UW TechTrans, reported 10, 11, and 9 startups, respectively. Thus, 17 companies, even if there were 17 companies, would not “more than double” the average from the program that was dismantled to create C4C, even if the claimed figure represented a big improvement over C4C’s own past performance.
C4C was envisioned to be devoted primarily to starting companies while UW TechTrans included startups as one program among others. Yet UW TechTrans appears to have outperformed C4C, and at significantly less cost.
Public Information Does Not Support C4C’s Claim
Public information does not support C4C’s claim to starting 17 companies in FY13. The list of companies provided by C4C includes only four companies started in FY13. The rest were started prior to FY13. Some were started at other institutions, and others are not companies at all. Most appear to have only a handful of employees and exist on a combination of funding from state and federal sources, including the W Fund, the Life Sciences Discovery Fund, and SBIR and STTR grants.
Four companies (boldfaced) are reported to have been formed in FY13. Of these,
- ID Genomics appears to be a UW faculty member with research moved to Fluke Hall;
- RGB Hats sells a board game on-line with no apparent employees and an office location at an apartment in north Seattle;
- PatientStream is a repackaging of a software product that has been in direct distribution by UW for six years;
- Rosetta@Cloud is a “joint venture” with Insilicos, an established company, which lists the venture as a product on its web site.
The best that can be said of these companies is that they have been formed. It does not appear that any have attracted private investment, or that they even have real places of business.
Of course, new companies may have trouble getting going; however, these companies are announced in the context of economic development, with the claim that the funding of university research leads to discoveries that when placed in the hands of entrepreneurs result in new products, the sales from which create jobs and provide benefit to the people of Washington state. Implicit in this argument (and explicit elsewhere) is an appeal for the state to support new construction of research facilities, to provide even more opportunities for discoveries, intellectual property, and licenses to startups.
Of the rest, four were started in the spring of 2012—that is, in FY12—and two of these companies are based on technology developed at other institutions. The relationship with UW appears to be one of providing improvements or testing facilities.
- Marine Construction Technologies was started in June 2012 but does not appear to have operations;
- SNUPI Technologies was started in May 2012 has raised $9m, but is based on technology first developed at Georgia Tech;
- Second Wind received a seed round of funding in January 2012 and is based on software from NREL;
- Vital Talk is a new name for Oncotalk, a web-based discussion service offered by UW from 2002.
Of these, SNUPI is clearly a company to watch. The remainder were started prior to 2012—and thus there is no possible way to confuse them with FY13 startups.
- GenetikSignal (2011) is based in Maryland, so its contribution to the Washington economy is nil;
- JointMetrix (2011) appears to have been based on work done at Cleveland Clinic and moved to UW with inventor;
- KitoTech (2011) has a stub web site; primary funding appears to be $250K Life Sciences Discovery Fund grant in June 2013;
- Nortis (2011) is a spin out of VisionGate, a Phoenix-based company with UW connections started in 2001;
- Owl Outcomes (2011) is not a company, but a product name; the company is Mental Health Data Services, formed in 2011;
- Stella Therapeutics (2011) has received an SBIR Phase I; and a $250K Life Sciences Discovery Fund grant in June 2013; changed from LLC to C corp in 2013;
- LumiSands (2010) has a stub web site; according to Manta, it has 2 employees; funded by W Fund and SBIR grants;
- NovaTheraNostics (2010) completed a license with UW announced in July 2013 (i.e., FY14);
- Nano Facture (2006) is an established company that co-invented new technology with UW researchers.
Some of these companies may have potential to create jobs from grant and investment funding, and may eventually produce product. There are good reasons to applaud the efforts. However, there is no way to substantiate UW claim of 17 startups in FY13, or the comparison to high-performing licensing programs at major research universities. Indeed, it would appear that UW’s startup output has decreased during the C4C era over that of the UW TechTrans operation, but C4C appears to be spending nearly twice as much to operate its program.
Given that the Hall patents have expired, and royalties from those patents supplied the majority of C4C’s budget, it remains to be seen how C4C will operate in the future. It would appear that UW’s announcement of startups is part of an effort to make C4C “too important to fail,” justifying diversion of UW and state funding to preserve its current level of operations. However, if C4C’s claims cannot be demonstrated, and it has started only four companies in FY13, not 17, then any further funding of C4C is good money following bad. It is of some concern that a unit of a state agency, supported by UW’s president, can put forward such inaccurate information, with such visibility.
C4C’s Penchant for Misreporting
Other factors indicate caution. C4C stopped publishing full annual reports of technology transfer activity in 2009, substituting a few “snapshot” metrics. In this, C4C is an outlier among research universities. Instead of reports, C4C has used press releases, most of which have not gone through official UW press channels, opting instead to feed stories to Xconomy and Geekwire, and to publish “stories” on C4C’s own web site. C4C also canceled most of UW-policy required faculty oversight committee meetings over the past five years, even allowing committee membership terms to lapse without reappointment.
Past announcements of “success” have had similar problems. In 2011, C4C reported in a STARS newsletter that one of its researchers and his team had been granted “62 patents, including provisional patents…since joining UW.” A fact check found that no patents had issued to the team in the time period claimed. The STARS program, modeled on the USTAR program at the University of Utah, was a program funded by the state legislature on the premise that it would recruit entrepreneurial faculty who would start companies that would contribute to the economic development of the state. At Utah, an analysis of $93m in spending on the USTAR program could find, after five years, only 4 companies and 13 employees. The Utah economists were reduced to calculating the economic “contribution”—that is, the effect of spending $93m—rather than economic “impact”—which would evaluate how the $93m had created new business.
An audit of USTAR by the state of Utah in 2013 concluded that “USTAR’s reported revenues and jobs are overstated and inaccurate” and that “USTAR’s reported return on investment (ROI) was flawed and commercialization success has been limited.” The Washington state legislature terminated the STARS program early, apparently for lack of results. The Washington state legislature, however, has yet to audit STARS and C4C to see just how public money has been spent, and to ascertain how C4C, a unit of a state agency, has represented its activity in its reports to the public and the legislature.
In January 2013, C4C announced that it had started 8 companies in six months, when a fact check showed only 3 were started in the six-month period claimed by the report (two were started in 2011, one in 2009). In March 2013, President Young sent out a personal message congratulating C4C for its success, citing the 8 startup announcement and tying start-up activity to UW’s public mission “to improve people’s day-to-day lives here in the Pacific Northwest and beyond.”
C4C’s Failed Strategic Plan
In C4C’s December 2010 strategic plan, laid out a “4-year vision” to recruit the best faculty, the public purpose in starting companies was not so evident as revenue generation and pumping up the reputation of UW and C4C. The vision put forth in the C4C strategic plan—the plan C4C is presently operating under, through December 2014—is expansive. The vision is best expressed in the words of the plan [all quotes from the strategic plan are exact, including italics and boldface]:
The University of Washington is in a critical period of ascendancy. UW’s research enterprise has grown and increased in capability and prestige as the region and state around us has grown to be a center of technology, commerce, and political leadership. In this still formative stage, C4C can be an outcome determinative differentiating attribute, one that helps vault UW into the highest echelon of academic research institutes. That level of contribution to achievement of excellence is our overall goal.
The idea is that the University of Washington is not in the highest echelon of academic research universities, but with C4C’s help as an “outcome determinative differentiating attribute,” the University may just make it to elite status. In short, C4C’s plan is money and self-promotion, in four points:
1. Help recruit and retain the best faculty, staff, and graduate student researchers. We will focus on those in high-demand areas of research, where research outcomes are most likely to be of importance to society.
2. Spin-out of more high-value, success-bound start-ups that leverage UW technology.
3. Generate revenue that significantly exceeds the cost of C4C operations contribute to a sustainable business model for the University. Start by architecting an interim plan for sustaining UW C4C while building a practice and pipeline of IP that will meet our longer-term revenue objective. Establish an understanding of “total contribution” (e.g. gifts from founders as well as licensing revenue).
4. Raise the visible impact of UW discoveries regionally, at the state level, and globally.
C4C’s startup activity will help to recruit faculty, the best of whom, apparently, will be attracted by startup opportunities; C4C will spin out “high-value, success-bound startups”; and C4C will make so much money that it will “contribute to a sustainable business model for the University”:
We see start-ups as having a greater potential for creating revenue, good will, and reputational gain UW and WA. They can generate licensing revenue – if acquired, nearer term than do royalties (UW receives equity as a condition of license), create jobs, enhance UW’s reputation (think of the benefit to Stanford of being known to have launched Google), and generate many other benefits to UW – which is why we encourage C4C results to be analyzed from a “total contribution” perspective.
The strategic plan includes a note that makes clear the objective is money:
Note: Ordinarily, we might not place emphasize revenue, but in the current fiscal environment, the university must focus on generating sufficient revenue to support its operations and initiatives. Without adequate funding, UW will not be the best anything. Commercialization is one of the few identified potential new sources of badly-needed funding.
The plan appears to be coming off the rails, however, and not just over atrocious writing. The plan calls for producing “high-value, success-bound startups.” The four companies announced for FY13 do not come close to this standard. The plan calls for revenue generation from equity exits. Yet C4C does not report such revenue in significant amounts, certainly not enough to cover the $100m or so that UW has spent in propping up C4C’s operations for the past five years, including money in the Provost’s reserve fund:
Two years ago the then-Provost and then Vice Provost – Research agreed to place the Provost office portion of the Hall royalties in a reserve account to be used in largest part for future funding of UW C4C, and last year agreed that C4C could begin drawing on that account now in an effort to increase activities to a level that will accomplish C4C goals including generating revenue so that outside support is not needed.
That is, C4C reports that it is has been spending down the reserve account for the future of technology transfer operations at the University. If C4C does not get a return on equity from startups—any startups, whether started in FY13 or before—then C4C will be out of money within a year. The number of companies being started by C4C is irrelevant. The amount of money made from exits is critical–from those “high-value, success-bound” companies that were to have been created beginning in 2011. There have not been any announcements from C4C regarding its “new sources of revenue” income exceeding its operating expenses.
Producing the Appearance of Success
Instead of providing an accounting that shows C4C’s progress in meeting the stated goals of its strategic plan, C4C has published an inaccurate list that recites a number of companies it claims to have started, without any account of company exits (that is, where company stock may be sold to realize income) or costs incurred in creating or investing in these companies (including state and federal dollars granted to the companies, or to UW to be spent on company operations). One is left wondering if C4C will end up in the same condition as the University of Utah “commercialization” program on which it is modeled—shut down, reorganized, and its startups, mostly in name only, swept under the carpet, at a loss to the state running to over a hundred million dollars.
The University of Washington has begun to make moves to re-consider C4C’s operations. Needed now is an accounting of exactly what C4C has spent, undertaken, and accomplished, including a full financial accounting of its patent, licensing, investment, and litigation activities. Without full, accurate, and true information, neither the state nor the University can begin to plan how to move forward after the Hall patent royalties have ended.
C4C’s 17 Companies
Here is a table documenting the 17 startup companies claimed by C4C for FY13. Four companies are shown by public records to have been started in FY13. One company is listed by C4C as “unnamed”; it is not clear how a company can be formed without a name. Names of the four companies started in FY13 are given in boldface.
|GenetikSignal||2011||Based in MD; press releases from July 2011; signs license with UW 8/13, that is, in FY14 so did not even have a deal with UW in FY13|
|ID Genomics||Sep-2012||Fluke Hall address; faculty CEO|
|JointMetrix||2011||Primary tech from Cleveland Clinic; follow-on work at UW when principal moved; domain name registered 6/12; CEO is also officer of another UW startup|
|KitoTech Medical||2011||Stub web site; $250K LSDF|
|LumiSands||2010||Stub web site; funded by W Fund and SBIR grants|
|Marine Construction Technologies||Jun-2012||Stub web site; $50K Commercialization Gap Fund award; shares principal with JointMetrix|
|NanoFacture||2006||Technology co-invented with UW; “chair and chief marketing officer” is also concurrently CEO of two other UW “startups”; web site reduced by 2016 to “coming soon”|
|Nortis||2011||Spun out of VisionGate by two principals; not in UW’s list, but Crosscut spotlights one of the companies UW started in FY13; Nortis says spun out officially Jan 1, 2012 (FY12).|
|Nova TheraNostics||2010||Talk in Feb 2012 about company; fmr C4C tech manager is CEO.|
|Owl Outcomes||2011||Company name is Mental Health Data Services; Owl Outcomes is a product name|
|PatientStream||Jul-2012||Company formed six years after UW product release; UW reports it is “inactive”; web site is down; “dead” may be the word UW is groping for. Bloomberg reports founding as 2008.|
|RGB Hats||Nov-2012||Sells a board game on-line|
|Rosetta@Cloud||Jul-2012||Joint venture with Insilicos (founded 2003); listed as product on Insilicos web site; as of 2016, no web site.|
|Second Wind||Jan-2012||Web site lists NREL as source of software technology; $300K seed round Jan 2012|
|SNUPI Technologies||May-2012||Significant venture funding; original technology developed at Georgia Tech; UW claims co-ownership? improvements? when grad student hired as new faculty|
http://ipat.gatech.edu/georgia-tech-forefront-internet-things (gone from web)
|Stella Therapeutics||2011||Phase I SBIR; LSDF $250K|
|Vital Talk||May-2012||Renamed from Oncotalk, a web-mediated discussion service fielded by UW in 2002; non-profit|