March 7, 2011 — "Change the world and you'll get paid."
That bit of advice from legendary venture capitalist Chuck Newhall at the first University of Virginia Venture Summit in 2009 has become an unofficial motto of the summit ever since, explained Thomas C. Skalak, U.Va.'s vice president for research, as he introduced the third annual summit, held Thursday and Friday in Old Cabell Hall and at the Darden School of Business.
On Friday, six fledgling companies – all founded or led by a U.Va. alumnus, faculty member, staff member or student, or based on a technology developed at the University – pitched their businesses to venture capitalists representing roughly $20 billion in active capital funds.
While a roomful of investors listened to pitches on businesses ranging from tidal energy to golf shoes to DNA testing, a panel of four venture capitalists gave feedback. And much of it was positive.
"I've been here all three years and it's getting better and better each year," said panelist Adair Newhall of Domain Associates, a Darden graduate who has followed his father and grandfather into the industry. The sophistication of the pitches this year, he added, was "10 times better" than the first year of the summit.
In contrast to many events that bring together entrepreneurs and venture capitalists, the U.Va. ties of many participants in the Venture Summit "bring a trust and collaboration and more collegial environment," said panelist Cody Nystrom of SJF Ventures, a 2005 graduate of the School of Engineering and Applied Science. "This was more of a conversation than a business plan competition or an exposé on how to be an entrepreneur or a VC."
Although capitalists and entrepreneurs with shared U.Va. ties have been the heart of all three Venture Summits, the high quality of the pitches and presentations has "created a buzz" that is attracting investors beyond those with U.Va. ties, Adair Newhall noted.
Indeed, this year's summit drew "significant venture investors from Singapore, San Francisco, Boston and New York, and helped solidify U.Va.'s reputation as a source of high-impact ideas," said Mark Crowell, U.Va.'s executive director of innovation partnerships and commercialization.
Among the impressive pitches was one from Reenst Lesemann, CEO of Columbia Power Technologies, who explained how his company aims to make tidal energy a significant source of "base load" power – power that's always available, in contrast to the intermittent nature of renewables like wind and solar. While "no one yet has delivered on promise of wave energy," he said Columbia's design for wave generators is the only solution that harnesses the full energy of each wave – both the "heave and surge" of the wave.
Lesemann's company has already tested one prototype off the coast of Canada, and aims to receive its first commercial revenue from an installation off the coast of Europe in 2013.
"Being best in class is not good enough," he said. "We're going to win because we're going to deliver a product that's competitive with all other base load and renewable power sources."
Nearly all of the U.Va.-based start-ups presented at the 2009 and 2010 Venture Summits found funding, Skalak said. Many of this year's presenters had already secured millions in early-stage funding and were looking for investments to continue their growth.
Darden graduate Sean Eidson's company, TRUE linkswear, maker of a new type of spikeless golf shoe based partly on the new "barefoot" paradigm pioneered by Vibram FiveFingers shoes, has already sold thousands of pairs of shoes and expects $3 million to $5 million in sales in 2011. His next stage of investment funding is already oversubscribed, but he aims to eventually reach $30 million in annual sales, he said.
For Eidson, entrepreneurial success is about more than just making money. "I believe there is a social responsibility of entrepreneurship. It's bigger than just making money; it's creating jobs and giving people hope that there are better jobs out there."
The quality of the summit presentations and of U.Va.-derived businesses like HemoSonics and ZyGEM/Microlab Diagnostics are "creating a reputation for Virginia as a global destination for deal-making," Skalak said.
The "showcase" of business pitches on Friday was hosted by the Office of the Vice President for Research and the Center for Entrepreneurial Leadership, part of the Batten Institute for Entrepreneurship and Innovation at Darden.
On Thursday, the summit featured panel discussions and presentations by leading U.Va. researchers and some of the nation's leading investors and industry experts. They discussed how trends, including the rise of social media and mobile computing, are opening up entrepreneurship opportunities for a growing cross-section of the world's population.
Stephan Dolezalek, an alumnus of the architecture and law schools and longtime leader of the renowned CleanTech Group of Vantage Point Venture Partners in California, gave an overview of the most promising investment opportunities in the clean technology sector. U.Va.'s David Smith, a professor of environmental sciences, followed with a talk on how smart investment can help solve some of the looming challenges to provide water to the world's growing population.
James D. Duffey Jr., Virginia's secretary of technology, discussed Gov. Robert F. McDonnell's efforts to foster innovation in Virginia. Virginia has lagged in national rankings of how well states promote innovation, even though Virginia has a wealth of assets needed for innovation: the state's many highly ranked research universities, led by U.Va. and Virginia Tech; one of the largest information technology workforces in the nation; and world-class research centers like the Defense Advanced Research Projects Agency, which helped spawn the Northern Virginia high-technology corridor.
McDonnell's administration has taken a number of steps to better "leverage private investment and build sustainable entrepreneurial ecosystems," Duffey said. For instance, a new Refundable Research and Development Tax Credit incentivizes companies to do research in partnership with a Virginia university, allowing Virginia to join 38 other states with similar tax credits. "Both the governor and I are serious about making Virginia the go-to state for innovation and entrepreneurship," he said.
Sean Carr, director of intellectual capital at Darden's Batten Institute, gave a briefing on how the venture capital world was facing a "Sputnik moment" – a constellation of challenges that he hopes will spur the industry to reinvent itself by going "back to the basics."
The industry currently faces four major problems, he explained. Booming returns in the early 2000s drew billions to the industry, which has resulted in investment overcrowding – too much money chasing too few good deals. Venture capitalists serve, on average, on four corporate boards, and some serve on 10 or more, squeezing the time they have to scrutinize and guide each company. Nearly half of the 8,000 people currently in the industry have less than five years of experience. A herd mentality has resulted in too many "me too" investments.
The antidote, Carr advised, is for venture capitalists to return to what they have done well in the past: harness a network of experts to bring operational expertise and personalized attention to each investment, and mentor and guide entrepreneurs and young venture capitalists.
The notion of a "Sputnik moment" is not just a metaphor for the venture capital industry, Carr noted. One of President Eisenhower's responses to the 1957 Sputnik launch was to sign the Investment Company Act of 1958, which established the Small Business Investment Company Program and opened the door for smaller, privately owned and operated venture capital investment firms.