A decade ago, Jay Schrankler left a 26-year career at Honeywell, where he had run the $1.5 billion environmental controls business among other key roles, to lead a reboot of the University of Minnesota’s Office for Technology Commercialization (OTC). The U last year launched 17 start-ups, a record. Schrankler attributed that milestone and an emerging local biotech industry in part to developments including OTC’s formation of a venture fund, Discovery Capital Investment Program. He also cited OTC’s designation as a National Institutes of Health Research Evaluation and Commercialization Hub (REACH), and creation of MIN-Corps, part of a National Science Foundation entrepreneurship development program for students, faculty and staff. In April, the U promoted Schrankler to associate vice president of technology commercialization and new ventures.
Q: How have Discovery Capital and the programs you cited contributed to biotech development?
A: We spun a gene editing company out of here, a biotech company, just about two years ago. They were involved in REACH. We invested a certain amount in Discovery Capital and that has been matched by a big strategic [investor] here in Minnesota. For my first five years here, it was really hard to see the biotech industry taking off. Since we’ve gotten these programs here — MIN-Corps, REACH and Discovery Capital — we’re really seeing the biotech industry starting to blossom, both university spinouts and non-university companies here in town.
Q: What challenges are U start-ups facing?
A: Finding experienced leadership. It’s a challenge anywhere. But in the biotech world I think we’re short. We don’t have experienced biotech leaders here. We’re going to build those over time.
Q: How does the Discovery Capital fund work?
A: We invest in university start-ups. It’s a matching fund so we only invest if there’s other qualified investors. We have the outside entities that are investing take the lead or develop the term sheet. It has to be validated on the outside.
We’ve invested in five or six companies. More are coming very soon. We’ve invested around $2 million and they’ve gotten matches of around $13-$14 million. So it’s got a great leverage in terms of attracting capital for our spinouts.
Q: What led to the fund’s formation?
A: Minnesota isn’t necessarily a hotbed for venture capital. Some funds that we’ve had in medical devices no longer exist. At the same time angel groups have risen here. You don’t have the same kind of funding capacity in angel groups. We got concerned that our spinouts were going to struggle getting capital. And if you don’t have a local tie to that capital, it’s easy for these companies to move and go somewhere else. Three of those investments in Discovery Capital have been matched by very prominent VC firms from the coasts. That money has come here to Minnesota and the companies haven’t moved. Steve Case, who founded AOL, had a tour called “Rise of the Rest.” They came to Minnesota about two years ago and invested in a couple of start-ups here. His thesis, which I think is being validated now, is that in the Midwest there’s a tremendous amount of research going on and yet it hasn’t really been paid attention to by the coasts. We are going to see a trend, no doubt, of the rise of innovation in these start-ups in the Midwest.
Q: What’s the source of funding for Discovery Capital?
A: It’s money that we’ve generated off some pretty significant patent licenses here. All of the funds we receive from licensing patents here get reinvested in the university. Some goes into fellowships, scholarships and research infrastructure. And we did set some aside for this fund.
Q: What interested you in the OTC opportunity?
A: I’m an engineer by training and moved up into management. I’ve always been tremendously interested in technology. I was getting further and further away from that and from the nascent nature of creating something new as opposed to managing something big. Doug Johnson, who had been a successful venture capital manager and was running the Venture Center (the part of OTC that helps researchers, entrepreneurs and investors launch start-ups) here, encouraged me to do this.
Q: What are you working on this year?
A: We’re building something called the Discovery Nexus (near OTC offices in the U’s McNamara Alumni Center building). We’re putting a facility in there called the Venture Exchange. We’re going to put our own Venture Center with Discovery Capital over there. And [it will] have working space for our own start-ups over here. We don’t have that space, and that’s going to provide that with the coaching and the mentoring. Part of our offices will be there. There’s going to be a big meeting and gathering space. We’re going to have all sorts of networking events.
Todd Nelson is a freelance writer in Woodbury.