Tech Transfer: Reinventing Ann Arbor's Economy

Stephen Forrest's office is in one of the most foreboding buildings on the University of Michigan campus - the Fleming Administration Building. It's a little odd because Forrest is in charge of technology transfer at the university, which is all about turning research and innovation into businesses and jobs and, if possible, making sure they stay in Michigan.

You'd think Forrest would take up residence at something a bit more inviting or regal. You'd be wrong. The engineering professor feels quite comfortable in the matter-of-fact, no-nonsense yellow brick structure.

Forrest, who bares a passing resemblence to Bill Nye the Science Guy, recently sat down with Metromode's Jon Zemke and answered questions about the future of tech transfer at U-M and what role it will play in Michigan's evolving economy.

So how do we move the state's economy from its brawn-based roots to a more knowledge-based model?

Stephen Forrest:   The more technology that we develop here in the university that is used in the industrial sectors rthe more we will rebuild the economy. I believe --I think everybody knows this-- the economy absolutely must be rebuilt. I believe it has to be built on the basis of knowledge, as opposed to just rebuilding our manufacturing base. I don't believe that is going to work for us anymore because of the globalization of manufacturing and commerce in general. If we are going to rebuild the economy based on knowledge, we are a huge knowledge generator, so we have to have a way to move this stuff out. Tech transfer is very much the doorway to that.

What role do you see technology transfer playing in the overall reinvention of Michigan's economy?

Stephen Forrest:   The traditional model of tech transfer is if you have a research result that you might enter into a licensing arrangement with a corporation that can use that technology to make a product or whatever. So tech transfer creates the mechanism for moving property, that in a sense we own the right to provide licensing rights to someone else. That's sort of the minimalist's view of tech transfer. However, it also helps the faculty if they want to start their own company with that technology or somebody else's technology. ...We can help with a business' plans, we can mentor faculty, we can give them advice on how this whole process is done, we can connect them with the right company or perhaps management of a new company. Our tech transfer office plays all of those roles. It's pretty far beyond a traditional, minimalist's model.

What ideas from other universities or business incubators can we bring to U-M to cultivate and keep more innovation and new economy businesses here?

Stephen Forrest:   Well, I think the most important thing is that we create a new ecology for innovation and innovative companies in our region, that we attract enough companies across the right business sectors that it becomes more attractive for them to stay in the region than move to the coasts at some point or another. I do believe that's happening. Part of that process is really just to create a critical mass. The more we generate the more will stick. The more will stick is the more that will stick in the future. You kind of have to do this based on volume. That creates the management talent.

And attracts the venture capitalists…

Money is pretty easy to get, even in tough times. Money travels on wires. What doesn't travel on wires are people. We have a huge abundance of good technical people in this region, many who came here because of the other businesses in the region, the car companies and so on. One should not underestimate how high tech an automobile is and how much expertise there is just based on that. We also have IT expertise. We generate a huge amount here. 

Engineering talent is not the issue. The issue is leadership of companies, the people who know how to manage financial models and business models and so on. We're pretty short on that level of talent. That level of talent is what really holds people here. The only way you can really gather a critical mass of those people is to have a critical mass of small companies that are starting up and graduating to larger and larger stages. The CEOs come, they stay, they go onto the next venture which is right down the road, so it becomes a self-generating sustainable engine. That's what happened in the Palo Alto area and the Massachusetts area and L.A. and so on. And it's starting to happen in the Ann Arbor region.

You say Ann Arbor is becoming known as a hub for new economy companies. How close are we to that tipping point of critical mass?

Stephen Forrest:   That's hard to say. I don’t even think we'll recognize it when we have we crossed it. I think it's probably when you start to see it's more and more natural for people to start their companies here in the region rather than moving out. A good sign was Google moving in, Aernova moving in. There is a big knock-on affect to those companies because they're so high-tech and well-known, one working in the mechanical engineering sector the other in the computer software sector. These have attracted companies by themselves from out of state. If we can get a couple more anchors like that it will really make a huge difference. Again, I really don’t think you ever know when you have crossed the threshold. You just one day find yourself on the other side. I think Ann Arbor is becoming more and more widely recognized as an entrepreneurial zone. Ann Arbor SPARK has had a significant impact in making that happen. Sometimes its all about getting the word out.

U-M has a mandate to license its technology for the maximize benefit to the university. It's also a state institution that would like to see that stuff stay in Michigan.  How do you balance the mandate of pushing forward what's best for U-M's licensing with creating jobs and businesses in Michigan, especially if those goals contradict one another?

Stephen Forrest:   By doing exactly what I talked about initially, which is having an office of technology transfer that helps people start their business. It's very likely that if our office of technology transfer is working with people they will want to do it here in Michigan. It really creates, in a sense, a sphere of influence for us. By being partners with the faculty and the students we have the best shot at keeping them here in Michigan. But companies will go where they have the best chance of success. You do not want to start a company with one arm tied behind you. We try to create a situation where the best chance at success is right here, and there is a very good rational on why that should be so. If an idea came out of laboratory at this university where is this future technological support going to come from? Well, it's probably going to come from this university and that same laboratory. There is no way that the technology you develop in the laboratory becomes fully borne and then the company just walks away. It is always a work in progress. There is a lot of rational for staying near its birthplace. There are other poles and magnetisms that try to pull it out of here, but we try to counter those. This is not just a Michigan problem. This happens in every location across the planet because the planet is where business is done, not California, not Michigan, not somewhere else. We just need to get our fair share.

A big part of conventional wisdom around here is that once a spin-off company that started here reaches the adolescent stage, they end heading for the coasts, whether it's Research Triangle Park or Silicon Valley. The example that is often given is Adobe Photoshop, which was invented here at U-M but ended up out west. I understand what tech transfer can help keep starting companies local but how do you keep maturing companies from leaving?

Stephen Forrest:   That's a real problem. It goes back to what I talked about a critical mass, an ecology and so forth. While that was certainly the case a while ago when we were much thinner in companies, it's slowing down. I can give you a very good example, which is Arbornetworks. That has grown to be quite a big company and it was started right here in Ann Arbor. The headquarters today is in Boston because that's where the focus of the financial world is. But all of their research and development activities are in Ann Arbor and they continue to build in Ann Arbor.

Again, these sort companies get distributed but I don’t think it took anything away from Ann Arbor. The company still has its mass here and may have some offices elsewhere that they call their headquarters. But those things don't bother us because what is important is the jobs and that we continue to contribute to the growth of the company. Another one is A123 Systems in Boston bought TJ Technologies. The outcome has been TJ Technologies has been growing out here. I call those success stories. There have stories in the past where they just flew. They just evaporated continually. That is not a desirable outcome. Ultimately we have to do this based on creating that critical mass, and we're working on it. You're seeing less, and that's a good sign.

What, if anything, do you think Michigan's other major research institutions have to learn from one another when it comes to both tech transfer and reshaping the state's economy?

Oh, very much. A lot to learn. We have 15 public universities in this state and they all provide a different benefit to this state. Some are much better at workforce training. Others are much better at technology generation. If your particular university is soft in one area, sharing best practices in other areas are helpful to you. Let's say if you're very effective at workforce development, talent retention, entrepreneurial education, but you're not very effective at technology diffusion, you might go share ideas with another university that is good at technology diffusion but is less accomplished at talent retention. We're trying to create, as we speak, the context for that type of open interchange of ideas and best practices. It's what we call the Michigan Initiative of Innovation and Entrepreneurship. That's a collection of our 15 universities to work on exactly those issues to generate new companies, to generate new talent, to retain existing talent and to share best practices. We now have a context for that. This has been funded by a grant from the CS Mott Foundation.

You have talked about that critical mass and creating synergies between the university and business incubator communities. The venture capital community is another industry that is often thrown around here. How important is it from your standpoint that the state continues to invest and develop the venture capital community?

Stephen Forrest:   I think it's hugely important. Again, we don't need the big VC firms relocating from Sand Hill Road to Ann Arbor or to Lansing. I don't think that's important. They have to have a presence here. They have to become familiar with what our assets are and what are liabilities are because when the people who are really funding the work understand the region better they aren't so ready to suck the company out. The pressure from venture capitalists can be very strong for a small company. I started companies myself. I was in New Jersey and at the worst of all possible times, in 2001, we had several venture capital companies coming to us saying unless you move to California we're not interested. We stayed. We did move a little bit west to Pennsylvania, right across the border, for reasons that were strategic to the company. But it's hard to resist. It's just hard to resist when they tell you that. They had no foundation for saying that, but they said it none the less, so we argued and we argued. I am sure that many of our companies here have to go through that same thing. They know why they want to stay. They're not staying because they’re loyal to the region. They’re staying because they believe there is a better business opportunity here that the venture capitalist doesn't understand from his perch on Sand Hill Road. So bringing them out here and having satellite offices becomes an important piece of that. We're seeing a little of that, but definitely not as robust as I would like to see.

But what about homegrown venture capital firms, like Arboretum Ventures?

Stephen Forrest:   They’re still very small. You know Arboretum shutdown their fund*. There is EDF Ventures and so on, but they tend to be small. The concentration of venture money is not very large here. There is a lot of established money in Michigan. Great wealth has been made here over the last century, so there are big foundations and lots of resources, but venture money is still in fairly short supply.

*Editor's note: Arboretum Ventures has not shut down. The firm continues to be one of the top venture funds in the state of Michigan. In fact they recently closed on their second fund of $70 million. Dr. Forrest misspoke and meant Ardesta.