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WARF’s Erik Iverson announces new VC funds, therapeutics program

8.23.17 | Xconomy | Jeff Buchanan | Original Publication

Erik Iverson presenting to a group
WARF managing director Erik Iverson— Since July 2016, Iverson has served as managing director of the Wisconsin Alumni Research Foundation, the University of Wisconsin-Madison’s technology transfer office. Photo by Jeff Buchanan.

The University of Wisconsin-Madison’s tech transfer office plans to invest $60 million in startups affiliated with the school over the next eight years and has launched a separate $50 million initiative aimed at commercializing UW-Madison research and discoveries in human therapeutics.

Erik Iverson, managing director of the Wisconsin Alumni Research Foundation—an independent organization that manages patents and licensing of intellectual property for UW-Madison—discussed those plans and more on Tuesday as he laid out a roadmap for WARF’s future during a presentation to university faculty members, Wisconsin business leaders, and others.

Iverson joined the organization in July 2016. He previously served as president of business and operations for the Infectious Disease Research Institute in Seattle. Iverson said that during his first year in the top job at WARF, he sought to “reset the strategy for the organization.” That involved encouraging those around him to “focus our energies on startups and entrepreneurship,” in addition to the intellectual property work WARF is most widely recognized for, he said.

WARF is known in academic and business circles as a tech transfer powerhouse. The organization has an endowment of $2.6 billion, and since its founding in 1925 it has provided more than $2.3 billion in grant funding to UW-Madison and the university-affiliated Morgridge Institute for Research. WARF has also been involved in some recent high-profile court cases, including one in which a federal judge ordered Apple (NASDAQ: AAPLto pay more than $506 million to WARF in connection with a 2015 jury ruling that Apple infringed on a WARF patent related to computer processor technology.

WARF was granted 168 patents in 2016, sixth-best among the world’s universities, according to a ranking by the National Academy of Inventors and the Intellectual Property Owners Association. But WARF only nets a return on the money and time it puts into working with researchers to obtain patents when the organization licenses the technologies and discoveries to businesses—many of them new companies launched by UW-Madison students and faculty.

According to a 2016 report from PitchBook, a Seattle-based organization that monitors investment trends, UW-Madison came in 14th in a ranking of schools with the most students who start companies and later raise funding from investors. Being a top-15 school for entrepreneurship is likely a point of pride for the state’s flagship university, but Iverson noted that Wisconsin has finished last in the Ewing Marion Kauffman Foundation’s ranking of startup activity by state the past three years.

Like some other entrepreneurship advocates in Wisconsin, Iverson said he believes there are faults with the methodology Kauffman uses to compile its rankings. But he also describes what he perceives as an “aversion to risk” among entrepreneurs and would-be company founders.

“Some people [in Wisconsin] were even saying that if you failed at a company, you’re essentially blackballed,” he said. “I think that’s entirely the wrong approach. You can rest assured that WARF—although we’re not going to make stupid decisions—I am very welcoming to risk. I am not a risk-averse person.”

Iverson recalled that it wasn’t uncommon for entrepreneurs he met with while living in Seattle to have stumbled one or more times before having success with a startup.

“If somebody takes a shot at it and doesn’t do so hot—whether from a technical perspective or market perspective—-and has the guts to pick it back up and try again … that’s fabulous,” he said. (Interestingly, the Seattle startup community has had its own disagreements over failure and risk aversion.)

In any case, WARF will soon begin providing more entrepreneurs with financial support to pursue their goals. Iverson said the organization’s board of trustees recently approved a proposal to create two new venture capital funds that will invest in “UW-Madison associated spinouts.”

WARF plans to draw on its own funds when making investments out of the new VC funds, Jeanan Yasiri Moe, WARF’s director of strategic communications, said in an email.

The first is a $10 million fund that will provide seed-stage capital to startups, with investments likely falling in the range of $25,000 to $150,000 each. Iverson said WARF plans to make 10 to 15 such investments each year over the next four to eight years. When possible, WARF would like to partner with outside angel investors on deals, he added. (He said he also wants to engage banks in Wisconsin, most of which he said could do more to support entrepreneurs.)

The second fund is a $50 million pool of capital that will allow WARF to participate in startups’ subsequent rounds of financing, Iverson said.

“If we can fund 15 companies in the seed round, [maybe] three or four of those the next year make it to a [Series] A round,” he said. “We want to be able to participate in that A round, and on we go.”

In an e-mail to Xconomy, Iverson said that WARF does not intend to restrict investments from the $50 million fund to startups in which the organization previously made seed-stage investments.

“There is not a linear model to this,” he said. “No preconditions. It could work as a pipeline, but exactly how this will work is yet to be determined.”

During his presentation, Iverson said WARF is working to hire a chief venture officer, who will work with a small team to make investments out of the new funds.

Companies do not have to be based in Wisconsin in order to receive a seed- or later-stage investment from one of the funds, Iverson said.

“If it’s a technology coming out of the University of Wisconsin-Madison and somebody wants to take that technology and make a go of it” while working for a company based in another state, or outside the U.S., WARF would consider funding the company, he said.

And even though WARF says the funds are aimed at supporting “spinouts” affiliated with UW-Madison, Iverson and others at WARF are still hashing out specific requirements. Limiting investments to companies that have already begun working with the organization on intellectual property-related matters could end up being an overreach, Iverson said.

“There’s a lot of computer science technologies and startups that don’t have patents,” he said. “Does that mean I’m not interested in supporting those kinds of technologies out of the computer science department at this university? [No], I’m sure as heck interested in supporting it.”

WARF’s new VC funds mark the organization’s latest attempt to support early-stage businesses. Over the past 10 years, it has invested about $30 million directly into startups, Yasiri Moe said. WARF has also served as a limited partner in other venture capital funds, such as Madison-based 4490 Ventures. And since 2015, WARF has provided financial support to the Wisconsin-based startup accelerator Gener8tor for its gBETA program, which works with seed-stage companies.

“I promise you that WARF will do its part to put capital to work in this community with entrepreneurs,” Iverson said.

Meanwhile, Iverson said he also recently got the go-ahead from WARF’s board of trustees to create a $50 million “Human Therapeutics Program.” The goal of the program is to advance UW-Madison innovations in drugs and biologics—which Iverson said represent more than two-thirds of WARF’s patent portfolio—toward commercialization.

Iverson said the program will involve forging (or expanding) relationships with large pharma companies, some of which have shifted resources away from the earliest work in the drug development process.

“What has happened over the past decade is many of the big pharmaceutical companies, whether it’s GlaxoSmithKline (NYSE: GSK) or Sanofi (NYSE: SNY) or Pfizer (NYSE: PFE) or others, have [outsourced or] shed big portions of their discovery and their research,” he said. “They all need research. They all want products developed,” and WARF believes it can help with that.

Iverson said WARF plans to hire two or three veterans of the pharmaceuticals industry who might help the tech transfer organization capitalize on the trend of drug developers turning to universities to provide research and technologies that will allow the companies to progress more quickly toward filing for the FDA’s approval to start clinical trials.

“Where we’re focusing our time and energy is [the] pre-clinical [stage],” he said. “We’re going to use advice from advisory groups across venture capital, pharmaceuticals, biotech, as well as leaders on campus, to advise us on our portfolio of drugs and vaccines and biologics candidates. We’re going to pick across a spectrum of those and put money behind [them]. That, in the end, should yield a couple victories.”

Iverson also emphasized that the organization he leads is independent from UW-Madison, and does not rely on funding from the state government. “WARF, despite being around for 90-odd years, [has] never taken a single dime from taxpayers,” he said.

Despite its autonomy, WARF can only thrive if UW-Madison is financially sound and viewed as a magnet for talented students and researchers.

Iverson did at one point say that the University of Wisconsin System “has taken a beating over the past few years”—presumably a reference to cuts to higher education funding in state budgets passed under Gov. Scott Walker.

But overall, Iverson seemed to want to go out of his way to appear politically neutral. He noted that Washington state had both Republican and Democratic governors during the time he lived there, and that the state waged some of the same battles that legislators in Wisconsin are fighting today.

“We talked about the same issues,” he said. “All I want to say about it is the folks within the legislature and the governor’s office have to work hand-in-hand with the university, which has to work hand-in-hand with industry. We’re all in this together.”