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UVa develops high-tech startups

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August 20, 2001

In the aftermath of the ‘Net shakeout, tech boosters in Charlottesville look to the University of Virginia

For technology executives, Charlottesville's big draw is its combination of small-town life and big-time research coming from University of Virginia labs.

"It's like Mayberry with a bunch of really smart people," says Rick Gordon, CEO of Tovaris, an Internet security company that raised $1.4 million in venture funding early this year. It remains to be seen, however, whether Charlottesville, a city of 160,000 about 110 miles southwest of Washington, can make its mark as a tech center.

While the University of Virginia is viewed as the city's economic engine, discoveries there are in some cases a long way from commercial success. And the Internet implosion has hit hard.

"Charlottesville is in a double whammy," says Ben English, a Richmond lawyer who is a director at the Charlottesville Venture Group, an organization that tries to foster ties between investors and entrepreneurs.

Most technology ventures there are at a very early stage in their development. What they need ???seed and angel funding ???is scarce. "Angel money has just disappeared from the market," English says.

How come? For one, the city's size and relative remoteness are big obstacles. Gordon says he keeps his main operations in Charlottesville because salaries there are one-third less than in the Washington area. But his two sales representatives work in Northern Virginia because Charlottesville is too far out of the loop to snare a lot of potential business.

Take the case of Avaki. Formerly known as Applied Metacomputing, Avaki took technology developed at the University of Virginia and launched as a private company in 1998. But this year Avaki moved to Cambridge, Mass., near venture capital firm Polaris Venture Partners, which invested $6 million in the company.

"Up in the Boston area, there are lots of strategic partners, and it's easier if they're down the street, rather than a four-hour plane flight away," says David Kopans, co-founder and chief financial officer of the 26-employee company, which designs computing systems for large companies.

Plus, being in a big city with a larger applicant pool could make it easier to attract job candidates. "You can build a vibrant, exciting business in Charlottesville," Kopans says. "It'll just be at a different pace. It's a fast growth issue."

When the failed e-tailer Value America closed last year, people cheered ???not for the company's demise, but because it put about 300 people back into a tight labor market. The celebration was short-lived as other once-promising technology companies faded. The dot.coms Boxerjam, iRenovate.com and Codevelop are either closing or searching for a buyer.

While the unemployment rate remains low, at about 2 percent, techies such as Scott Shaw maintain the dot.com collapse hit the city hard. "The market's flooded here" with tech workers laid off from failed dot.coms, says Shaw, who has worked at four different dot.coms over the past two years.

David Kalergis, director of the University of Virginia Gateway, estimates there are 100 to 200 technology companies in Charlottesville. "I suspect there has been a net loss since the beginning of the year," he says.

But Kalergis is optimistic that more young companies will be funded and notes that three new venture firms have located in town in the past year. "They have fresh venture capital to invest," he says.

In the face of the Internet shakeout, technology boosters are counting on the university to keep Charlottesville in the game. In 1999, the university ranked 40th among U.S. schools in research-and-development spending. That year, the most recent period surveyed by The Association of University Technology Managers, the university spent $198 million (an increase of about $36 million over the previous year) in university funds and outside grants on R&D activities.

The University of Virginia has made a concerted effort to translate its R&D spending into commercial success. The University of Virginia Patent Foundation, which works to commercialize university discoveries, has boosted its staff by more than one-third, to 16, and added an in-house patenting department.

The foundation offers a patent and licensing clinic to university law students and professors, and launched the uvasoftware.org Web site, which assists faculty members in registering for trademark protection and marketing their software.

In 2000, the number of startup technology companies coming out of the university doubled to 12 over the previous year, which has helped boost royalties stemming from university discoveries.

But in recent years just one company, Insmed, a biotech firm in Richmond, has made technology developed at the university a hit on Wall Street.

Still, others are forging ahead. Robert Hull, director of the University's Center for Nanoscopic Materials Design, is making advances in the field of nanotechnology ???the study of incredibly small things.

Hull is working on ways to make electronic circuits smaller and more energy efficient. His group is funded by a $5 million grant from the National Science Foundation, between $2 million and $3 million a year in cash and new faculty salaries from the university and $100,000 annually from the Virginia Center for Innovative Technology.

By "tickling" clusters of atoms with an ion beam, Hull hopes arrange them into tiny working circuits, paving the way for faster computer chips and more energy efficient components in wireless devices. Discoveries coming out of the lab are building on academia's knowledge of nanotechnology and could eventually result in tiny disease fighters or agents to clean up environmental disasters. But that is at least a decade off.

"You'd like to believe this is a new technology," Hull says. "At the very least, we are exploring whether it is practical."

Robert MacWright, executive director of the University of Virginia Patent Foundation, hopes to capitalize on university research. Last year, the foundation signed 47 technology transfer deals with University of Virginia professors, up from 26 in 1999.

But the uncertainties of science and the federal regulatory process means it could be years before the companies' technologies score on the market. "There are long time horizons when you're dealing with university inventions," MacWright says.

But MacWright is confident that the university's long-term research projects will keep investors interested in the town long after the dot.com shakeout.

"Small markets like Charlottesville find it a little harder to attract capital. But that doesn't mean they can't compete," he says. "They have to fight a little harder."

© 2001 Post Newsweek Tech Media Group

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