PART 1: Vanderhoofven reflections on venture capital evolution in the region
(EDITOR’S NOTE: This is the first of three articles from an interview with Grady Vanderhoofven, co-manager of Meritus Ventures and the Southern Appalachian Fund.)
For more than two decades, Grady Vanderhoofven has been a critical player in technology commercialization in the region, first at Oak Ridge National Laboratory (ORNL) and more recently as co-founder and co-manager of two venture funds.
He’s literally viewed it from the “inside out” and the “outside in” or, as the title of a famous Judy Collins song suggests, from “Both Sides Now.” Those who know Vanderhoofven well would say that he is one who regularly challenges traditional assumptions, a characteristic that has served the two venture funds well.
Vanderhoofven sat down recently with teknovation.biz to reflect on the evolution of investment capital in this region and how it has impacted the transfer of technologies from the two major generators of intellectual property locally – ORNL and the University of Tennessee.
The two decade plus journey started in 1991 when Vanderhoofven joined ORNL as an engineer in a group led by long-time researcher Bob Norris. His first assignments included work on carbon fiber and composites, an area that is one of the hottest technology opportunities for the region today.
“It just shows how long the gestation period for technology is,” Vanderhoofven said.
He soon moved into a program development role, selling the lab’s capabilities in composite materials to federal entities including the U.S. Navy and Army. Vanderhoofven and Chris Janke, an ORNL researcher, teamed-up on an idea to use electron beams to process polymer matrix composite materials. Together, they worked to develop a three-year, $7 million Cooperative Research and Development Agreement (CRADA) that involved ORNL, the Y-12 National Security Complex, Sandia National Laboratory and a number of corporations including Lockheed, Northrop Grumman, Boeing and Dow.
He laughingly says, “The Technology Transfer guys said we couldn’t do a CRADA this big.” They proved them wrong, a fact that resulted in Vanderhoofven becoming “one of them” in 1993 when he transferred to the Office of Technology Transfer (OTT) and negotiated the CRADA himself.
It ended-up being a good career move for Vanderhoofven. Technology transfer was “becoming more important” in the federal system, and strong leadership was in place at ORNL. Two legends were in the top spots in OTT – Bill Carpenter as overall Director and Jon Soderstrom, now at Yale University, as head of licensing.
Vanderhoofven described it as a “booming time” with ORNL adding a number of new licensing professionals such as Russ Miller, now at the Department of Energy’s Kansas City Plant, and Ashok Choudhury, now at Vanderbilt University. Vanderhoofven also became one of the licensing people.
As he learned more about licensing, he settled on a concept and philosophy in the late 1990s that would eventually drive him into the venture capital world.
“I decided that we ought to try to create start-ups around platform technologies rather than push technologies into established companies, whether big or small,” Vanderhoofven said. “It introduced complexity into the deals because you had to figure out how to handle equity.”
His vehicle for starting companies was to link licenses, where the companies take existing intellectual property, with CRADAs, where the same company funds research and development at ORNL, so the inventors can improve the technology for the desired application.
One of the first companies started around this concept was Graviton that was founded in the late 1990s to deliver a web-enabled, distributed wireless sensor product. It linked two ORNL technologies – micro cantilevers and wireless sensors.
Vanderhoofven said that Kleiner Perkins Caufield and Byers (KPCB), a legendary venture capital firm, provided the initial institutional funding for Graviton, and Merrill Lynch led the company’s Series D round. It was an exciting time as Vanderhoofven remembers a conference call that he had with Brook Byers of KPCB.
Unfortunately, the company, which grew rapidly from start-up to revenues of $2 million and growing, did not survive. Vanderhoofven blames it on replacing the founder with the wrong CEO to lead a young, high growth company.
The concept was replicated several more times, but almost all of the start-ups were located elsewhere in places like Austin and Long Island.
“We can start these companies, but none stay here,” Vanderhoofven said in reflecting on the challenge. “We need a local venture firm.”
NEXT IN THE SERIES: Vanderhoofven’s transition from ORNL to the then named Technology 2020.