Local tech-transfer programs, which facilitate the development of university research into commercial products and services, have been notoriously troublesome for venture capitalists to deal with. But that appears to finally be changing.

“We have gotten more and more interest recently from the VC community,” said Emily Waldron, assistant director of UCLA’s Office of Intellectual Property Administration.

Waldron points to Beverly Hills-based ITU Ventures as an example of the growing interest. ITU was formed in December by investor Adam Winnick to develop tech ventures emerging from the nation’s graduate schools.

Winnick and other VCs may be finding it easier to commercialize the technology they find on local campuses.

“We’re on the cusp of a transformation from it being extremely difficult to license out university technology to it becoming a much more simplified process,” said Nir Kossovsky, CEO of Pasadena-based Patent & License Exchange Inc. (Pl-x), an online marketplace for valuing and marketing intellectual property.

Kossovsky, a former UCLA professor, started Pl-x because of the challenges and frustrations he faced with the intellectual property system while working as a researcher and inventor at UCLA.

Several factors have triggered changes in tech-transfer programs. There is so much intellectual property inventory building up at schools like Caltech, UCLA and USC that it is “effectively impossible for anyone in a position of responsibility to not do something with it,” Kossovsky said.

Profit motive

Tactically, the tech-transfer process is becoming more streamlined and routine at local universities, as it has at Stanford University and Massachusetts Institute of Technology.

Finally, universities and researchers are no longer shunned for seeking to cash in on their inventions.

“It used to be that the profit motive was considered incompatible with the academic motive. That’s changed here,” Kossovsky said. “Faculty who drive Porsches are not necessarily embarrassed anymore.”

The changes have opened the door for VCs to play a heightened role in tech transfers.

“We talk to the transfer groups here every chance we have,” said Denny Ko, founding partner of the VC firm DynaFund Ventures, which has a tech-laden portfolio. “We like to work with them. If they have something interesting, they tend to come to us and include us in their presentations.”

Massoud Entekhabi, managing director of another tech-savvy VC firm TL Ventures, has had similar experiences.

“The local tech-transfer programs are very helpful in terms of encouraging faculty to think about marketing and in terms of helping us get in and identify people that are focusing on areas that we have interests in,” he said.

It hasn’t always been such a smooth relationship.

“L.A. has been notoriously bad when it comes to its tech-transfer programs,” said Victor Hwang, COO of the L.A. Regional Technology Alliance.

There was never really a need to make tech-transfer programs work efficiently here, Hwang said, because of the once-steady flow of grant money from the aerospace and defense industries.

“The researchers and the universities lived off that money and never learned how to make their research pay off,” he said. “What we ended up with is a lot of research going on and a lot of business leaders, but they’re not the same people.”

The tech-transfer process itself is relatively new. It was only in 1980 that Congress passed the Bayh-Dole Act, which allows universities to patent results from federally funded research. That legislation opened the door to university-corporate cooperation. Since then, nearly 3,000 startups have been formed through licenses of academic inventions, according to the Association of University Technology Managers.

Caltech is leading the way locally with its Office of Technology Transfer, which has brought an entrepreneurial edge to the school.

Headed by Larry Gilbert, a veteran of licensing offices at Boston University and MIT, the Caltech office performs a wide range of business services, including finding investors and lawyers, raising funds and offering management advice.

Since 1995, Caltech has spawned 65 startups, according to Office of Technology Transfer Associate Director Rich Wolf. Last year alone, Caltech took equity stakes in 27 startups during what Wolf refers to as “the year of the optical switch.”

“That was way out of whack,” he said. “The plan now is to add 12 startups to Caltech’s portfolio each year.”

USC has been slim by comparison, spawning 28 startups since 1992, according to Rosanne Dutton, director of the Office of Technology Licensing at the university. Last year, the school was involved in seven startups, up from four in 1999. Dutton said the school is stepping up efforts to commercialize its technologies and is working with organizations like LARTA to facilitate the process.

At UCLA, 31 startups have been launched since 1990 six last year and two in 1999, according to Waldron.

Breakthrough to business

Today, it is risk and scalability issues, not bureaucratic red tape, that seem to be the biggest deterrents to bringing university-hatched technologies to VCs.

“The VCs have difficulty ferreting out what will be of value,” Waldron said. “Saying that the tech-transfer process is too bureaucratic is just a knee-jerk reaction. It’s difficult for VCs to mine our portfolios because they find our technologies too raw, too early stage. They like things more incubated.”

Added Entekhabi, “It comes down to being able to discern the excitement of a technical breakthrough from the potential to make it a scaleable business. Building things one at time under the microscope is not a great business solution.”

Caltech’s Wolf said he is hoping that VCs will “redefine what’s valuable” and include smaller companies with less market potential in their portfolios.

“It drives us nuts when investors say they’re only interested in billion-dollar market opportunities,” Wolf said. “We have several companies that are going to generate between $50 million and $100 million in (annual) revenue, but a lot of VCs aren’t interested in playing there. I’m hoping that VCs will be willing to make investments in these smaller companies, which could become acquisition targets.”

No one argues, however, that there is a huge potential for tech companies to blossom from L.A.’s campuses.

“The L.A. area has one of the highest concentrations of creative prowess in the world,” Kossovsky said. “Between the various UC campuses, USC, Caltech and the Jet Propulsion Laboratory, we have some of the finest talent working in the hottest tech sectors: life science, information technology and advanced materials. The potential is certainly here.”