The same basement, a warren of drab cubicles under Berkeley's Bancroft Hotel, still houses ITU's most recent investment, Opient Inc. Fogarty first got to know Opient's cofounders, Khai Leong, Nobuyuki Tanaka, and Nathan Keker, in his entrepreneurship class last fall. They wrote a business plan "for some optical bit that's going to change the world," Fogarty says. His opinion then: bullshit. But now, he says, "it turns out that Opient does have an optical bit that's going to change the world." Tanaka, a Haas student and an engineer with 10 years of experience at Japanese fiber-optics companies, is developing a more efficient process for integrating components within fiber-optic networks. It's a good product to be selling in a world that's hungry for fast, cheap connections.
So in May, just before exams, Fogarty found himself working out a term sheet with his Opient classmates, all of them probably using negotiating tactics that they had just learned in Professional Skills class. "It was fun because it was like a textbook negotiation," he says.
It was no simple classroom exercise, though. ITU ended up investing $400,000 in Opient. Considering Opient's long-term needs, which include leasing a research lab, that's chicken feed. This fall Opient will try to raise a lot more money. (The amount was reported to be up to $35 million, but Keker says that's false, adding that Opient will not disclose the actual amount.) But ITU's money and infrastructure support will enable Opient to get up and running. This past summer the start-up's team put together an advisory board and began developing relationships with future suppliers and customers. It still needs to hire an additional engineer. Opient is looking to ITU's human-resources and business-development people in L.A. for help.
Although Fogarty is taking a board seat, his role at Opient will otherwise be limited, he admits. "My skill set overlaps quite a bit with Opient's," he explains. What he can do, based on his experience as a project manager at Unilever, is help the Opient team put together a plan of action they can stick to.
Fogarty is also spending time with another start-up: OnWafer Technologies Inc. He meets twice a week with OnWafer cofounders Costas Spanos and Kameshwar Poolla, members of Berkeley's engineering faculty. OnWafer has developed a new method for measuring temperature in the supersensitive semiconductor-manufacturing process. It claims the technology could increase chip production by 5% and save semiconductor makers billions. ITU has invested $350,000 in the business.
On a Tuesday in July, Fogarty huddles with the founders in Spanos's neat, book-lined office in a Berkeley engineering building. He's coaching them for a pitch to a new VC for their next round of funding. As Poolla clicks through PowerPoint slides, Fogarty gently pushes him to make the presentation less technical, more explicit -- basic but necessary tips in today's fund-raising game. "You're assuming that the people you're talking to know a lot," Fogarty says. "I think it's important to say that you expect revenues of X million. People have no idea about the size of the market."
Hiring is the other big item on the agenda. Spanos has been searching for more engineering talent, with mixed results. He called two leads that Fogarty had given him, but neither bit. "I felt like I was trying to sell encyclopedias to someone," he says. However, he's ready to make an offer to another engineer. He and Fogarty quickly run through the compensation details. Spanos is doubtful that the candidate will want equity at this stage. Fogarty disagrees. "That's probably why he wants to work at a start-up," he points out, so Spanos decides to limit their offer to 2% equity, max. Fogarty says he'll forward a job description to the other campus partners to see if they know of any good candidates. Can't hurt, Spanos says.
Meanwhile, on the East Coast, Fogarty's counterparts Chu and Harrison are keeping an eye on Isovia, the creation of a team of MIT alumni and graduate students. It's another wireless play, one in which ITU has invested $375,000. Isovia's technology allows massive enterprise software systems to interact with wireless devices. This summer Chu and Harrison have worked their networks to come up with five business-side hires for Isovia, most of them from Sloan or Harvard Business School, with a few more in the pipeline. Now ITU's business-development team is prepping Isovia for a next-round-funding road show.
Such road shows are the real test for ITU, and in that way, the company is emblematic of the new type of venture funds: there's a lot to prove. Will other investors validate the start-ups into which ITU has sunk time and money? And beyond the initial financing rounds, what's the long-term outlook for its portfolio companies? A recent unpublished study from the University of Pennsylvania's Center for Technology Transfer provides a sobering indicator. Managing director Louis Berneman examined the post-initial-public-offering stock performance of 35 companies started around technology licensed from universities. He discovered that as of March 1999, 31 had done worse than the Standard & Poors index. (Berneman's advice to universities that take equity in start-ups: sell as soon as you can after the IPO.)
