CEO Podcast: Kelly Sexton, Associate Vice President for Research – Innovation Partnerships and Economic Impact at the University of Michigan

Paul Krutko: Welcome to Ann Arbor SPARK’s CEO Podcast…Conversations on Economic Opportunity. My name is Paul Krutko, and I’m the President and CEO of Ann Arbor SPARK.

Joining me today is Kelly Sexton. Kelly is the Associate Vice President for Research – Innovation Partnerships and Economic Impact at the University of Michigan, leading innovation, corporate research, and technology commercialization efforts. She joined the University in 2018, previously serving as Assistant Vice Chancellor for Technology Commercialization at NC State University. Kelly holds a B.S. from the University of Georgia and a Ph.D. from UC San Diego, with postdoctoral studies at Stanford. She co-chairs the U-M Roundtable on Innovation and Entrepreneurship and serves on the Advisory Board for Venture for America’s Detroit Chapter. Kelly is also Ann Arbor SPARK’s new Board Chair. 

Kelly has been a driving force behind many of the innovative initiatives in our community, and today, we’ll dive into her vision for Ann Arbor’s entrepreneurial ecosystem, the critical collaboration between the university and the city, and much more. Let’s get started!

So Kelly, let’s get started.

Kelly Sexton: Thanks for having me back.

Paul: Well, it’s always good to catch up and this is a really good time because we are in this transitional period with you assuming the leadership of SPARK as well as everything else you’re doing, which is incredible. 

So let’s start off with, what are your key goals and priorities as you think about becoming board chair at Ann Arbor SPARK, and how do you think you’ll leverage your experience and expertise to advance the organization’s missions and initiatives?

Kelly: That’s an exciting question and one I’ve had a great opportunity to reflect on these past few weeks and months. So SPARK has been incredibly fortunate to have a long history of really incredible board chairs, stretching back to Cynthia Wilbanks, Steve Forrest, Tim Marshall, Governor Rick Snyder before he was governor, and of course, most recently, David Ruud. Every one of these incredible leaders brought a unique skill, background experiences to the role that helped to advance SPARK’s mission. And as you know Paul, at the SPARK Annual Meeting, I had the absolute pleasure of moderating a panel with Cynthia, Steve, Tim, and Governor Snyder. And through the course of preparing for that, and of course on the panel, we talked a lot about the origin of SPARK as an outgrowth of both the community and the university’s desire to create better partnerships with the business community and really develop this economic engine for our region. And the fact that we were celebrating SPARK and its 20-year anniversary is really a testament to the fidelity of that vision and a natural point for us to reflect on SPARK’s next phase and for Ann Arbor’s business and entrepreneurial ecosystem. 

At the same time, for my time as Chair, I’m really looking forward to developing new ways for SPARK to leverage the unique resources and assets we have here at the University of Michigan to help drive economic growth and really to make sure that we’re closely partnered, given all of the exciting new initiatives that are coming online today, months and years ahead.

It might be helpful for me to say just a few words about my role at U of M, just to give our listeners more understanding of the perspective and experience I’ll be bringing. So as you said, I oversee Innovation Partnerships, which is a 70-person team focused on commercializing the research discoveries and technologies created at the university. Sometimes folks don’t recognize because it’s in their backyard, but the University of Michigan is a national research powerhouse. Last year we had $1.86 billion in research activity across our campus. And this research generates an incredible amount of new innovations, new research discoveries, and through our research commercialization activities, we have a long history of taking these technologies and moving them out into the world. So that what’s discovered at Michigan then becomes new products, new services that can improve quality of life. The new startup companies will be talking a lot about how that creates jobs and fuels that economic growth. 

So the University and SPARK, we already partner really closely on corporate retention and attraction, but I think we can do more together. Paul, I think you’d agree with that. And I have some ideas that I want to test out during my time as board chair about how we can help create these sustainable frameworks for collaboration around corporate attraction and retention that will outlast my time as board chair and maybe even outlast your time as President, Paul. So we really build this sustainable future for our organizations. And on the entrepreneurial services side, I’m eager to continue to work with you and your leadership team to help make Ann Arbor that rising entrepreneurial hub, world-leading innovation destination. And I think we’ve got a lot of initiatives underway and a lot of plans in the work to help make that a reality. 

Paul: You’ve talked a little bit about that, about sort of the collaboration between the university’s efforts in commercialized, very much embrace and understand the notion that the university is something that our new president has said, it’s a university for Michigan, that the notion here is having those innovations just stay inside the university’s walls is going to create things that are going to benefit humanity, but how those turn into opportunities for families throughout our region to have people in their families be employed, have prosperity and create all that kind of things for them as individuals. 

So talk a little bit more about the things that we’ve been working on and you see coming forward in terms of that ongoing collaboration between Innovation Partnerships and SPARK. How do you see that evolving over the next few years?

Kelly: We here at Innovation Partnerships have really undergone an incredible revolution. Five years ago we were Tech Transfer, it was a smaller team, sort of a more narrow mandate. And in many ways we’ve sort of evolved to be the ideal partner for Ann Arbor SPARK and your economic development model. Today, our activities are organized around three teams. We have corporate research alliances, licensing, and ventures. And because of this model, we have a team of dedicated corporate research alliance professionals and they’re working every day with our faculty to help connect their research with companies for the purpose of creating sponsored research opportunities. So when your business development team at Ann Arbor SPARK is working on a corporate recruitment effort, we’re perfectly positioned to quickly identify university faculty with relevant research expertise that can really be of value when making the case to companies about why they want to locate here in Ann Arbor in close proximity to the university.

Likewise, our ventures team exists to support the launch of startups working to commercialize university research discoveries. We oversee a lot of programming to help really with the early stages of company formation where it may be a faculty member, her graduate student, years of federally funded research, but there’s still a long way to go before we have a company. We’re focused on that early stage, getting those companies launched. And over the past five years we’ve actually supported the launch of over 120 new startup companies. And so our ventures team is the perfect conduit to help connect these new companies to the many resources and offerings of the Ann Arbor SPARK Entrepreneurial Services team. We fit hand in glove in that way, making sure that these companies have the resources that they’re going to need to not only launch here in Ann Arbor, but to grow and scale their businesses here in Michigan.

So Paul, our teams are already working on the day-to-day business of recruiting new companies, connecting our new companies with the very best resources that our region can offer. And so given the maturity, you and I, Paul, have been able to think about what are the next things our ecosystem’s going to need? How do we address some of these key challenges around talent and around capital to really help fuel the broader economic engine that we really want to have for our region. And so that’s been fulfilling to see the day-to-day stuff working really well and for us to also have time to think about strategy.

Paul: Well, we often talk about over the origin story that you described of SPARK and the evolution of the university’s efforts in this area, that one of the unique things that we have as a community is a platform where the conversation between the academic research side of our community, the private sector side of our community and local government are all together and have been together at a table discussing what are the gaps, what are the things that we need to do? And I think both your team and Innovation Partnerships and the SPARK team sort of walks its own talk in the sense that we think entrepreneurially about how we can be innovative in helping the ecosystem grow. What are the gaps? What do we need to respond to? And I think later in our conversation we’ll talk a little bit about funding opportunities, which we’ve both identified both in the university and at SPARK, that that is a critical piece in this to advance the ecosystem. So that kind of leads into strategic initiatives that you think are essential moving forward for us to remain competitive. I think one of the things that makes you feel good about where we are is if you do look backwards in time to when Mary Sue Coleman said, Hey, we need to create a more enriching environment for the research that is turning into companies. We’ve come a long way, but there’s more we can do. 

So I guess what are your thoughts about some areas that would be places we should be focusing on now?

Kelly: Yeah, I mean that’s a big question and we could chat about that absolutely all day. And to start with, I want to say that I think SPARK’s doing a phenomenal job and it’s difficult to identify an area that’s an absolute gap that you’re not already working to address or don’t already have a plan to address. So I think in a lot of ways we’re talking about augmenting, accelerating and one initiative that I’ve been just thrilled to see SPARK not only launch but to continue has been your Inclusive Workplace series. I think that’s a unique offering in our ecosystem. I’ve sent members of my team to participate and I know it’s been received as a phenomenal resource for company founders and leaders that are eager to understand how do I incorporate diversity, equity and inclusion principles as I grow and develop my business. And so our ability as a community to be able to provide this kind of education to our entrepreneurs is very important if we want to live up to our potential as an entrepreneurial ecosystem that welcomes and cultivates diverse talent.

So it’s a wonderful milestone for a community that we even have this as a resource and I applaud you and the team for creating that opportunity. And so it’s always dangerous to introduce totally new ideas on a podcast that we haven’t discussed, but you invited me on. And so I imagine this is on your radar and near and dear to your teams, but if I think about the many wonderful programs that you run, I’d love to think about ways we could infuse some of the principles from that Inclusive Workplace series into those programs. Like for example, if we pick one, the Michigan Angel Fund, and for our listeners that may not know, the Michigan Angel Fund is a for-profit pooled, professionally managed angel fund that was created by Ann Arbor SPARK and supported by the Michigan Economic Development Corporation with the goal of helping to finance early-stage companies in our state. So one of its goals is to bring new angel investors into the Michigan entrepreneurial ecosystem. And the Michigan Angel Fund has been an incredible catalyst in our startup ecosystem. It’s created an entirely new source of much-needed capital for our state startup companies. And I don’t know that SPARK gets enough credit for its role in helping to catalyze this, so I wanted to make sure and mention it. At the same time, Paul, you and I know that the world of investing is nowhere near as diverse as it probably should be. And so I’d love to think about ways that SPARK could augment programming to have specific outreach to really focus on high-net-worth individuals from communities that are underrepresented in the world of angel investing. When I was at my prior institution, I helped to launch an alumni angel investing network and it was very successful, but we found that an initial cohort of members and investors did not represent the diversity of our startup community or of our community.

So to tackle that problem, we had some sort of outreach events we would do to women, minority business owners, and other folks with the means to invest, but who had not been specifically invited into the world of angel investing. And we found that something as simple as an invitation to join a network where they could learn the ins and outs of investing was really all that it took to bring new people into the fold. So those are the kinds of things I’d love to explore with you and your team, and I know your team’s already there and aligned and wanting to be proactive in this way.

Paul: Yeah, I mean the initial goal behind the Angel Fund, and we have had five iterations of it because what we do is we attract potential new people into this idea of making investments of this type and give them an opportunity to learn about how to do that as well and not put them in a situation where they’re solely making the decision. So the notion of the fund was pooled angel investment, pre-vetted, if you will, transactions. But the goal initially, and I understand your concept completely, the goal initially was lots of high-net-worth individuals in Michigan who, unlike the coasts, this isn’t something that they perceived as an investment opportunity. So just creating the notion that, hey, this is something that you could consider and we’re going to help you get there. Extending that idea into diverse populations and folks and communities that haven’t been invited or haven’t even thought about that as opportunity is a great idea. It parallels recently where the State of Michigan indicated to us, as a SmartZone — that concept, for the listeners, are that’s the principle mechanism by which we at SPARK fund and support early stage tech entrepreneurship. The state said, we like that concept. Could you do that for populations that are pursuing entrepreneurship that is non-tech in nature, maybe more local in nature, and with a specific emphasis on communities of color and disadvantaged populations that haven’t had a chance to participate. So the board said, yeah, sure, let’s take that on. We’re operating a program for the next three years out of SPARK East directly in Ypsilanti to facilitate that. And we’ve had an incredible response of businesses now that have been invited into the support system as you’ve described for that. So that model of taking things that we do in one area and extending them into others is something that is really important.

I also think the other thing that I’d ask you to reflect on a little bit is that you were part of the board and leadership that indicated SPARK’s strategic plan needed to expand. We had the initial three pillars of focusing on talent, growing the early-stage companies, and accelerating the growth of mature companies. But the board looked at what we were doing and said, could SPARK play a role in advancing the community as a platform along lots of other areas that most people wouldn’t think is necessarily economic development, but an example is childcare. If the talented workforce cannot deal with their child rearing needs at that particular point in their life, they’re not going to be able to participate in the economy. So that’s an example I think where we’ve extended ourselves.

Kelly: That’s something I’ve admired about SPARK as an organization and the board and leadership is the ability to identify new areas, address them, but also to take a critical eye of what programs have we launched that are now being, have been picked up elsewhere in the ecosystem, and maybe we can sunset that while we focus some energy over here. And so it makes for a dynamic and evolving organization and it’s just a thrill to be a part of that.

Paul: Well, let’s change a little direction or in our conversation here, could you share with the audience some of the efforts that your team has made across the university to support intellectual property development and highlighting some of the things that have been going on in terms of commercializing technologies from university based research and innovation?

Kelly: Yeah, absolutely. So we’ve really put a lot of emphasis on in a couple of areas. One being giving our faculty the resources they need to de-risk their technology within the university environment. And for us, this has really been through the use of two translational research funding programs that we oversee. One is called the Michigan Translation Research and Commercialization or MTRAC Life Sciences Innovation Hub. The other is the MTRAC Advanced Transportation Innovation Hub. And both of these programs provide grant funding to teams that are working in labs both here at the University of Michigan and across the state of Michigan to continue working on their technologies in the university lab, build that next prototype, do that next study to help demonstrate that the technology is ready for commercialization so we can have a real conversation about forming a startup company, entering into a licensing relationship. So those have been very successful. They’re both funded by the Michigan Economic Development Corporation. They run as statewide programs and sort of building on those, we’re also bringing another resource to our faculty teams through the Tech Transfer Talent Network or T3N, which allows us to provide experienced mentors and residents that are part of our team and who can work with faculty led research commercialization teams and help them get ready and go through the process of research commercialization, help them develop a go-to-market strategy, help them to launch a new startup company to take that technology and run with it and commercialize it. 

And then these are programs we’ve had in place for years. The models are proven out and very successful. They’ve both been supported by the Michigan Economic Development Corporation held up as national models for how you do university tech transfer at a big institution. And these are statewide programs. So they’re also flexible and they help support this activity at Michigan Technological University, Wayne State, Michigan State, Grand Valley State, and others as great resources that are scalable. 

We’ve recently created capstone programming to help us with the next challenge, which is early stage venture capital investments for startups once they’re launched. And Paul, you and I have spent a lot of time and effort in this area in general, but we know that we have a lack of early stage capital in our ecosystem. To put some numbers on it, in the last three years, University of Michigan startup companies have raised over $2 billion in venture capital and angel investment. That’s a great number. But before we break out the champagne and celebrate, that funding was actually raised by about 180 companies. Half of those companies left the state of Michigan and they raised $1.6 of that $2 billion total, the half that stayed raised the other $400 million.

So while we don’t know the exact reasons for startups that exit our ecosystem, we do know that those leave, typically for the coast, out raise those that stay by 4x. And we know that those are jobs that are not being created here. They’re being created in other states. And so we’ve wanted to work to address that critical early stage funding gap for our startups, the University of Michigan, and for really any university startup in our state. And so we created the Accelerate Blue Fund, which is a $15.6 million early-stage investment fund. It follows a nonprofit evergreen model to invest in promising University of Michigan startups. And it’s had a catalytic effect — for every $1 we’ve invested through the fund, our startups have attracted an additional $36 from other investors. 

Seeing the success of this model, the state recently asked us to expand it and to create the Michigan University Innovation Capital Fund, which takes that model, but expands it statewide. And so now we have the capacity to invest in startups from Michigan Tech, from Grand Valley State, from Wayne State, from Michigan State at the very earliest stages, helping them on their path towards growth and scale. 

So those are a few of the things I’m excited about and appreciate the opportunity to share them with the listeners.

Paul: Well, that kind of leads into the final question I was going to ask you, which is sort of the challenges. And you’ve outlined one of the key challenges in our ability to maintain and actually reap the benefits of the great work we’re collectively doing to support early-stage startups. And one of the things that is very critical, and I use this analogy all the time, is we can view ourselves as a garden and how do we nurture those startups, if you use the analogy, the plants, to grow and thrive here. And what we don’t want to do, and we all collectively are working very hard on this, is we don’t want as those come to harvest that they’re harvested someplace else. So if you use that analogy, we don’t want to be the garden for the rest of the country. And the fact of the matter is we have been that to some extent in the past. And the early stage capital side is in terms of the work that you’ve done internally, but you’ve been working with us and other partners in the state externally to really highlight this for the state, the legislative leadership, the Whitmer administration, on the need for early capital. Because while there was always this need, if it’s friends, family, and fools at the beginning, right? And then early seed capital to get someone to venture. What’s happened now is many of the venture funds have, we use the phrase moved upstream, right? They are looking for the company to be much more, I don’t know if stable is the right word, but much further along in its development path. So this need for the early capital for companies is becoming more and more critical. 

And so your help and leadership along with Invest Detroit, several other organizations that do this work as SPARK does, has been really critical in bringing that to the state’s attention. And as you well know, we were successful in that we were looking for additional funding. The governor included some funding in her budget proposal and the legislature passed that out of the budget. So we’re looking forward to implementation of that, but that would be about $60 million of new capital among a number of us to do this early stage work. And you were a really important voice in communicating the need for that. 

What are some of the other, as we close out, capital is something that’s always top of mind, but what are some of the other challenges that you think are facing us and not necessarily the university, but you as someone who is living in this community and has children in the school system and all these other things, what are the other kind of challenges having lived in San Diego, Palo Alto, and North Carolina, what are some other challenges that we’re facing that we really need to respond to this moment?

Kelly: No, that’s a great question and I’ll kind of start with the goal. I’ve got a big goal. I want to see my kids grow up and have amazing careers here in Michigan. So if we start with that, and I want the same for all of our colleagues. How do we achieve it? And so I think the challenge actually, Paul, is for you and I as leaders to have the flexibility and the ingenuity to rise to meet the opportunities. I think we have a lot of them, and I’ll mention just two. 

So one is, you and I have spent an awful lot of time, probably more time in the last year in Detroit than ever before. And so how do we leverage the incredible activity that’s happening in Detroit and their entrepreneurial ecosystem and create what’s being called a ‘zone of innovation’ that stretches from Ann Arbor to Detroit? How do we make that vision a reality? And I’m so excited. We have the University of Michigan Center of Innovation in Detroit. We’ve hired a phenomenal new director in Scott Shireman. And so it’s so exciting to think about what we’re going to be able to do as that vision is realized. And also with the new energy at Michigan Central and Newlab, and with our partners at TechTown and others. How do we continue to build on that? And at the same time, we’re not going to sit idly by here in Ann Arbor, either. 

As you know, Vision 2034 was a project that was announced by President Santa Ono shortly after he arrived on campus. And it kind of stunned us because we’d really never had a vision like this before. And so this development of the vision included input and the voices of over 10,000 university community members, business economic development partners, and community partners. And it really lays out a vision where the University of Michigan will be the defining public university. And it lays out specific areas of commitment that the university’s committing to over the next decade. And one of those areas is one that I really like called Innovation Partnerships and Economic Development. And a specific commitment made in Vision 2034 is that in the next decade, we will develop an innovation district that will expand partnerships for new ventures, experiential learning, job opportunities, local investments. And one manifestation of this work is what the university is doing to explore opportunities like creating an innovation hub on our north campus. So Paul, I’m so excited to think about, at this crucial time, how do we flex as leaders and how do we partner to build out an even greater innovation ecosystem here in Ann Arbor that truly does extend a zone of innovation from here to Detroit as we partner and support the build out of this exciting new infrastructure that’s being envisioned?

Paul: Yeah, I think that we’re very excited at SPARK about the focus that President Ono has brought to the notion of how, and I used the phrase before because I’ve really enjoyed that phraseology. It’s the University for Michigan. And we, for a long time in our attraction work, and as you know, we’ve been successful in attracting companies from outside the region that want to do research and development here. But the thing they say always at the beginning is we want to be close to the University of Michigan. And what they mean by that is close to the new ideas that are coming out of it, but also the talent that is being created at the university. And the thing we’ve lacked over the years is to be able to tell them where they could plant that flag, where they could land. Fortunately for us, a number of these key companies that have made the decision to be here and have entered into relationships with Innovation Partnerships have been okay with being sort of not exactly right on the campus, but outside a little bit.

And so we’re very excited about the opportunities that we will have to be able to market the region in a different way than we have been able to in the past and saying, look, here’s an innovation district that you can be a part of and plant your flag here in Ann Arbor. I think that’s going to resonate with lots and lots of companies who see the university for what it is, as the leading research university in the United States and see this as a great place for them to invest their dollars and bring people here. So we’re real excited about the new vision and where that’s going to go. 

So as we close out, is there anything else you’d like to share today?

Kelly: Well, I think a good closer is you mentioned President Mary Sue Coleman earlier, and so I have her words here in our office on the other side of this wall that say “partner or parish.” She flipped the script from the academic ‘publish or parish’ to ‘partner or parish.’ And I think that’s both our challenge and our opportunity, and I’m just so excited to work with you, Paul, in this role as board chair of Ann Arbor SPARK. I’m really excited to see what we can accomplish together and really also look forward to working with your amazing leadership team and the incredible colleagues I have on the SPARK Board who are truly leaders within our community, and I know together we’ll accomplish some really fun and great things.

Paul: Well, it’s been great to have this conversation and looking forward to what is going to come in the next years. So I want to thank you for taking some time to talk with me today.

Kelly: Thanks so much, Paul.

Paul: Thank you. Well, I want to thank our audience for listening and learning more about those leaders and organizations working hard to create the Ann Arbor region’s economic future. These conversations are brought to you by Ann Arbor SPARK. For more information about Ann Arbor SPARK, you can find us at the web at annarborusa.org. We’re also on Facebook, Instagram, and LinkedIn.