CEO Podcast: Mike Psarouthakis, Director of Ventures, Managing Director, Accelerate Blue Fund, University of Michigan

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

Joining me today is Mike Psarouthakis, a longtime leader in building the Ann Arbor Region’s entrepreneurial ecosystem and partner with Ann Arbor SPARK. Mike is the director of ventures within the Innovation Partnerships business unit of the University of Michigan, as well as the managing director of the Accelerate Blue Fund.

And if that wasn’t enough, Mike also serves as the chair of the Ann Arbor Ypsilanti Local Development Finance Authority, which provides the core funding for much of the activities that we do here at SPARK. Mike has an MBA and MS from U of M. He brings extensive experience in entrepreneurship, venture capital, and technology commercialization. He’s known for his expertise in evaluating investment opportunities, fostering collaboration between academic innovation, venture capital, and industry committed to supporting startups and driving economic growth in the region. So we’re really happy to have Mike join us. It’s been a long time. We should have had him on many episodes ago, but we’re glad to have him today. So thanks for joining us.

Mike Psarouthakis: Well, thanks for inviting me to join you. I think it was appropriate for you to have President Ono and Kelly Sexton on before you had me on.

Paul: Yeah, probably [laughs]. Anyway, one of the things I wanted to do today is really talk about Innovation Partnerships and the Innovation Partnerships structure and the role within the University of Michigan. I mean, I’ve had exposure to that because of my involvement, but I think our audience would be interested in understanding the concept of Innovation Partnerships. I know there are three off the top of my head. I think there are three or four core areas that your group focuses on. So could you share that with our audience?

Mike: Sure, I’d be happy to. So Innovation Partnerships is the technology commercialization arm of the University of Michigan, the third-largest research University in the country. And our primary task is to commercialize the research coming out of the University. And we typically do that by partnering with industry and supporting the launch of startups that are based on that research.

And so like you mentioned, we have three arms. We have a corporate alliances group, which works with industry to partner with faculty who are doing research that they’re interested in or to help solve problems that companies are trying to solve in their marketplaces.

We have a licensing group, which is the team that prosecutes the patents and negotiates the agreements with industry or with our startups. Great group of people with a lot of industry backgrounds and very broadly focused because we represent all three campuses and every school at the University for this activity.

And then my team is the ventures group, and our work is to support researchers and their teams as they go down the startup path. We typically have a hundred to 150 startup projects at any one time we’re working with. We work very collaboratively with the licensing team and the corporate alliances team because there’s a lot of overlap in that area. And then we do support post-launch and we do that through several activities. We have a startup incubator onsite that has six world-class labs that Pfizer built for us many years ago and that the University bought in the mid-2000s, and that comes with I think 35 or 40 offices as well. So our startups are housed in that unit and close to us. We have mentors in residence program and two mentor programs that support commercialization activity to prior to launch from the University of Michigan as well as other universities across the state.

So we’re very fortunate to have those programs focused on transportation and life sciences. And then the mentor program, the mentor program is really core to what we do in that we have the ability to support projects and launch of startups with a team of people who have been there and done that. The mentors have raised dollars, started companies, have served on venture funds, and they’ve worked in industry in mergers and acquisitions. So we have a really broad team. We’re very fortunate at the University, because it’s unusual to be able to support the massive amount of innovation that’s happening at the University.

Paul: So maybe just drill down that a little bit further. I’ll let you describe the number, but the understanding is there is such a volume of research and ideas coming out. And I know that you guys just reported on a number of something called “invention disclosures.” Describe that.

Mike: Yeah, so being the third largest research University, I guess I should define that more. Our budget is typically around $1.7 billion annually. And so with that kind of volume of research dollars, we get a lot of disclosures of invention. So this is a new idea or a new concept or an actual new invention that faculty and grad students and staff develop in their work within the academic institution. They disclose these inventions to us. 500 is kind of our benchmark and puts us in parallel with MIT’s and Stanford’s. Very few universities in the country breached the 500 invention disclosure mark. We in fact set our record this year; I don’t think it’s been officially released yet, but it’s well over 550 invention disclosures. So we’re really excited about that. What I think people need to grasp with that number is that an invention disclosure doesn’t mean that we’re going to launch a startup six months later from that. We have the good fortune of having a very long-term horizon. So the invention disclosure that do move forward, and I can talk a little bit more about that as well and how they move forward. Some of them commercialize quickly, and especially in the software space, but in the therapeutic space or advanced materials or battery space, those can be very, very long-term projects—10 years even —that we work in support of that activity and trying to get them the resources and the support they need to eventually move out of the University space and into the marketplace.

Paul: So one of the key concepts and something that the broader audience that may listen to this may not quite understand that you could take a moment to explain, I think you were going there, is this notion of licensing the technology. Could you describe that and why that’s important?

Mike: Yeah, so I think the easiest way to explain it is there was something called the Bayh-Dole Act passed in 1980 and that basically gave research universities the ability to commercialize research that was federally funded. The feds had done that previously. I think there were like 200 therapeutics developed under that program prior to 1980. Not one of them made it to market. And so the senators thought that we should give the universities a crack at that, and that was really the dawn of the tech transfer industry. There were some offices prior to that for commercialization. And so what that means is it’s our job, our office’s job at Innovation Partnerships to prosecute the patents. It’s like working at a company and you invent something on behalf of the company because of the job you have. The company owns that. And in the same way, the University of Michigan owns it, obviously in a different manner, but nevertheless, and under the law and how we operate, we license those opportunities when they’re developed enough or our company’s interested in securing that to take that research out into the marketplace and make sure that it is utilized in a practical way.

So we don’t like selling our inventions to get them shelved so they don’t create competition in the marketplace. And so our team is very diligent in understanding the patent landscape. We spend millions of dollars every year on prosecuting patents and then making sure that we partner with the right organizations, companies, or startups to benefit society in getting the research out, also benefiting the University.

So what a license means is it’s a commercialization deal. We’re not selling the technology, but we’re providing an opportunity for a company to utilize that research, take it to market however they deem fit. We have to understand what that path is and the University as a result benefits as well from successful commercialization activities. So we would get funding back depending on a variety of achievements that happen for a startup. It could be they get acquired and we have an equity stake through the license. It could be for a therapeutic that’s licensed to a big pharmaceutical. It could be a royalty payment or some milestone payments. And some of these have been incredibly lucrative for the University. And then that money is actually divided, going to the inventors that are on the patent, going to the department where that work came from, and going to the University as a whole. So Innovation Partnerships, other than covering our patent costs expenses, we just disperse that funding out into the University and that’s also one of our operational responsibilities as those funds come in.

Paul: Great. That was a fantastic explanation and I appreciate you walking us through that. So let me change gears a little bit. Most recently you’ve taken on the role inside Innovation Partnerships to be the managing director of the Accelerate Blue Fund. Explain to us what Accelerate Blue is and what you’re trying to accomplish with that.

Mike: So the Accelerate Blue Fund was approved by the Regents in October of 2019. It was a big day for our office. It’s a fund managed by the ventures team. I have the position of managing director of it and it is focused on investing in making pre-seed investments in University of Michigan license startups. So we have a very narrow focus. We’re not sector-focused, but in fact we only invest in U of M startups, most of which are in Michigan, but across the country as well. And the objective of the fund was really to address the shortage of early-stage capital in the State of Michigan. It’s much better than my old MEDC [Michigan Economic Development Corporation] days, but it’s still a very challenging environment being in the middle of the country. And so we thought if we could take on some of that risk, we would be able to bring institutional funding, traditional venture capital to the table faster for our startups.

We’ve had the good fortune of partnering with SPARK and their investment program and Invest Detroit, Michigan Rise, the other pre-seed programs where we stand apart a little bit as we raise the funds through philanthropy initially. So we got approval to fundraise from the Regents in 2019, but we didn’t start investment activity until we had reached $2 million of commitments from donors, which came from mostly alumni but also corporate donors. Amazon, for example, is a donor to the fund. So we made our first investment in April of 2021 in a company called Movellas, which is having great success. So we were very fortunate to get a piece of that. And since then we’ve made 12 investments. We’ve deployed about 12, or I’m sorry, $2.5 million. We currently have about $15 million under management total with investments in dollars available. And just last year, after we hit the 5 million commitment from donors, we received support from the University of Michigan as well. So that was an exciting milestone for us.

Paul: Well I know this is a space that we at SPARK and the University, we, your team and Kelly, and partners like Invest Detroit and others, are really focused on because these early dollars are pre-venture. We use this phrase pre-seed, and I don’t know where we actually came up with that phraseology, pre-seed, because it sounds a little odd, but it really is, once a company gets to a point where there’s a viable product, it’s these early dollars that get them to the next stage to be ready for the venture capital community to look at them. And given, as you said, where we are in the middle of the country, those dollars are really precious and are something that we really need. So the University’s leadership in this area and the region’s willingness to, among all the fundraising the University does, to have you guys perceive philanthropic investment was a really, really important step.

Mike: Just to be clear, since people might not understand the philanthropic part of this, is that the fund is not set up traditionally, so all investment returns go back into the fund; it’s evergreen, it’s not set up like a traditional carry or management fee fund. So hopefully we’ll raise enough money so that it will just continue for generations.

Paul: And just for the audience to know, SPARK’s fund is set up the same way in that all of the returns that we get from the investments that we make cycle back into the fund to make future investments. So I’m going to maybe move in a little different direction now, Mike, about sort of your general knowledge and experience about this work that you’re doing.

So I guess the first question I want to ask you is how important do you find the relationship between universities and businesses and fostering innovation and economic growth?

Mike: Well, clearly, given what I do, it’s incredibly important. I guess I wouldn’t be doing this. I like to point people to the regions that are known for this nationally and worldwide. Stanford’s wrapped around Silicon Valley, the Cambridge Boston area, Austin and the University of Texas, and what you will see as a common theme, there are great research universities that are wrapped by a lot of capital and a lot of industry and a lot of commercialization activity that’s taking place outside the University. And I feel pretty passionately that we have a similar opportunity here in Ann Arbor and Southeastern Michigan. Michigan in general. We’ve obviously got the University of Michigan, but we have three, really four very active commercialization research universities in the state, U of M obviously being the largest. And I think the opportunity that people are starting to get their heads wrapped around is the value of research creation that’s happening at the University and the opportunities not just to have an impact on the economy and jobs, but also as viable investment opportunities.

And as a result, the volume of what we do in this office has dramatically increased. I’m approaching my 10-year anniversary here, which is hard to believe, but we’ve gone from when I started maybe 10 to 12 new startups to typically well over 20 per year in all sectors. And many of those startups launch and stay in Ann Arbor and in Michigan areas to support that activity. And the greatest economic impact of job growth comes from startups. If you look at the statistics, I mean, big companies can make big changes and create lots of jobs, but if you look at the total number and long-term viability of job creation, it’s with startups.

Paul: So in that vein, given the decade that you’ve been working at the University and then your time at MEDC before that, and you just alluded to that a little bit, how have you seen the landscape of entrepreneurship in our region change and what opportunities do you see emerging in those areas?

Mike: I think the risk tolerance is improving. It’s still probably more conservative than the rest of the country. And by risk tolerance, I mean that in several ways. People willing to go and take a risk and start a company and understand the challenges of that, I think, is much better than it was 10, 15 years ago. I think speaking specifically to the University’s ecosystem, there’s a much better understanding from faculty of the opportunity and a positive outlook on commercialization of their research. And so it’s much more acceptable to have a startup as a result of the work you’ve done.

Investment risk tolerance is also conservative in the State, but has improved. I think there’s a new generation of investors coming through with the exits of companies like Duo and Llamasoft, people who are younger and took a lot of risk in taking their startups out and keeping them here. Those exits were obviously very lucrative for the ecosystem and those founders and employees of that company have become active angel investors and even investors in venture funds, which I think is really healthy for bringing new blood into the investment and entrepreneurship community around here.

Paul: So turn it on its head in that way. What, in talking to entrepreneurial-minded, say at faculty or others who are joining them in terms of an early-stage company, what advice do you have for them in seeking funding at this particular time?

Mike: Have a clear vision, understand your marketplace, and who potentially would want your product or service. If we stick to Michigan, we are very fortunate, even though we have challenges in the State, we have a really strong network of entrepreneurial support activities. SPARK’s a great example of that with things like Boot Camp, and the emerging technology fund opportunities, and obviously the pre-seed or the SPARK Capital fund, which does pre-seed investing similar to Accelerate Blue.

So tapping into those resources, making sure that you’re just not doing this alone because no startup is successful as a single entrepreneur, and not have any bosses. You’re going to have to partner, partner, partner is a very old saying, but it’s very much true. From the University perspective, a lot of our startups get involved in a federal commercialization grant program called SBIR. There are partners out there to help with those grant applications. That’s non-dilutive funding. There are matching funds from the state to support that activity. Again, University startups have a statewide mentor program that’s under that T3M program I mentioned earlier, there’s activity to try to broaden those mentor networks for all startups. And you guys have your EIR program. These are all tools that we push our startups to go utilize and partner with. And I anticipate, given all the success this is generating, that we’re going to have more of that activity. We have challenges in the State, but I think we’re very fortunate to have that kind of support. We get calls from all over the country. How did you get that mentor program in place? How did you get that funding from the state? So we’re lucky with that.

Paul: I think it’s interesting, in my experience, because I’ve been here in this job now 12 years, is that we’ve invested a lot collectively in this engagement with the early companies in terms of the mentorship activity. And it sounds, when we use the phrase “mentors,” people may have something in their mind of what that means. But essentially it’s people that have done this kind of thing before. Not a broad generalization, but many times, in terms of our Boot Camp activity, somebody might have a great idea, but they’ve never talked to somebody as a customer. Or when they have talked to a customer and they say, well that’s an interesting idea, but if you did it this way, then I would potentially buy from you. And that’s sort of the intervention that we do.

And I think the other piece, both in Innovation Partnerships’ work and in SPARK’s work, is that we have a much more patient approach. Other regions that have much more history of this robust kind of startup activity, there seems to be more of a ‘let’s get you into the marketplace very quickly’ and ‘let’s get a return very quickly.’ And I know many examples, and we don’t have time to go through them here today, where we’ve been patient with a particular company, whether it be a therapeutic or what kind of idea, is that over time, we’ve had great success with them, where if we had an expectation that they would have customers and make money right away, they never would’ve got there.

So that’s one of the things I really find that’s positive, coming here from Silicon Valley, is that we’re willing to take a little longer bets on things.

Mike: Yeah, I think that’s a really important point. It’s very much the ethos that we operate under at Innovation Partnerships, very much aligned with the whole point of the Accelerate Blue fund: patient risk-tolerant capital. We don’t have the pressure of returning capital to limited partners who are expecting a return on their investment. At the same time, we don’t want to just further the money away in projects that aren’t making progress. But having that patience and understanding that a lot of the things that your team and our team works on take a long time to commercialize is I think a good use of the programs we have, given what’s coming out of the University.

Paul: Very true, very true. I just need to think about, you talked about the facility that you guys have labs in, which was a Pfizer facility. The whole story of why that facility became available and then what happened after that is an example of an entrepreneur inventor who was very patient over time.

Mike: No, I was at the MEDC when Pfizer left, and obviously that wasn’t great news for the State or for Ann Arbor. I believe Tech Transfer was the first tenant after the University had bought it. It’s two and a half million square feet and people were like, oh, it’s never going to get full. That was a horrible investment even though it was pretty low cost. The place is packed now, even after the pandemic. So the activity on campus is incredible.

Paul: So Mike, I always want to close out, because you play another role that’s important to SPARK and that’s in your role as chairing the LDFA.

So maybe take a moment with the audience to talk a little bit about that work and how you see it in terms of the LDFA. To explain, one of the mechanisms by which SPARK is funded is resources come through the State of Michigan to a local board that you are chairing, which has people appointed from Ann Arbor and from Ypsilanti. And they are, to some extent, for our entrepreneurial work, SPARK’s boss. So maybe you want to take a little bit to talk about that. I think it’s important for the community to understand the HEAR SPARK, but there is oversight that your board provides.

Mike: Yeah, thanks for giving me a chance to talk about that. So Steven Rapundalo, who’s past chair and a longtime member, recruited me a few years back when he was term limited. And so after a year and a half, I got the surprise ask to be chair. It’s really satisfying work because we get a good inside look at the activity that’s happening in the regions between Ypsilanti and Ann Arbor. Obviously, a lot of the support we provide goes to SPARK and we’re very happy about that. We review those engagements every year. We actually just recently signed the contract, the new contract with SPARK, but we have independent oversight of that activity and making sure it’s aligned with the mission of the LDFA and the Smart Zone, which is basically there to support the commercialization of entrepreneurial activity in the region. And so it’s a different perspective for me. It’s very aligned, though, with the activity we do at Innovation Partnership and my job. So I really appreciate the perspective. SPARK’s been a great partner in supporting activities, and even running grant programs that benefit the community that are outside the scope of what we’ve discussed today. We were very involved in a fiber optic network that’s being deployed in Ann Arbor and Ypsilanti. Were able to take advantage of some other funding resources there. We look for new opportunities. It’s a public meeting. We are all appointed by Ann Arbor City Council, I believe we’re all appointed by, and so we meet, I believe it’s the second, no, the third Thursday of every month. I hope that’s right. But if you go to the Ann Arbor City website, you can find out when our meetings are, please join by Zoom or in person. We’re back to in-person meetings, and there’s a time for public commentary and engagement like most public meetings.

Paul: Yeah, it’s an interesting, from my perspective, step back out of your role, it was a very strategic concept that the State of Michigan employed probably two decades ago, which basically said, if you can create a district and you can show that that district is growing through the activities to support technology companies, the State will share some of that increased revenue with that district to do more of that. And it created this virtuous cycle of investment. And we’re fortunate in Ann Arbor, I think that the people that were involved then, I wasn’t here, I don’t think you were involved, Mike, maybe even at MEDC, but that they created a boundary that made logical sense, and that’s created dollars. And as I am always careful to describe it, these are dollars that the treasurer of the State of Michigan is contractually obligated to disperse to Ann Arbor on behalf of Ann Arbor and Ypsilanti. And we do make expenditures in Ypsilanti as well under the current contract because we, as your contract entity, have a facility in downtown Ypsilanti. But I always look at it and when I talk to others around the country who want to know how we do stuff, they’re always surprised about this. And there’s always this notion, well, does Michigan have its economic development toolkit together, or whatever. Lots of criticism. But this one, from the fact that we did it for the first 15 years and it was renewed for another period of time, is a real success story of how something like this could be accomplished. And others, either that I talk to internationally or in other states, they always marvel about, how did this get done? But it is really remarkable and I think it’s really made a real difference.

Mike: To point out, Ann Arbor’s not the only one. There are smart zones across the state that have the same kind of activity and support for their ecosystems. And that’s why I think, like you said, defining the boundaries, requiring those groups that are involved with that, to focus on those areas and stay, it’s not competitive in that respect as a result.

Paul: Exactly. Well, I’m going to give you an open one here. Mike, you got any final thoughts you’d like to share today?

Mike: Well, first of all, thanks for having me on. It’s fun to do this. Glad to see you up and around again. I think the message from us is Innovation Partnerships and the University of Michigan, we are becoming more proactive in how we engage with the ecosystem. We think that that’s the right path forward to help commercialize the research that’s happening in the University, which bottom line is what our job is. I think even in your interview with the President and Kelly, there’s a lot more talk about how we can benefit our work by being more engaged in the economic development activities. And I think I am not leadership in that respect, but I am pretty confident you’re going to see more activity from the University, and given our size, I think it will be quite impactful in Ann Arbor and beyond.

Paul: Well, one of the things that I always do when we have these conversations with the University is highlight one thing that the audience should know or would want to know, is that one of the reasons that we exist at all is that a prior president took a leadership position and said, we need something like this in our community. So as you know, just sharing with the audience, in our leadership, the officers of our organization, senior leaders of the University are always tapped and are willing to play that kind of role.

So the relationship between SPARK and the University is incredibly solid and important and seems to grow with each passing year. And I know I share this on behalf of SPARK, Mike, how much we enjoy working with you and the team in Innovation Partnerships and are really looking forward to what’s next. We know both of us know there’s stuff out there that we’re working on now that is complicated and odd. I would say odd in the sense that it’s not the normal thing

Mike: Not the normal. Yeah.

Paul: And we’re hoping that some of those things will come to fruition. But again, thanks a lot for talking with me today.

Mike: Thank you. It was great. Now I’ll point out one last thing. While we’ve had representation on your Board, you are also on our National Advisory Board, which is a really important group to help us do this kind of activity. So thank you for that.

Paul: I really appreciate having that opportunity.So 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 could find us on the web at annarborusa.org and also on Facebook, Instagram, and LinkedIn.