Letter From Silicon Valley
10.09.06, 6:00 AM ET
Burlingame, Calif. -Call it the irony of large numbers.
It’s not just enough to make a fortune in technology these days. To be taken seriously, you’ve got to have a philanthropic cause.
But in order to make those big fortunes, the venture firms that nurture entrepreneurs want to invest in Really Big Ideas--ideas that hold out the promise of making 30% to 40% returns, the kind of ideas that
“An idea that requires, say, $3 million upfront investment only to make break-even returns is a nonstarter in the for-profit world. But it could be a barn burner in the not-for-profit world,” says James Fruchterman, founder of the nonprofit Benetech, based in Palo Alto, Calif.
Fruchterman speaks from experience. He is one of a handful of people at the forefront of starting not-for-profit technology companies. Another such person is San Francisco-based Victoria Hale, founder of OneWorld Health. Both of them were among the John D. and Catherine T. MacArthur Foundation’s most recent pick of “geniuses.”
Both Fruchterman and Hale have traveled different paths to reach strikingly similar conclusions: There are orphaned technologies out there with great potential. They’re unlikely to make anyone fabulously wealthy--with patience, they could be break-even investments--but they could do a world of good. The trick is finding them a home.
Fruchterman has been a lifelong entrepreneur and technologist. He got his start by quitting a PhD program at Stanford University to join a commercial rocket launching company. (The rocket went up in flames.)
In the early 1980s, Fruchterman co-founded Calera Recognition Systems to commercialize a character-recognition system that let computers read printed text. It was a hit. But when Fruchterman proposed using the technology to build reading machines for the disabled, the idea was nixed. The market was too small.
Fruchterman wound up starting a not-for-profit venture to make the reading machines. Over a decade, the company began generating annual revenues of $5 million--enough to be slightly profitable and even attract a buyer. With the proceeds from that sale, Fruchterman started Benetech. This time, instead of just developing one technology, Fruchterman decided to try to incubate multiple ideas. “We’ve got an engineering team to develop the technology. We don’t give people seed money--we bring them in house and help them launch their idea.”
Benetech currently has six projects underway, including two aimed at promoting literacy for disabled adults. Another hopes to develop hardware to help farmers pinpoint live mines in their fields, based on technology originally developed for the U.S. military. “It’s our riskiest project,” Fruchterman says, “but has tremendous humanitarian payoff.”
Hale was a government bureaucrat--a pharmaceutical chemist working at the Food and Drug Administration in Washington--who got frustrated when she saw pharmaceutical companies shelving medically promising compounds because the anticipated profit margins would be too thin. (See: “Protecting The Orphan Drugs.”)
In the computer chip industry, squeezing more transistors onto roughly the same postage stamp-size slice of silicon means the cost of computer power has fallen dramatically. By contrast, the more complex pharmaceutical products have become, the more expensive the final drugs. “The pharmaceutical industry has created wonderful products for the West but not for the poor,” Hale says.
At OneWorld Health, Hale decided to look for drugs already developed by industry that could be targeted at devastating illnesses in impoverished countries. For instance, visceral leishmaniasis, also called “black fever,” is a parasitic infection transmitted by sand flies that causes blindness and death. About 500,000 people, many in India, are infected every year.
An established antibiotic, paromomycin sulfate, had been used to treat a range of parasites. It had been experimentally shown to combat visceral leishmaniasis, but again, given the relatively small (and impoverished) market, it was a nonstarter for any mainstream pharmaceutical company. OneWorld Health negotiated the rights to the abandoned drug, arranged a partnership with an Indian drugmaker to reformulate it and ran clinical trials to demonstrate its effectiveness against visceral leishmaniasis. In August, the Indian government approved the drug, which should go on sale by the end of the year in the state of Bihar for about $10 per treatment course.
Hale’s group is now working on a new generation of low-cost anti-malaria drugs. Researchers at the University of California, Berkeley and a startup called Amyris are developing novel techniques for creating an anti-malarial agent. So far, the science works: The scientists have shown they can use biotechnology techniques to produce materials that otherwise must be extracted from plants. Now OneWorld Health and Amyris must make the economics work by demonstrating they can manufacture the substance at affordable prices.
Come up with a novel way to distribute video clips these days and you’ll find no shortage of investors: The Silicon Valley support network that helps startups with big ideas works just fine in the for-profit world. But projects that payout in goodness, not gold, are a much bigger challenge. That makes Fruchterman and Hale true technology mavericks.
http://www.forbes.com/technology/2006/10/08/benetech-philanthropy-fruchterman-tech-cz_ec_1009valleyletter.html--##-- Sphere: Related Content
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