Investing in UW brain power for start-ups; Group to fund new tech-based companies

Malicious, self-propagating worms and other lethal attacks are the stuff of Paul Barford's daily existence.

Since the Web site-defacing Code Red worm in 2001 terrorized computers around the world, the University of Wisconsin-Madison assistant computer science professor has focused on finding ways to defeat such nemeses.

A unique solution that grew out of Barford's work has attracted the attention of a high-powered, alumni investment network aiming to build companies from the ground up out of university technology.

The 30-member Badger Alumni Capital Network in June decided to invest $1.5 million in Barford's Nemean Networks LLC, said Phil Matthews, the new angel group's organizer and Nemean's acting chief executive officer.

Nemean is the first investment for the group, which was formed late last year, said Matthews, a retired partner of BlackRock Financial Management, a global firm based in New York that manages hundreds of billions of investment dollars.

Nemean is developing computer network security software that expands the amount of information users can have about what's going on in their networks to help them thwart the bad guys who have the ability to move around the Internet anonymously, Barford said. The company's software will help users identify intrusions with significantly fewer "false alarms" than what's available on the market, Matthews said.

They say the $1.5 million will help Nemean build out its technology and keep an eye open for qualified executives. But the money isn't the most important part of the partnership.

Leadership, then money

The Badger Alumni Capital Network - called "Bacon" for its acronym - was formed to provide leadership, introductions and capital to the companies it partners with, said Matthews, who says he's been coming to Madison about two weeks a month.

"Capital is last. If the ideas are good, the management is good, and there's support from potential clients, then the money will follow," he said.

The group will have challenges keeping some of its companies in Madison, said Ray Zemon, a UW-Madison graduate and network member who runs private money.

Take Nemean.

Zemon says feedback from West Coast financiers suggests it will be a struggle for the company to recruit qualified executives with industry experience to come to Madison.

"There's no doubt we have the scientific research power in Madison to do this stuff, but for example, we need to hire a product manager with experience rolling a product like this into the market, and the guys who do that are on the West Coast," Zemon said.

Still, many of BACN's members are people who left Madison to operate at the top of their field - who are now committed to trying to make it happen in Madison, he said.

"If we can create an innovative culture in the university it will help them attract faculty, and create critical mass for this to be a place where innovation happens across many sectors of the economy," Zemon said.

Bringing visibility

In the case of Nemean, Barford had no way to get the attention of financial institutions that would be major buyers of his product, said Michael Knetter, dean of the UW-Madison business school. The BACN group was able to bring him to the attention of chief technology officers at places such as BlackRock and UBS, Knetter said

"I think it has the capacity to be significant because when you think of the business expertise of the alumni and the people who could be board members for companies here, it's remarkable what you've got," he said.

BACN is the third university-affiliated angel group in Wisconsin. The Marquette Golden Angels and the UW-Eau Claire Blugold Angel Fund is the other.

Funding from groups such as these can help companies raise their first $500,000 to $1 million, and it can bring more credibility when it's time to raise the next financing round, said Emily Mendell, a spokeswoman for the National Venture Capital Association.

The Wisconsin Alumni Research Foundation is excited about the "CEO-level business acumen" the BACN group can bring to early stage companies spun out of the university, said Craig Heim, licensing manager for start-up companies at the patenting and licensing organization for UW-Madison.

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