Utah embraces its tech startups by taking a piece of the action

New Utah Innovation Fund announces its first investments in the high-risk world of tech financing — two biotech firms and a desalinization company.

Question: When is gambling not just allowed but encouraged in Utah?

Answer: When it’s entrepreneurship.

The newly created Utah Innovation Fund announced its first investments in three Utah-based startups, and Gov. Spencer Cox was there to trumpet the state’s dedication to nurturing nascent technology companies, most of which don’t make it to sustainability.

“We’re now the nation’s fastest-growing startup and entrepreneurial economy,” Cox said. “We’ve led the way, and set the bar.”

With the Innovation Fund, the state is taking the further step of actually owning a percentage of the companies. Like private venture capitalists, the fund offers early financing in exchange for equity in the startups. The idea is that if and when those startups become successful, the state’s investment will feed revenue back into the fund, so it can become a sustainable source for future companies.

“A lot of these areas take a really long time to mature as investments,” said Gabi Tellez, managing director of the state fund. “It’s hard with a traditional capital fund with a formal traditional structure to take those really early bets.”

In other words, the state is willing to go where private investors are apprehensive — at the early stages when commercial viability is far from certain.

(Chris Samuels | The Salt Lake Tribune) Gabi Tellez, managing director of the Utah Innovation Lab, speaks during an event marking the first investment of the Utah Innovation Lab, a state funded venture capital program, at the Capitol in Salt Lake City, Monday, Dec. 11, 2023. She is joined by Rep. Jefferson Moss, a state legislator who is also a managing director of the fund, and Gov. Spencer Cox.

Tellez acknowledged that most startups fail, but she declined to offer any predictions on what percentage of the Utah Innovation Fund’s chosen companies will break through. She said the fund’s results will be transparent, and annual reports will be issued so Utahns can find out how well it’s doing.

The fund was created by the Utah Legislature earlier this year, and proponents point out that the $15 million in funding comes from investment income from a 20-year-old state fund that was created for business development. It’s not directly funded by taxpayers, but it’s still state money.

The fund is set up to do more than just invest. It is also creating a data base of Utah startups, so other founders and investors can track progress. It also offers support services, such as accountants and patent attorneys, and it has a cadre of industry experts who can gauge the market climate for new products and advise the entrepreneurs.

Rep. Jefferson Moss, R-Saratoga Springs, who also is a managing director, said the fund’s all-volunteer board has experience in both technology and finance, and the fund has recruited university students to help with analyses of potential investments.

The first investments, totalling $700,000, went to two Salt Lake City biotech companies and a St. George firm with a solution for increasing the fresh water that desalination plants produce.

“The development of the technology was the easy part,” said Hunter Manz, the 24-year-old founder and CEO of Eden Technology, which Manz started while he was a student at Utah Tech University in St. George.

“I thought that once the technology was even remotely proven out, that a myriad of high-quality investors would come pouring in,” Manz said. “I was mistaken.”

While in school, Manz used Utah Tech’s Atwood Innovation Plaza to help refine his desalination idea and obtain a patent on his device, which uses centrifugal force to increase the amount of clean water a desalination plant can produce.

“Most venture capitalists are not interested in backing a hardware company,” Manz said. “They want software. Software is safe and easy to scale. … I have news for them: Software by itself will not save the world.”

Manz said the $250,000 in state funding will be used to build and test a prototype of his device at the San Rafael Research Center in Emery County. The research center is intended to encourage new energy development as the world moves away from coal as an energy source, but it has struggled to attract enough energy research.

There are 16,000 desalination plants in the world, and the dominant technology is reverse osmosis, where salt water is forced through a membrane that allows the water molecules through but not the salt. It makes fresh water much more expensive, which is why it is not more widely used.

Manz, who grew up in Las Vegas, said he has been concerned about water scarcity from an early age, and started investigating desalination when he was 14. His device takes the fluid left behind in traditional reverse osmosis and squeezes more water out, making the whole process more efficient.

Manz said he also has developed a relationship with the Navajo Nation, which is working on a desalination project using brackish groundwater that can’t be used for irrigation or human consumption without removing the salts. Another project is in the works in Saudi Arabia.

Another $250,000 went to Inherent Biosciences, headquartered in downtown Salt Lake City, which has developed tests for gauging male infertility and predicting the likelihood of success for such techniques as in vitro fertilization.

(Chris Samuels | The Salt Lake Tribune) Andy Olson, CEO of Inherent Biosciences, during an event marking the first investment of the Utah Innovation Lab, a state funded venture capital program, at the Capitol in Salt Lake City, Monday, Dec. 11, 2023.

“On the male side of infertility today, the standard of care is using a microscope to count how many sperm are there and how many are swimming,” said Andy Olson, co-founder and CEO of Inherent Biosciences.

Olson’s company relies on epigenetics – the science of how genes are expressed – to catch male fertility problems that previously went undiagnosed. That can keep infertile couples from trying expensive treatments that are doomed to fail. “When men go undiagnosed, the female goes through treatments that aren’t going to work,” Olson said.

Olson said the state funding will be used to complete clinical trials on the company’s tests. The company’s product is currently available to patients, but it is not covered by insurance. He said completing the trials will be necessary to get the test into widespread use and covered by most insurance policies.

(Chris Samuels | The Salt Lake Tribune) Mike Kirkness, CEO and president of 3Helix, during an event marking the first investment of the Utah Innovation Lab, a state funded venture capital program, at the Capitol in Salt Lake City, Monday, Dec. 11, 2023.

The third company, 3Helix, based at the University’s Research Park, received $200,000 from the state fund. The company has developed and sells “collagen hybridizing peptides.” Collagens are proteins that are responsible for much of the structural qualities of muscles and bones, and the peptides can be used to develop diagnostic tools and treatments for a variety of medical conditions.

This story is part of The Salt Lake Tribune’s ongoing commitment to identify solutions to Utah’s biggest challenges through the work of the Innovation Lab. [Subscribe to our newsletter here.]