High-tech efforts must overcome low availability of investors

NEWPORT NEWS - In the mid-1990s, Lon Slane began looking for technology he could turn into a start-up business.

He found it at the Thomas Jefferson National Accelerator Facility here. The federal lab, which specializes in nuclear physics, held patents on gamma-ray technology that Slane thought could be marketed as a tool to detect breast cancer.

Excited by the potential, Slane secured a license from the lab to take the technology commercial.

Then came an obstacle that nearly sank the idea - finding financial backers willing to share the risks of developing a new product and getting the business up and running.

In Hampton Roads, a region that aspires to become a high-tech leader, he found relatively few takers. Of the ones who have invested since Slane and two partners founded Dilon Technologies in 1997, nearly all were from South Hampton Roads.

Most cash from wealthy individuals, known as "angel" investors, and venture capitalists in the region still flows to reliable moneymakers that businesspeople in the area understand - real estate, tourism and defense-related deals, said Slane and others familiar with the challenges facing local technology entrepreneurs.

"It was a struggle," Slane said. "We were told many times that if we'd move to Boston or the California area, that we'd never have a problem raising capital."

Yet Dilon Technologies' perseverance has become a success story and serves as the kind of building block the region needs to become a technology hotbed, industry officials said.

"It's an issue of creating an entrepreneurial environment here," said Rick Lally, chairman of the Hampton Roads Technology Council. "You have to make it clear that if you're willing to shoot the moon, you'll be recognized and make a lot of money. And if you fail, the community's not going to shun you.

"There is no reward without risk," Lally said.

Slane, 63, Dilon's president, had launched a start-up industrial electronics firm in York, Pa., in the 1970s. He came to Hampton in the early 1990s to work for Lucas Industries, a British-owned company that made industrial electronics at the local plant. He left the company in 1996 to search for a suitable start-up business, leading him to Jefferson Lab.

To support Dilon, Slane and his partners, including a lawyer with Wall Street experience, pooled their own money and managed to raise capital from a patchwork of investors. Among the backers, whom Slane declined to name, were a Washington-area venture capital firm and a wealthy Virginia entrepreneur who Slane said saved the company from going under in 2003.

Along the way, the firm weathered the high-tech and dot-com market drops and the Sept. 11, 2001, terrorist attacks.

Some of the firm's employees, who now number 17, worked for a while without a guaranteed paycheck. At one point, Nancy Morter, the firm's director of marketing and corporate communications, was "hired and let go before I actually started. Some of us had to find other jobs."

During all this, the gamma camera, which uses molecular imaging to gauge the health of a woman's breast tissue, was undergoing clinical trials and scrutiny of the U.S. Food and Drug Administration.

Through "blind persistence," Slane says now, the firm finally brought its Dilon 6800 Gamma Camera to market in fall 2004. Last week, the firm announced that a New York investment-banking company had raised $7.25 million in a private stock sell to expand the business.

The firm's gamma camera is now being used in medical centers across the United States and in Europe. In the year ahead, Dilon hopes to double sales of the machine, which runs about $230,000.

Fred Dylla, chief technology officer at Jefferson Lab, said Dilon has become the most successful of about a half-dozen firms that have obtained licenses to market technology the lab has patented. The lab receives royalties of sales generated by the technology transfer.

"All of these will complain about the dearth of local money" needed at the front end to expand their companies, Dylla said.

"It's not for a lack of dedicated people trying to improve this situation," he added.

Joel Nied, a lawyer with Troutman Sanders and involved in efforts to expand technology and entrepreneurship in the region, said finding money for high-tech start-ups in Hampton Roads is "tough but certainly not impossible."

The "real struggle" local start-ups face, he said, is finding "angel" investors - affluent individuals able to invest $10,000 to $500,000 to help get a business off the ground.

"There are people in the business community trying to improve the environment," Nied said. "The question is, is there an aggregation of very wealthy people or companies with an appetite for risk?"

Given the large concentration of scientists and engineers at such facilities as Jefferson Lab, NASA Langley Research Center, and the Joint Forces Command's modeling and simulation labs in Suffolk, you'd think the region could begin to rival Silicon Valley or the Research Triangle Park in spinning off high-tech firms, said Tim Early, regional director of the Virginia Center for Innovative Technology.

But many researchers here are well-paid federal government employees holding what Early calls "fat jobs." They are not hungry entrepreneurs looking to market the next hot product, he said.

"Why leave a fat job to risk being an entrepreneur?" Early said. "The reason venture capital groups get together is they know that out of 10 deals, they'll have two or three failures, a few will be mediocre and some will be home runs."

In Early's view, the region's problem has more to do with a shortage of entrepreneurs than money.

"It's the entrepreneurs that draw money," he said. "Money people will come where the deals are."

Slane, who held on for 10 years to make a go of Dilon Technologies, takes a long view.

"If we have more tech companies that somehow manage to make it, they'll attract investors - it'll just take some time," he said. "Nothing happens overnight."