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University Entrepreneurship: Joining
the New Economy
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universities today find they resemble the proverbial town
suddenly found to be sitting on a valuable oil reserve. However,
instead of harboring petroleum or minerals, they find they hold
the new economy's greatest resource: technological innovation.
After decades of quietly engaging in basic research - far removed
from the noise of commercial life - university researchers are
developing technology that has strong and immediate commercial
potential. Now there is money to be made from the research lab,
and universities are struggling with whether to capitalize on
their efforts or allow their advances to slip into the public
domain without compensation.
This is particularly true in electrical and computer engineering,
where advances in wireless communications, computers, Internet
technology, and electronics are fueling much of the nation's
current economic boom.
"Virginia Tech's electrical and computer engineering research
is creating intellectual property with enormous commercial value,"
said department Head Leonard Ferrari. "We arrived at this
point from several directions," he said. "First, the
department has tripled its research expenditures in the past
four years. Second, federal research grants have become less
basic and more applied with outputs that belong to the university
and that have much more immediate commercial value. Third, Virginia
Tech has matured as a research university and over the years
has developed leading research programs in wireless, fiber and
electro-optics, power electronics, and microelectronics design.
All of these fields are extremely hot in the commercial world.
And finally, the venture capital community has become enormously
wealthy and has discovered that Virginia Tech is a gold mine
of new ideas and patentable intellectual property."
A consensus is developing that Tech should harness the commercial
potential of its research for its own support of education and
outreach programs and to aid further development of Virginia's
economy. The question, however, is how to participate in the
economy and what role the administration, faculty, and students
should play.
The Opportunity is Now
Business owners, venture capitalists, entrepreneurs, alumni,
and students familiar with Tech's research are among the loudest
and most urgent voices calling for economic development of the
university's technology.
"With its research capabilities, Virginia Tech has enormous
[marketplace] potential," said James Fabunmi, who opened
a branch of AEDAR Corporation
in Blacksburg to be in close proximity to the ECpE department's
configurable and custom computing research. "The university
has great technological resources and great students - it should
be thinking about commercializing its technology in industry,"
he added.
"Universities that have been successful in developing their
commercial potential have recognized the importance of the marketplace.
The whole world is changing and the universities must change
in order to stay relevant," he said.
"In today's world, technology and content are king,"
said Stephen Spry, managing partner of NewGotham
Venture Capital, Inc., a firm that specializes in Internet
applications. Spry first encountered Virginia Tech officials
at a trade show in Baltimore, and has become active in supporting
the development of the university's technology. "Among its
faculty and students, Virginia Tech has some of the brightest
minds in the East," he said. "The possibilities in
Tech's high bandwidth wireless and internet technology gives
the university the opportunity of creating ventures that can
affect international standards," he added.
"The university should benefit more by capitalizing on its
research results," said Kent Murphy (Ph.D. '92), alumnus,
Tech professor, and president of Luna
Innovations, one of Virginia's fastest growing high tech
companies. "Publishing the results and leaving the technology
on the shelf or for others to capitalize and reap the benefits
does not make sense," he said. "If the university can
capitalize on its own ideas, it can get the funding it needs
and improve facilities and programs across all the curricula."
Murphy also believes that Tech could help develop Virginia's
economy by capitalizing on its research. Ferrari agrees with
Murphy. "We have many outstanding students and faculty,"
he said. "Our primary mission is education, but what is
the point of Virginia educating all these engineers who go to
work in California, North Carolina, or Texas? We should take
the economic development opportunities and help the state recoup
on its educational investment," he said.
 Alumnus Alan Truman
('80), who built the successful California company Bay Networks,
which was sold to Nortel,
believes Tech should build the regional economic base and "stop
those high-tech carpetbaggers...This region has always been exploited,"
he explained. "During the industrial age, this region supplied
the timber and coal that fueled the rest of the economy without
much benefit coming back to the region. Now, companies from all
over the country come here for our students and research results
and do not give us much in return.
"We have the technology. We have the brainpower. We have
a big fiber pipe that comes through here, offering us bandwidth
that most areas do not have. Finally, thanks to the Internet,
geographic isolation is no longer an issue. Now you are just
a couple of clicks away from anywhere."
The window of opportunity, however, is finite, he said. "We're
on the cusp of greatness here, and need to take advantage of
it. If we miss this one, it would be very embarrassing."
Spry agrees that the current opportunity is time dependent. "NewGotham
received more than 2,500 business plans last year and we are
running at an even higher rate this year," he said. "If
Virginia Tech doesn't take advantage of this technology, others
will. Right now, the caliber of your students gives you the edge,
but it's a window, and windows can close."
For many administrators and faculty members, the window comes
at a good time. John Phillips, Tech's economic development officer,
speaks for many when he explained, "Universities are suffering
from a decline of financial support from the states, coupled
with a decrease in federally sponsored research. We should take
advantage of this opportunity to build our financial base and
ensure the continued quality of our programs."
Models of Commercialization
There are several models for commercializing university research
results. The appropriate model for any particular technology
depends upon the market situation. A university should engage
in each model, depending upon the circumstances and expected
benefits, Ferrari said. "The costs and benefits of each
model vary greatly," he said. "For example, while revenues
from university-owned patents are measured in thousands, successful
participation in the high technology business sector is usually
measured in the tens and hundreds of million dollars."
Traditionally, when researchers develop technology that has commercial
potential, they file an invention disclosure and start the patent
process. The university owns the intellectual property rights
and licenses it to companies interested in using it in commercial
ventures. Virginia Tech has been fairly active with this model
and in 1997 ranked seventh in the country in patents for universities
without a medical school. The university's portfolio exceeds
100 patents, and licensing income tops $1 million per year.
The patent/licensing process is effective in many cases, but
when the market cannot use the technology without the inventor's
expertise, the technology lies fallow. Such was the case with
workstation software developed by Tech researchers for the Electric
Power Research Institute (EPRI) for the design and analysis of
large electric distribution systems. EPRI distributed the software
to its member utilities, but needed the Tech team for technical
support. The Tech team formed a company to handle the support
activities (see page 26). "If we hadn't been involved and
able to support it, the technology would have fallen by the wayside,"
explained Robert Broadwater, a professor who is serving as president
of the firm.
Another example is provided by new sensor technology for use
in harsh environments, which was developed by the department's
Photonics Laboratory. The technology was ideal to help the U.S.
Air Force with instrumentation for gas turbine jet engines, but
would be difficult to commercialize without an extensive and
specialized background in lightwave engineering. The research
team that developed the technology then spun off a firm to develop
applications to meet the Air Force needs.
Many faculty members say that delays involved in patenting and
licensing can cost lucrative opportunities (see
sidebar 1). The technology and markets are moving so fast,
"that there is limited value to patenting a single invention
unless it is very basic," said Michael Martin, executive
vice president, Virginia Tech Intellectual Properties (VTIP),
which manages the university's intellectual properties.
An often-copied model is the corporate incubator concept popularized
by Stanford and Berkeley, where the university provides low-rent
space near campus, business experts, and access to technology.
The hopes of these incubators are that non-university affiliated
firms will start up in the incubator. These firms would kick-start
a local, high-tech business community that is based on university
technology and eventually provide the universities with large
research contracts, educational support and major gifts.
Virginia Tech's Corporate Research Center is a modification of
the incubator concept, with more than 100 firms engaged in leading-edge
research. However, many of the firms are student- or faculty-owned
and operated enterprises.
It is this category - the many variations of student- and faculty-owned
and operated spin-offs - that receives the most interest today.
Universities across the country are witnessing an increase in
faculty and student entrepreneurs, and reevaluating their policies
and methods of transferring technology.
"It's the economy," said Rick Claus, a professor and
director of the Fiber
& Electro-Optics Research Center (FEORC),
which has spawned 17 spin-offs. "It's the dot-com-make-a-zillion-dollars
craze," he added.
"The students are very entrepreneurial right now, particularly
the graduate students," agreed Jeff Reed, a professor and
expert in digital signal processing. "Many of the students
are approaching me and asking when we are going to start a company
out of their research," he added. "They are ready.
The students want it."
Students in the Marketplace
"More people are coming into college today with an entrepreneurial mindset because of the stock market. They now realize they also can start a company," said Roger Skidmore (BSCpE '95, MSEE, '97), a Ph.D. student who is vice president and cofounder of Wireless Valley Communications.
"In my ideal world, a university would encourage graduate
students to pursue starting their own business based on their
research. Knowing that a university encourages entrepreneurship
in today's world could be a deciding factor."
"Starting up a company has been much more positive for me
than any other academic or professional pursuit I've ever been
involved in," he added. "For me, pursuing both at once
feeds on each other. The more I learn in the classroom, the more
I'm interested in the company; the more I learn in the company,
the more I learn in the classroom."
One of the drawbacks that Skidmore mentioned was the possibility
of becoming disconnected from the university. "I have to
make a conscious effort to keep up with my friends and with the
grad students in the research lab," he said.
Several faculty members agree with Skidmore that the opportunity
to earn equity and a salary while pursuing a graduate degree
might attract graduate students to Virginia Tech. "We are
having trouble recruiting domestic graduate students because
the salaries and opportunities in industry are so high right
now," said Kwa Sur Tam. "We are also losing students
to the dot coms."
"There is so much of a pull for students to go out and be
a part of the dynamic economic marketplace right now," agreed
Russell May, president of Prime Photonics (see
Prime) and a research assistant professor on the faculty.
"It would be wonderful to be able to provide them with that
same opportunity while they pursue advanced degrees," he
added.
The lack of domestic Ph.D. students in ECE graduate programs
is considered a national crisis by the more than 200 department
heads in the National Electrical Engineering Department Heads
Association (NEEDHA), Ferrari said. "This has been a primary
topic for discussion at the last two national NEEDHA meetings.
It has steered me to look for graduate education models that
provide higher stipends and entrepreneurship opportunities for
graduate students."
The Role of Faculty Entrepreneur
Although the students are particularly interested in entrepreneurial
ventures, faculty-operated companies ignite the most controversy.
University policy allows faculty members to consult for outside
enterprises one day per week. Participation in spin-offs generally
falls under this rule.
Faculty members involved in managing the spin-offs cite a number
of benefits to themselves, students, and the university. "I've
been exposed to many interesting problems I wouldn't have encountered
otherwise," said Broadwater, whose firm is supporting the
power industry software. Most important, he said, was the opportunities
made available to his graduate students. "We have been able
to provide the opportunities of a large academic research group
that would otherwise not have been available with me," he
said.
Murphy, who was president of Luna Innovations before becoming
an assistant professor, said that working at both was synergistic.
"The whole experience of being in the company helped build
contacts in the industry, which helped tremendously in my research
and funding," he said.
Kwa Sur Tam, who is cofounding an Internet firm (see
PowerA) said that his being involved in the marketplace will
open his research to more practical opportunities. He is also
hoping that an increasing number of high-tech firms in the area
will help to attract top students to Virginia Tech.
Cautionary Notes
With so much enthusiasm from faculty, students and administrators,
why doesn't Virginia Tech immediately jump at the commercial
opportunities? The answer lies in the role of a public university.
Movement into the private sector appears to many as a complete
departure from the traditional goals and operation of a public
university. Moreover, the faculty also is cautious about making
changes that could detract from Tech's educational mission.
"I think being a university faculty member is a full-time
job," said Charles Bostian, director of the Center
for Wireless Telecommunications, which has been very active
in helping Virginia companies. "Being president of a start-up
can also be a full-time job, which causes a conflict of commitment...I
also believe we should be very careful about starting companies
that compete with our sponsors," he added.
"I'm concerned that students not get victimized," he
added. "Their intellectual property rights should not be
overlooked. Graduate students who work for companies owned by
faculty members should have the same IP rights the university
grants to all students."
Gary Brown, director of the department's ElectroMagnetic Interactions
Laboratory is concerned that actively participating in start-ups
could diminish faculty-to-faculty contact, "which is a major
source of idea generation and cooperative development."
He is also concerned about the amount of time such outside activities
can consume. "When education is done properly," he
said, "it requires a great deal of faculty time. This is
especially true now with many incoming students so poorly prepared
and motivated. As a faculty member today, you are not simply
a teacher; you must also be a motivator, a substitute parent,
a role model, and a guidance counselor! When you are trying to
start and run a company, you simply cannot do all of this,"
he added.
Other faculty members cited concerns about potential conflict
of interest. "If professors are doing research at the university
and have start-ups, they often hire their own graduate students,"
said Fred Lee, director of the Center for Power Electronics Systems.
"If resources flow back and forth in an ambiguous way and
the students get confused whether a particular task they are
working on is for the university or the company, it can corrupt
a whole research program," he said.
From the business aspect, there are also positive and negative
aspects of professorial involvement in start-ups. Spry, the venture
capitalist, said that the technologist is the kernel of the start-up.
"The technologist generally has to be able to define what
it is that makes the breakthrough valuable," he said.
However, one of the difficulties with involving professors is
that "the learning curve of the producer of the technology
is high and lengthy. They do not know the details of business
interactions. They do not know what it takes to develop corporate
resolutions, how to negotiate with stockholders, or how to value
corporate assets. There are so many businesspeople out there
with completed business plans, boards, and connections, that
for venture capitalists, there is a trade-off between developing
businesses from universities and looking elsewhere," he
said.
John Phillips, Tech's economic development officer, believes
that the difficulty of running a successful business will keep
the numbers of entrepreneurial professors to a minimum. "It's
very difficult to go into business," he said. "To be
satisfactorily successful, you need multiple product lines, and
you need to compete on uniqueness, price, and sophistication."
Ph.D.s in engineering or science do not often have the background
for such success, he added.
Ferrari agrees that only a small percentage of VT's faculty will
be involved in high-tech spin-offs. "Many faculty have hired
business partners to run their organizations and still devote
most of their time to university activities. In fact, the venture
capital community will most likely insist on this scenario before
they make major investments."
Managing Entrepreneurs
Virginia Tech administrators have decided that entrepreneurship
is a fact of today's economy. Several committees are working
to develop a comprehensive university policy so that faculty
and student conflicts of interest, and conflicts of commitment
such as those discussed above are avoided.
"The debates and doubts raised by our faculty are essential
to the process of finding policy and mechanisms for entrepreneurship
that protect all of us as we consider these initiatives,"
said Ferrari, who serves on the College of Engineering's Conflicts
Committee.
Universities traditionally have allowed faculty members to engage
in paid external work, said Malcolm McPherson, associate dean
of research and graduate studies for the College of Engineering.
"Outside activity broadens the experience of faculty members,
which improves their performance as teachers and researchers,"
he said. Spin-off companies are a modern version of this outside
activity, he explained.
"A great deal of intellectual property is developed on campus
and the university has to be part of it," said Bill Stephenson,
dean of the College of Engineering. "Unless we encourage
entrepreneurship, we cannot attract the faculty we need in certain
areas, and we run the risk of losing some extremely creative
faculty members who are good teachers and good researchers,"
he said.
McPherson agreed. "The real problem is that as we reach
beyond these traditional roles, suspicions arise inside and outside
concerning the activities of entrepreneurial faculty," he
explained. "There is a traditional perception by the outside
world that we faculty should teach, produce future generations
of leaders, and engage in research for the good of society and
technology. The perception is that we should do this without
regard for personal or institutional gain," he said.
"We have a number of faculty, particularly in the engineering
college, looking beyond those traditional roles, asking, 'just
because I'm on the faculty, why should I not also be involved
in the development and commercialization we're producing at Virginia
Tech?' Instead of tolerating that question with a grimace on
our institutional face, we're starting to say, 'we have great
faculty, with great ideas. Let us bring these two things into
parallel: the forward progression of faculty aspirations in concert
with the objectives of the institution.'
"We would like to encourage entrepreneurship while maintaining
our primary roles of teaching and scholarship," he said.
McPherson described three committees at Virginia Tech that are
reviewing the university's policies and procedures for entrepreneurial
activities. "By the end of the academic year, we will have
a formal policy and set of procedures that will lay out the mechanism
for faculty and institutional involvement in commercial activities,"
he said. "We are trying to encourage the entrepreneur and
create a climate in which the entire faculty can grow. We not
only must do the right thing for the state, but we must be seen
to be doing it in a correct manner."
Many faculty members, entrepreneurs, and students welcome the
formal policies and procedures. "There has been so much
conflicting directions and misinformation in the past,"
said one entrepreneur. "A definitive policy will be a boon."
"The issues are complex with conflicts of interest and commitment.
Faculty entrepreneurs are walking a fine line, and we will appreciate
the direction and policies," said Tam.
The entrepreneurs have led the university to clarify its position
on tapping its technology reservoir. Perhaps Russell May, president
of Prime Photonics, spoke for all the entrepreneurs when he said,
"We became engineers to apply science and technology to
develop systems that benefit mankind. If that engineering is
also happening in the commercial realm, then that is where we
also belong."
Article Continues with
Sidebar 1: Tapping the Reservoir
Sidebar 2: Maximizing Opportunities
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