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Special Report
University Entrepreneurship

 March 2000

 

 

Tapping the Reservoir

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Department Head Leonard Ferrari believes that Virginia Tech may already hold the resources that could ensure its financial future and provide the needed income for maintenance and improvement of the university's educational programs.

"If we are going to maintain our facilities, improve our educational programs, and continue to develop new knowledge, we need a major source of income in addition to tuition and State funding," he said. He wants Virginia Tech to become a direct participant in the new economy through the creation of high tech companies in which the university takes an equity position.

"By law, Tech owns all of the intellectual property developed under its research contracts. Much of this technology, for many reasons, is not effectively transferred to the commercial sector," he said. However, its value is evident by the growing number of faculty start-ups based on this technology and the very strong interest shown by venture capital firms, he said.

Ferrari and John Phillips, Tech's economic development officer, have proposed that Virginia Tech form a new private enterprise that would have the capability of investing in high-potential, university-affiliated firms. The Virginia Tech Enterprise could also run a corporate incubator, helping the companies with business expertise, and managing the faculty role between university and company responsibilities. A venture fund for the enterprise would have to be formed from the private sector rather than state funds.

Ferrari and Phillips believe that the faculty understand the business potential of their technology and are going to start companies anyway. "The university can attempt to stop the faculty entrepreneurs, look away, or embrace them. I propose we embrace them: the alternatives are not practical," Ferrari said.

Not all the firms will succeed, Phillips acknowledged, "but a major success from one or two companies could provide a significant financial boost for the entire university. Funds from this activity can provide the financial means for generating more research and educational opportunities in other areas," he said.

Public universities across the country should be looking at equity positions, Ferrari said. "Henry Samueli started Broadcom while he was a faculty member at UCLA. While UCLA recently received a gift of $30 million from Samueli, it may have had a higher return from a small equity position in Broadcom," he added.

"If the university is going to succeed in its goal of becoming a top 30 Research 1 university, it will need significant new sources of income and will need to build its endowment to a multi-billion dollar level. If we had a $10 billion endowment, we might not consider this alternative," he said, "but we don't. Virginia Tech needs to generate additional income if it is to become a Tier 1 research university in the next 10 years. A 10 percent minority position in a number of successful start-up companies would help. If, in addition, our 10 percent investment in these companies is used to support graduate students, we are using money we would have spent anyway, and it becomes a no-cost, no-risk enterprise for the university," he said.

The faculty are starting up firms anyway, he pointed out. "This is filled with conflict-of-interest and conflict-of-commitment issues," he said. "If the university had a formal start-up program, many of the conflict-of-interest issues that faculty entrepreneurs currently stumble over could be handled in an effective and well defined manner. Faculty might lose some freedom, but it would be in the open and always within the law."

Ferrari mentioned the 17 firms that have spun off of the Fiber & Electro-Optics Research Center. "Although faculty have had involvement in some of these companies, Tech has kept a traditional relationship with these firms through conventional licensing of intellectual property," he said. "The extent to which the university could have helped these companies achieve even greater success through real partnerships remains an open question."

University President Charles Steger described a similar concept in the January/February issue of Trusteeship magazine, discussing the idea of a "young entrepreneur's fund" managed separately from an institution's endowment. He also described how such a program could help universities address the problem of "the shrinking talent pool" of doctoral students and faculty tempted by the high salaries in the private sector. "One result," he said, "could be that the traditional doctoral student stipend is enhanced with an equity position in a start-up company affiliated with the university and the student's work."

Phillips agreed that such an effort could arise from a university entrepreneur program. "The proposal would help Tech maintain its high quality programs, expand the economy of Virginia, create jobs, raise substantial funds, and attract top quality faculty and students to its campuses," he said.

"The whole point is to raise enough income in the next five years to improve the quality of education at Virginia Tech - particularly in the non-engineering departments that have limited avenues to raise outside funds," Ferrari concluded.

 

Article Continues with
Sidebar 2: Maximizing Opportunities

Article Begins with
University Entrepreneurship: Joining the New Economy

 

The Bradley Department
of Electrical and Computer Engineering
Virginia Tech


Last Updated, March 30, 2000
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