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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
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