University-Connected Incubators

Contract # P-99155

Fred Phillips, Ph.D. / General Informatics LLC
April 10, 2000
 
 

Contents of this Report

•  Executive Summary
•  Project background
•  Data sources
•  How universities and incubators interact and add value to each other
•  Issues and obstacles in university-connected incubation
•  Private incubator trends
•  The Internet
•  Summary of survey/interview data
•  Case studies
•  Recommendations for Oregon
•  Conclusion

Executive Summary

This report investigates university-connected incubator strategies for growing new businesses.  Its purpose is to make recommendations to the Oregon University System for university-connected incubators within the State.  Such incubators should benefit higher education and produce sustainable, equitable economic development.
Because the environment for incubation has changed due to a growing number of privately owned incubators and due to the Internet revolution, this report’s survey-based and literature-based investigation of role model incubators was augmented by expert opinion concerning the implications of privatization and the Internet.
The resulting set of recommendations respects the State’s geographical and cultural situation.  It suggests that incubators and universities can offer much to each other, monetarily and otherwise.  Moreover, our universities should play to their strengths, in order to complement the kinds of services being offered by investor-owned incubators.
In general, according to these recommendations, universities should refrain from building and owning physical (as opposed to virtual) incubators.  Exceptions will exist for certain locales, and for cases where the culture and organization of the university can adapt, to thoroughly integrate all applicable university missions, programs and rules with the incubator’s imperative to nurture fast-growth companies.
 
 

Project Background

The purpose of this project was to recommend an incubation strategy for Oregon universities that draws on key success factors from the past and anticipated key success factors for the new environment of the future.  This new environment includes the proliferation of private incubators and the rapidly growing impact of the Internet.
 Different regions and localities in Oregon want and need to pursue one or more of the following goals:
 - create companies;
 - create jobs;
 - create and preserve high-wage jobs;
 - increase the number of locally headquartered companies;
 - build a mass of local suppliers for Oregon’s large companies;
 - increase university spin-out companies and technology transfer;
 - leverage and increase the technological vitality of the region;
 - increase exports from Oregon;
 - increase Oregon’s international trade; and
 - make Oregon an inviting environment for entrepreneurship;
and to do these things in a way that preserves environmental quality and provides opportunities for minority, immigrant, and women entrepreneurs.
The present recommendations draw on incubator surveys, interviews and visits, and literature search to point the way to an Oregon strategy that can meet these goals.
 
 

Data sources

Oregon Graduate Institute of Science and Technology development a questionnaire that was administered to a number of incubators throughout the U.S., Asia and Europe.  Nine incubators, most university-connected, have returned our questionnaire as of this date.  I visited three incubators and one technology transfer-intensive university research center as of the present date, not including our (OGI’s, PSU’s and Lewis & Clark College’s) own Center for Entrepreneurial Growth. In addition, I have used extensive notes from incubator visits made by me prior to this project, and interviewed a small number of incubator directors by phone and in person.
These sources update and augment the list of Oregon incubators kept by the Chancellor’s office.  The appendix includes contact information for each.
Further ideas reflected in these recommendations are drawn from literature review; the complete bibliography appears in an appendix to this report.
The research plan called for interviews with three experts who are not incubator directors.  All three of these interviews have been completed:  with Laura Kilcrease, first director of the Austin Technology Incubator and now a venture capital professional; and with Portland investor/entrepreneurs Dwight Sangrey and Al Pruesh, both of whom have investigated a number of incubation options for Portland.
 
 

How universities and incubators interact and add value to each other

Incubator activities

Incubators generally engage in one or all of the following activities:  business assistance to tenants; networking activities; educational activities; public relations activities; infrastructure and services; and interactions with the university.  The university can add value to all of these.  (The following are based mainly on the experience of the Austin Technology Incubator.
Business assistance to tenants.  Professional incubator staff and/or MBA students may review monthly financials with tenant companies; provide access to a “know-how network” of service providers; or introduce the companies to experienced mentors or foreign markets and sources of supply.  The incubator hosts venture fairs at which tenant companies may present to VCs and angels their brief pitches for funding.
Networking activities.  The incubator introduces the tenant companies’ executives to the local business “power structure” and to representatives of other technology regions and companies.  This activity includes receptions and social events.
Educational activities.  Tenant execs may sit in on university classes.  The incubator is site of brown-bag lectures, workshops and seminars on a variety of entrepreneurial skills - benefiting students as well as incubator tenants.
Public relations activities.  The incubator issues pamphlets, press releases and other literature promoting the tenant companies jointly.  The incubator itself is newsworthy as a sign of the community’s commitment to supporting entrepreneurship.  The incubator helps members of the know-how network publicize their connections with incubator companies.
Infrastructure and services.  Needless to say, the incubator maintains attractive space, shared conference rooms, refreshment rooms and reception area.  Services may include shared office machines, receptionist, central switchboard, and security.  These days high-quality wiring and fast Internet access is a minimum requirement.
Interactions with the university.  The university and the incubator provide each other with opportunities for interns, spin-off companies, exploitation of intellectual property, and educational enrichment.  More about this below.
 

Interactions with the university

Indeed, university-incubator interaction enhances almost all the incubator activities mentioned above.  In particular:

• The incubator can host business school classes.  In one such instance, engineering and business students teamed for a robotics venture laboratory, combining technical design and business planning for special purpose robots, with an eye toward launching a new venture.  This writer has taught a high technology marketing laboratory for MBA students, using incubator tenants as living cases.  Another possibility is the “incubator operations laboratory,” preparing students to run incubators and related entrepreneurship facilitating organizations.

• The incubator provides internship opportunities for science, engineering and business students.  In these arrangements, interns learn the reality of entrepreneurship.  Interns become employable, as the real-world experience on their resumes demonstrably increases the number of job offers they receive.  Internships benefit the incubating companies also; tenants are exposed to the latest academic knowledge, and enjoy intelligent, inexpensive labor.

• Incubator entrepreneurs are valuable guest speakers in academic classes.  These guest appearances add value to students’ academic experience, and give the entrepreneurs a chance to field critical questions.

• Tenants provide “living cases” and student projects.  Living cases are more interactive than, e.g., written Harvard cases, giving students recourse to further information and the chance to actually have an impact on the operations and success of the subject company.  Of course, these also can lead to student employment.

• The incubator provides beta sites for student new venture competition teams.  The prospect of space in the incubator is an added incentive and reward for students competing in university-sponsored business plan contests.

• The incubator is a link to BBA/MBA concentrations in entrepreneurship.  The presence of a living laboratory for entrepreneurship is a marketing plus for the university.

• The incubator is a link to university-wide associations and student organizations.  Student entrepreneurship clubs, technology management interest groups and the like are enriched by the presence of the incubator.  Connections to the alumni association are valuable as well.

• The incubator as a fund raising attraction.  Alumni may be delighted to see that the university is taking practical steps to encourage entrepreneurship.  Many of a university’s wealthiest alumni are entrepreneurs.

“I have been affiliated with our local incubator since its beginning.  Since then, I have been on the board of directors to manage the facility.  Although we are not affiliated with a university, I can see many benefits of such a relationship.  For example, market assessments, prototype development, testing, surveys, etc., can be done by students when available. I believe an incubator in a community is a valuable asset independent of the form of its organization.”
Marv Clement, Battelle-Pacific Northwest Laboratories
 

A 1995 Coopers & Lybrand study, quoted in Hayhow (1996), showed that companies availing themselves of university resources “had productivity rates 59 percent higher than peers without such relationships” but that only 40% of companies surveyed actually used university resources.  “Forging ties with a university is beneficial,” C&L conclude, “yet most companies apparently need a push in this direction.”  Incubators can provide this push; according to Glenn Doell, formerly director of Rensselaer’s incubator, “Incubators should consider developing a strong partnership with their local institution of higher learning.”
The Milken Institute reports that “Research centers and institutions are indisputedly the most important factor in incubating high-tech industries.”  Universities attract federal funds and donations from wealthy alumni interested in entrepreneurship.  Universities provide a flow of new knowledge, ready access to existing knowledge, able contract research, enthusiastic students, and ambitious, knowledgeable graduates who have a global outlook but also an emotional attachment to their college town.  There could be no better ingredient in a recipe for technology entrepreneurship and economic development.
 
 

Issues and Obstacles in University-Connected Incubation

The various incubator-related conflicts of interest and intra-university conflicts are summed up by the following, admittedly extreme, scenario.

A professor at a public university, working on a federal grant, discloses a laboratory innovation to the university, which patents it and licenses it back to the professor.  The professor starts a company and brings it into the university-owned incubator.  The incubator receives equity in the company.  Further R&D is performed within the company, and part of it is done in the professor’s university lab under a grant from the company to the university.

Objections to these activities start as a trickle and end as a flood.  Parents complain that the professor should be in the classroom teaching their offspring, not using university time to start companies.  The professor’s dean wonders whether the professor is in violation of the university’s conflict of interest policy.  The university president’s office complains that the portion of the company R&D done at the company, that is, inside the university-owned incubator, does not generate overhead cost recovery funds for the university.  The university president herself, asked by a local investor whether the company is a viable investment, fears she cannot give a frank assessment of a firm in which the university owns stock.  The president, used to dealing with large corporations that are university donors, doesn’t know how to interact with small, entrepreneurial concerns.  Her clumsy communications lead the company’s employees tell the press that the university president is threatening them.

The university’s finance VP is accustomed to viewing only land, equipment and buildings as university assets (all securities investment activity is handled “downtown” at the university system level).  Because the incubator generates stock equity and eats cash, the VP threatens to shut down the incubator.  The System Chancellor fears that if the incubator too successfully creates economic development in the local area, state legislators from distant counties will accuse the system of geographic favoritism and veto the Chancellor’s bid for increased university funding next year.

Documents that the company views as proprietary (but were generated during a meeting with incubator managers) are released to the public under the state’s open records act.  The company sues to recover the documents, charging a breach of trust and malicious negligence, but fears that either way, the federal Freedom of Information Act may cause them to lose control of their intellectual property because the original research - and the closely related ongoing research under a new NSF grant in the professor’s lab - was federally funded.

The professor’s need for interns at the company is urgent, but the university’s business school has not added entrepreneurship courses, and teaches a curriculum geared only for future employees of large companies.  As a result, no qualified interns are available to incubator companies.  The professor complains further that the university urged him to commercialize his invention and provided an incubator, but did not counsel him on the problems that would arise, nor warn him that the university would later appear to be working against him.

The provost and the university comptroller call the professor and the incubator director daily, reciting the list of disasters that will occur if any current federal money pays for university equipment or personnel that are used for the private benefit of the company.
Some universities (including University of Alabama - see Hayhow, 1996) avoid some of these difficulties by setting up a private foundation to administer an incubator, with the foundation chartered to benefit the university without being subject to university rules.  Other universities set up a for-profit company to hold equity in incubated companies (see Kalis, 1997).  “The key is to manage conflict of interest situations, not avoid them completely,” says Glenn Doell, former director of Rensselaer’s incubator (Hayhow, 1996), “If you try to completely avoid conflict of interest situations, you lose much of the potential benefit of the [university-incubator] relationship and you won’t have any faculty-founded companies.”  Doell advocates warning all parties (the university I.P. and research administration offices, plus deans, department heads, and incubator staff) when a potential conflict arises, and urging all to document actions and precautions taken.

One respondent to Bienkowski’s (2000) email survey said, “We want to encourage entrepreneurship and faculty startups, but want these enterprises to be separated cleanly from university activities.”  This is a wish that cannot be completely fulfilled.
The Oregon University System appears to be appropriately sensitive to issues of using public university resources for private gain, but reluctant to test its procedures by trying new things.  OUS’s commercialization and spin-off experience is limited (though individual OUS employees have considerable experience in these areas).  The System is decentralized, but sensitive to the need to benefit all Oregon counties.  This report’s recommendations are based on these perceptions of OUS.
 
 

Private Incubator Trends

In the 1980s and ‘90s, most of the incubators in the U.S. were what we dismissively called “real estate operations.”  This meant that universities were not involved and that tenants received no business assistance other than a shared receptionist and photocopier.  James E. Burke, Ph.D., President of Burke Information Technology Services, describes (via email, 8 Mar 2000) the trend toward more responsible, higher-involvement private incubators:

Many of the original incubators were established by corporations first as an effort to commercialize some of their technology and later to allow employees with ideas to develop them with company backing.  These incubators had some success but then the corporations became more flexible about where the startups could locate and got away from maintaining a building site.

A recent development in incubators is the rush to create web-based companies in order to reap the rewards of "dot.com" valuations.  These are usually setup and managed / financed by venture capitalists and other sources of financing.  Once the management team is in place, the venture capital management oversight function comes to the fore, and its convenient to have all of the companies in one place.

Burke gives a list of private net-incubators:
• Campsix Inc. (formerly Net2Future), www.campsix.com
• CMG Inc,  www.cgmi.com
• Divine InterVentures,  www.divineinterventures.com
• eCompanies,  www.ecompanies.com
• eHatchery, ehatchery.com
• Garage.com, www.garage.com
• Idealab,  www.idealab.com
• I-Hatch Venture,  www.i-hatch.com
• Intelligent Systems Corp.,  www.intelsys.com
• interactive Minds,  www.interactiveminds.com
• Internet Capital Group,  wwwicge.com
• Venture Frogs, www.venturefrogs.com

To this list we may add:  Dreamscape Ventures, www.dreamscapeventures.com.  In addition (Leander Kahney, “A Capital Plan for College Ideas.” Wired.com, Apr. 3, 2000), “Late last year saw the launch of a slew of new Intellectual Property marketplaces, including yet2.com <http://www.yet2.com>, which concentrates on selling technology developed by corporations; TechEx <http://www.techex.com>, which focuses on the life sciences; and the Patent & License Exchange <http://www.pl-x.com/>, a patent auction.  UVentures.com attempts to broker university patents to potential licensees via the Internet.  Its founder, Craig Zolan, thinks university I.P. generates insufficient returns for universities because university I.P. offices rely on “a hopelessly outdated business practice”: personal contacts.  In my opinion, his venture (and the similar Knowledge Express in Berwyn, PA) may generate some licenses, but violates the wisdom that “technology transfer is a body contact sport.”  Personal contacts will remain important, and thus local incubation will remain an important tool.

It now appears the “Big Six” accounting/consulting firms will also get into the act:

Note that in chatting with an exec from Deloitte and Touche at a Corp. Investment conference last week, D & T is also planning similar investment/ incubation activities and thus, I'd assume PWC and others will follow suit.  Wonder if we can count on them to offer not only financial services, but access to ERP, MRP, and/or CRM expertise and capabilities.
   via email, from Christopher J. Meyers
   Vice President, Corporate Services
   Select University Technologies, Inc. (SUTI)
   Costa Mesa, CA

I have to note my disagreement with Jim Burke’s further assertion:

A recent development that may turn the web-based incubator approach into an entirely new kind of economic development engine is the creation of wealth through the interactions of the startup companies within an incubator.  The image is that of the Japanese keiretsu where all of the startup companies and their partnering (and sometimes funding) corporations have special business relationships with each other.

The Japanese keiretsu have been weakened by their extensive foreign operations, which dilute their cohesive culture.  Incubator companies must be networked globally to take advantage of the global markets accessible by the Internet.  The keiretsu is not a viable model, especially when it focuses companies excessively on alliances with other physically proximate companies at a similar life cycle stage.
 
 
 

The Internet

It is now commonly said that “The Internet changes everything.”  Here is what is meant by that.  The Internet provides...

• streamlined inventory and distribution, making otherwise low-margin businesses feasible.
• fast distribution and customer feedback.
• global distribution, even to special-interest markets.
• many new business opportunities for networking the citizens of the world.

While it shifts power to consumers, the Net revolutionizes relationship marketing.  Producers, while losing price leverage, gain information leverage.

For software businesses, the Net makes version control easy, and for this and other reasons, empowers small developers.
The Internet allows many kinds of resources to be pooled over larger geographical reaches, indeed globally, and this is the rationale for the recent growth of online incubators and online intellectual property auctions.

The explosive growth of the Internet itself provides business opportunities for companies building net tools, i.e., the software that underlies e-commerce, and the hardware (servers, routers, etc.) that carry messages across the net.  This is knowledge-intensive work, and naturally its manpower and much of its intellectual property will be supplied by universities.

The Internet is a new communications medium that offers desktop videoconferencing, telephony, synchronous text chat, publishing, broadcasting, virtual reality, and asynchronous bulletin boards.  These multiple channels of communication increase the chances that ideas can be conveyed accurately and relationships cemented without travel - although almost all experts agree that in a customer or alliance relationship, face to face (“FTF” in net-speak) contact is needed sooner or later.

If Andrew Grove is correct that “soon all businesses will be e-businesses,” then indeed the Internet changes everything.  
 

Summary of Survey/Interview Data

This study used expert interviews and incubator surveys as well as incubator visits and literature search to form its views.  The incubator survey form appears in the Appendix with the answers given by all respondents.  The expert interview questionnaire consisted of only three questions:
1.  How has the Internet changed new business incubation?
2.  How has the trend to privatization of incubators, especially under the ownership of investor groups, affected the university’s role in incubation?
3.  How can universities best interact with incubators in the ‘00s?
 
 

Expert Responses

The experts’ answers were (in paraphrase):
Universities need not spend capital at this time to build or run incubators.  Nowadays, incubators should pay universities to participate.... Even back in the 1970s, RPI [Rensselaer Polytechnic Institute, in Troy, N.Y.] recognized privatization was the way to go; all RPI incubators are in partnerships, except its on-campus one.  Universities should be paid for the things they are good at (facilitators, nursemaids, incubator managers, educators, technology transferors, supporters of entrepreneurship, and carriers of a collegial culture) - not for things they don’t do well, like being landlords....  Private incubators are likely to be boutiques, with a narrow industry interest and focus....The Internet helps close funding deals after just one FTF.  (Dwight Sangrey, 4/7/00)
Portland senior executives would like to participate [in incubators] as mentors.... With other executives, I have approached a number of private incubators asking them to establish a branch in Portland.... This would facilitate my merchant banking activities, bringing together management teams and investors.... The Internet is great for communicating, exchanging ideas, and proving business ideas in a short time.  (Al Preush, 4/3/00)
Privatization of incubators is driven by the Internet sector and VCs.  VCs want fast companies, like Internet plays.  Privatization is driven also by the real estate shortage in high growth areas, and by the growth of the stock market.  Because all these things can change rapidly, the continuation of private incubation cannot be relied upon.  Before the World Wide Web, private incubators tended to last a maximum of two years.  Now, with the Net, [the private incubator arm of] Softbank only lets companies stay in for 6 months!  This is not really enough to lend significant business assistance.... Net companies have intensive supplier/customer networks and have to locate close to similar companies and to sources of labor; with luck, their economic impact will trickle down to outlying regions.... So not all incubator activities will serve all state economic development goals.  (Laura Kilcrease, 4/4/00)
 

Incubator Responses

The following summarizes the most notable patterns in the incubator director survey responses.
1. Square footage.  Respondents indicated incubator sizes ranging from 1,800 to 40,000 and more rentable square feet.  Nearly all, regardless of the size of their incubator, believe their square footage is insufficient to serve market demand and/or achieve economies of scale.
2. Quality of physical plant.  While undergraduates may find charm in lecture halls that have not been renovated in 75 years, incubators do no favor to tenants if the incubation facility is not suitable for entertaining customers and suppliers, or not convenient to airports and major highways.  Most incubators surveyed occupy class A space, but some of these cite inconvenient location.  In addition, while most claim to be breaking even financially, “deferred maintenance” of physical plant is often cited as a concern, indicating the incubators are not making money on a fully cost-loaded basis.
3. Tenancy and services.  Most respondents indicated their incubators offer the full range of services prompted by the questionnaire, though most seem to review tenants’ financials rather infrequently.  Most allowed direct competitors to occupy incubator space at the same time - though this will necessarily cut down on the social interaction that is a prime benefit of physical incubators.  Number of tenants housed ranged from 4 to 30, with a mean of 19.  Many discount market rents by as much as 50%, though experts argue that such discounting is a needless crutch for truly competitive companies and is an unfair return to the incubator considering the services offered (very few respondents take equity in tenant companies to offset rent reductions).
4. University involvement.  Answers ranged from none/informal university connections to full university-owned incubators.  Even the latter seemed to integrate university activities (academics, seminars, internships, tech transfer, etc.) piecemeal or incompletely.  All agreed university involvement is good for incubator entrepreneurs, most agreed such involvement is good for the university as a whole, and fewer that university involvement in incubation is essential for either the incubator or for university MBA/BBA programs.
5. Staffing and finances.  Tenure of directors varied considerably, though most had been on the job a short time.  (Incubator directors may use the job as a steppingstone to positions with investment firms or with startup companies, so there is much turnover among incubator directors.)  Most incubators claimed “breakeven or better” financial performance.  However, most derived funding from a variety of government, philanthropic and university sources (only one claimed breakeven on rents alone) in addition to tenant rents - so “breakeven” may be a result of university subsidies, rather than net of such subsidies.
6. Networking.  Most incubators surveyed are NBIA members, and maintain relationships with at least one incubator in a distant location.  All agree the Internet has benefited incubators and incubator tenant companies as a communication tool.  The most often-cited benefits were “More dotcom startups are applying to your incubator” and You are better able to find suppliers and customers for your tenant companies.”  Close behind were “Your tenant companies can more easily work with other off-site service providers” and “Your tenant companies can more easily work with companies in your allied regions.”
 
 
 

Case Studies

Case Study #1

MASON ENTERPRISE CENTER

This case is based on an interview with Dr. Roger Stough, Director of the Mason Enterprise Center.  In his capacity as Director, Dr. Stough reports to the Provost and President of George Mason University.
MEC runs a number of incubators, the number depending on how virtual incubators and incubators run on contract are counted.  One of the incubators is a physical one occupying two floors (4,000-6,000 sq.ft) and designed to shelter 16 companies (of any kind).
Another is an “incubator without walls,” or "Technology Resource Alliance" that works with 30 companies/year.  These companies are pre-launch or immediately post-launch, technical companies only.  They enter the resource alliance by application, and only the best are accepted.
MEC also runs three federal telework centers (cubicles with internet access, videoconferencing, computer training room).  These are scattered across northern Virginia, but all are in the general radius of Washington, D.C.
In addition, MEC manages an international incubator for Arlington County, for foreign companies wanting to do business in the U.S.
MEC holds contracts for four Small Business Development Centers (SBDC’s).  The SBDCs emphasize mentor/protege programs.  In contrast to the competitive Technology Resource Alliance, the mentoring program accepts anyone wishing to start a business.  A $1,000 small business loan (microloan) program is also administered.  These are funded by separate federal programs, mostly intended for non-technology businesses.  After completing the basic mentoring program, companies contract with the SBDC for additional services.
MEC operates a "Grubstake Program" that resembles venture fairs for angels and VCs, and cooperates with the local "Venture Investor Club" (=angel network) to general leads to promising companies.  A particular strength of MEC has been in naming, promoting and branding their programs in this way.
For example, MEC’s Dry Run™ teaches CEOs how to make a pitch for funding.  The executive’s presentation is heard initially by internal staff, and after, by a panel of outside advisors similar to those assembled by the Oregon Marketing Business Initiative (OMBI).
MEC finds money from:  Federal, county, fee for service (mentoring program), and state and university matching funds.  MEC’s funding dictates that they must service small and minority businesses.  But as community leaders agree that high-growth potential businesses are usually technology-based, MEC finds it can bend/leverage all its funded programs to encourage high tech entrepreneurship.  MEC does mentor/incubate direct competitors, but at such early stages that “it doesn’t matter.”
University involvement is not a critical success factor for MEC, according to Dr. Stough, but is good for the university, especially due to student involvement in community relations and fund raising.  MEC’s network provides leverage for research contracts that come into the university having to do with measuring specific aspects of the local and state economies.
MEC is linked with academic programs in entrepreneurship throughout the university (business school, engineering, public administration, art/multimedia_ leading to university-wide minor.  GMU doesn’t have a full-time MBA program, so MEC fielded a campus-wide "entrepreneur profile" questionnaire to find students with experience starting businesses.  These students will be MEC mentors and interns.
Dr. Stough is also a faculty member at GMU’s The Institute for Public Policy (TIPP).  MEC depends on TIPP’s fund raising skill, but is kept arms-length from TIPP to avoid intra-university jealousies.
There are cultural as well as budget tensions within university because in MEC speed, not consensus, is of the essence.  The university is better for coaching launch of non-Internet companies, Stough says, because it can take the time that is customary for university activities.  One MEC success was the launch of a heritage-based travel service.  But even this company leverages the net for, e.g., real-time itinerary changes.
AOL and other N. Virginia companies have created 4,000 millionaires and several billionaires.  MEC leverages these for a 400-strong "knowledge network," drawing on these executives for advice on fast turnaround/short window dotcom opportunities.  The Internet enhances communication among these advisors - especially if they have worked together before.
MEC hired a retired Peat Marwick executive as Executive in Residence (at $90,000/year) to leverage his network for the benefit of MEC companies.  The executive mentors companies and mentors incubator managers.  This works well; Roger may hire another such executive.
Pieces of MEC have been evolving since 1986.  Not a planned from scratch effort, in fact, according to Dr. Stough, it is "something of a mess".  MEC’s total budget is $7 million/year.  MEC worked with 1,600 companies last year in one way or another, and helped companies get money from $50k to $10m.
Mike Kehoe (703-277-7701, mkehoe@gmu.edu) is executive director of MEC.  MEC’s website is http://www.gmu.edu/departments/tipp/center/center.htm.
While MEC continues to manage incubators on contract for county, military, etc., it is moving away from in-house, physical incubators.  Roger advises not building bricks-and-mortar incubator unless a big region doesn’t have a private one.  Only do bricks-and-mortars in rural areas if the state provides funding specifically for that purpose, he says.  Otherwise, just do traditional SBDC activities in rural areas.  But other arms of MEC can buy the time of SBDC staff to help with urban incubators. The University’s contribution, then, is to manage incubators for private parties (in Oregon, this is CSI [Creative Services Initiative], Rainy Day Ventures, etc.) with low-cost student labor.
 
 

Case Study #2
Entrepreneurship, Incubation, Technology Park &Technology Licensing at

RENSSELAER POLYTECHNIC INSTITUTE

All four campus organizations involved in these areas (see picture below) are tightly coordinated, even though one is under control of the management dean and the others report to RPI president.  It must be said that this tight coordination depends on the goodwill of the four area directors.  The four together are called RENTEC.  The campus licensing/patenting office is now called Office of Technology Commercialization, and is located in the incubator building
 

RPI is known as an entrepreneur-friendly school.  Students and faculty come to RPI because they can "bring their companies with them."
RPI files 6-8 patents/year, selective by commercialization potential.  As at other universities, very few patents pay off their costs.  One answer is being more selective (difficult if faculty with a lot of clout want to file many patents); another is to have similar schools pool efforts.
"Alums who have ignored RPI for many years have gotten excited again due to RPI's entrepreneurship focus."  -Mike Wacholder, RPI.
Bill Stett, a retired entrepreneur who is now Dir. of Center for Technological Entrepreneurship at RPI, teaches alliances and acquisitions.  Bill confirms that the entrepreneurship center opens new areas of philanthropy.  CTE raises as much each year as the management Dean - but tries not to compete.
RPI’s Lally School of Management has a faculty area called "entrepreneurship & strategy."  This ensures that entrepreneurship is not a stepchild academic area.  Stett says indeed entrepreneurship is central at the Lally School.  Entrepreneurship faculty can get tenure at Lally. But Lally faculty are not strong in all entrepreneurship skill areas; Stett wishes for a good venture financing course.
At RPI, entrepreneurship faculty can get tenured - entrepreneurship is central, not an academic stepchild at Lally School.
Stett recommends getting older entrepreneurs involved first in teaching and mentoring - donations will then flow.
 
 
 
 

Case Study #3

MAUI RESEARCH & TECHNOLOGY CENTER

This park is currently run by a mixture of state and county agencies.  The County of Maui is attempting to buy the park, which was originally a private development.  The park is located near the Air Force’s astronomical observatory, and houses a major Department of Defense supercomputing center, the Maui High Performance Computing Center (MHPCC).  While the park houses industry outreach offices of U. of Hawai’i at Manoa, U. of Hawai’i at Hilo, and Maui Community College, the universities have no direct role in running the park or its incubator.  The supercomputing center is run by the University of New Mexico under contract to DoD.

• Allows companies to retain all I.P. to code used at MHPCC.  All companies are charged at same level for using MHPCC.
• If labs agree to give free time to a company, lab (MHPCC) can option the I.P. or put it in public domain.
• Undergrad and graduate academic programs.
• Can work with foreign companies if via a "U.S. connection".  But all work is subject to US export restrictions.
• A company using MHPCC remotely may decide to keep a small local office at MRTC, especially if cooperating with an Asian company.

The supercomputer center’s mission is primarily to analyze signals from the Air Force telescopes - mostly "space junk" and colliding asteroid studies.

source: Margaret Lewis, MHPCC.

The Park’s best success so far is a Japanese company, "Micro-Gaia," that produces gene-engineered algae.  Real estate in Maui is still cheaper than Silicon Valley, and offers location appeal to Silicon Valley business people who have built strong ties to Maui through a history of vacations on the island.  The number of direct flights and carriers serving Maui-California routes is increasing.
MRTC covers 300 acres, with 48,000 sq.ft. of buildings.  State funds were provided for "front end" work on the supercomputer, though most of the startup of the park was privately funded.  MRTC houses:
- an incubator (23,00 sq.ft. leasable)
- U. of Hawaii’s tech transfer office
- currently, 8 companies and "phase-in" companies (for 2 years),
- space for “work teams”
- interim locations for relocating companies.

The period of incubation is less than five years, but is flexible.  Services provided include:
• low-cost space (on par with other class A space, but services are included. $1.90/sq.ft; commercial is $2.20) B space is available on Maui at $1.00/ft.
• copying, etc.
• business advice
• SBDC
• business research library

MRTC Director Tak Sugimura is "leveraging resources" to "zap the gap," engineering local lab results in order to lure licensees.
The running of the incubator is the responsibility of the Maui Economic Development Board, a 501c3.  Thus, MEDB employees may coach incubator tenants without fear of losing control of data due to open records laws.  Through MRTC, MEDB was the first Internet service provider on the island.
MRTC has an underutilized videoconferencing facility, but gets some money by renting it out.  There are also distance learning classrooms that haven’t been used yet; MRTC wants to network with many U.S. universities.
MRTC is just blocks from hotels, but is a considerable distance from Maui airport.
Park buildings are state funded.  The land is a private development, but land on which the state buildings are, have been donated to the state by developers.  Now the county is trying to buy it all.
MRTC doesn’t pay rent, but does have to cover building operating costs, and does get a management fee from the state.  The state currently covers major repairs, but doesn’t want to ultimately.  MRTC is now self-sustaining, exclusive of major renovations.  Leases are month-to-month; with companies admitted by business plan.
There are:
• 100 full-time employees in incubating companies
• +22 full-time for Mauinet (a graduating company)
• +15 part time
• Direct competitors are allowed
• Build-out is tenant responsibility
• No equity taken in incubated companies

MRTC tries to focus on "good match" technologies.  One of these is MicroGaia’s algae food supplement, which has a high markup per ounce and can grow in Hawaiian waters.  Another is hi-speed photography, adapting astronomy photographic techniques to the photographing of water sports.  A third is business website design/hosting, which can build the export potential of Hawaii businesses.
MRTC remains weak in connections to VC and Angel capital.
Calvin Nemoto is Executive Assistant to Maui County Mayor James Apana.  Mr. Nemoto is trying to partner with Sonoma State University to build a private high school and a 4-year college in Maui.  The county’s overriding goal is "workforce development".
There are "several hundred" technology companies in Hawaii, but most are 1-2 person.  The County believes it is important to let people know that there is room to grow their companies on Maui, and that Maui is entrepreneur-friendly.  Like Austin in Texas, Maui has a reputation for going their own way, even when that means not cooperating with State of Hawai’i initiatives and the wishes of the Governor.  The widespread attitude on the island that “Maui No Ka Oi (Maui is the best)” may turn out to be a central factor in their success.
 

Case Study #4

UNIVERSITY OF WASHINGTON, TECHNOLOGY ENTERPRISE INSTITUTE

This case is summarized from Tice (1999).  The institute, funded with $4 million from UW, will utilize the best principles of university-incubator interaction, serving learning and teaching objectives for the university and the community at large.  Additional funding will be sought from public and private sources.  Bob Miller, UW Director of technology transfer, says students from business, law, engineering, and the sciences at UW will be involved in the institute, and the new institute should generate additional faculty positions.  Intellectual property issues will provide academic fodder for business and ethics students.  Faculty will not be allowed to be officers of incubator companies, nor take grants from incubator companies.
In the past, according to UW business prof Ken Walters, more than 140 companies have been created from UW intellectual property, comprising a total of $10 billion in market capitalization.  Ninety percent of these companies remain headquartered in Washington state, or keep significant operations in the state after being bought out by out-of-state concerns.
The Technology Enterprise Institute will occupy a 40,000 square foot facility in West Seattle.
 
 

Recommendations for Oregon

These recommendations cover the following areas:
Should universities build or own physical incubators?
Should universities be involved in incubators in any way?
How can universities demonstrate success in incubator efforts?
What will attract desirable incubator tenants in the 2000s?
What should Oregon universities do?
 
 

Should universities build or own physical incubators?

•  Generally, no.  Universities should not build or own "in-house" bricks-and-mortar incubators,
- unless they can leverage an assured supply of
* high-quality surplus space (office, laboratory, and/or manufacturing space)
* qualified student labor
* surplus furniture, lab equipment
- especially if internal university concerns about overhead recovery, the noncommercial mission of the university, or commingling of funds (commingling can and must be avoided!) are likely to paralyze the incubator effort.

•  Ten years ago, the incubation concept was new.  Universities provided “proof of concept” and researched the value and operations of incubators.  Private incubators were often just “real estate operations,” providing no business mentoring to tenant companies.  Today, incubation is a well-accepted notion.  Well-funded VC firms, angel investor consortia, technology brokers, and even law firms run their own incubators, and have every incentive to provide comprehensive business advice to tenants.  Universities still have valuable contributions to make, but cannot compete economically running a full-service incubator in-house.
 
 

Should universities be involved in incubators in any way?

• Yes!  University involvement in incubators can benefit the university and the business and entrepreneurial public.

- Benefits flow in all directions.
* The university offers valuable knowledge, social support, technical support and student labor to entrepreneurs.
* The university offers the incubator a credible profile in the community.
* The incubator offers valuable educational and outreach opportunities for students and faculty.
* A university that shows activism in entrepreneurship can attract increased philanthropic donations.

- But a university incubating strategy must fit within an educational and/or economic development strategy.  The larger strategy may involve workforce development, entrepreneurial graduates, or one of many other possible such missions.
* An incubator can be one of several programs that fulfill the larger strategy.
* The director of the collection of programs must be empowered to announce the strategy to the public and to execute the strategy - not to be pulled in conflicting directions by the differing objectives of the university and multiple funding agencies.
 
• But universities should not engage in incubation unless:
- unless Freedom of Information (FOI) regulations are finessed.
* A procedural firewall must exist between tenant company meetings and state/university employees.  Any university property used in connection with tenant company business - or any notes taken by university employees extending business coaching to incubator tenants - may open the door to FOI requests.  The danger of this would discourage high-potential companies from applying for admission to the incubator.

- unless it is the explicit policy of the university that incubation is part and parcel of the university’s teaching and community service roles.
* Through operational programs and P.R., the university must integrate incubator activities with the missions of the university:  education, research, community service, and state and local economic development.
 
 

How can universities demonstrate the success of their incubator efforts?

• Universities running incubators should be prepared to use sophisticated methods of branding and targeted selling to recruit companies, capital and mentors, as well as to market the incubator internally to faculty and students.

• An incubator with a 3 year exit policy cannot have a large economic impact in the short term.  However, politicians, funding agencies, and university administrators who support the incubator will ask for quick results.  The incubators should strive for and publicize:
  - number of companies admitted
 - number of companies applying
 - admittees’ initial funding levels
 - sq. footage filled
 - tenant company’s subsequent funding
 - frequency and quality of educational and networking events, and size of audience attending
 - employment growth in tenant companies
 - public cost per job created
 - number of professional service providers pledging pro bono hours
 - product launches
and other measures that, individually or as ratios, indicate a promise of significant economic impact.

• Only a sustained, high-intensity effort will bear fruit for a regional strategy.  One networking/speaker event per month will not materially help entrepreneurs, nor create economic growth.  Trying for a year to build an entrepreneurial environment, then giving up, will do no better.  Can universities, investors, service providers, associations and governments work together to assure two or more educational events per week for five years?  Only this level of commitment and performance can build a perceived presence and offer programs that actually reach busy entrepreneurs and executives.
 
 

What will attract desirable incubator tenants in the 2000s?

• Focus on strategic technologies and business areas.  The Maui Tech Park is strong in this regard, emphasizing opportunities for building businesses around ocean farming, natural nutraceuticals, and  technologies deriving from the local strengths in astronomy and supercomputing (high-speed photography and “space junk” technologies).

• The Internet facilitates low-cost collaboration at a distance - after people have become acquainted face to face.  It also provides worldwide markets for local companies.  According to Intel founder Andrew Grove, “All businesses will be e-businesses.”  But this does not diminish the importance of “FTF” (face to face) contact with customers, investors, and suppliers.

- Universities can contribute to the e-business success of tenant companies by
* using their Internet expertise to provide support and new employees to the tenant companies.
* giving the incubator enough autonomy to truly help companies competing “on Internet time.”  Universities tend to operate on consensus, not on speed.  This mode is not acceptable if the university incubator represents that it can help Internet startup companies; any bureaucratic slowdown that stalls an Internet company will be broadcast over the Net at light speed, with sudden and total loss of credibility for the university and the incubator.

- Universities can contribute to the face to face aspect of globally networked entrepreneurship by:
* leveraging visits of foreign scholars and officials by introducing them to incubator tenants, and
* using their downtown centers in major metro areas to host meetings for entrepreneurs and incubator tenants from statewide and beyond.

• Low real estate costs are an attractor for new and relocating high-growth-potential companies that are potential incubator tenants.

- But are not sufficient, if there is not also excellent transportation and communications infrastructure surrounding the incubator.
- Universities with attractive surplus space are better suited to take equity from companies, as cash flow is not critical to most universities.

• There are opportunities for university-owned incubators in less urbanized areas to attract promising tenants.  This is a speculative assertion; it will be set forth in detail in this project’s final report.
 
 

What should Oregon universities do?

• Universities should understand their strengths vis a vis incubation; attract funding to build on those strengths; and play to their strengths and their mission in the marketplace.  Public universities serve geographical areas sparse in entrepreneurial infrastructure.  They take the long term view.  They are well-connected with local businesses and local problems, but network with far-flung scholars and alumni.  They have the loyalty of young people and their families.
 Oregon universities may constructively build, own and run incubators...
... when the university is located in an area of low-cost real estate.
... to serve companies that are not “living on Internet time” and yet have significant growth potential.
... where a community effort can be sustained without pressure for short-term results.
... if the university can leverage its contacts and its communications/transportation facilities to connect companies to investors, customers, advisors, and suppliers.
This is, perhaps, a rare situation.  But results could range from the creation of a few jobs and companies, to the complete economic transformation of the community.  The university can enjoy long-term capital gains from equity in tenant companies.
Oregon universities should partner with investor-owned incubators...
... in more urbanized, high-cost areas.
... to serve new businesses that face severely limited windows of opportunity.
In either case,
Oregon universities should seek funding to prepare themselves for these roles.  Funding can be applied to...
... expanding academic entrepreneurship programs;
... educating faculty about the procedures and rewards of university patenting, licensing, and spin-off formation, and helping them decide when to publish and when to “disclose” to the university intellectual property office;
... joining the National Business Incubation Association;
... offering outreach programs to immigrant, women and minority entrepreneurs;
... setting up internship programs;
... sending student teams to national and international new venture competitions;
... engaging more business executives and investors in university classes, organizations and activities.
 
 

Conclusion

Universities have a constructive role to play in new business incubation.  Oregon universities should take care that their incubation activities complement rather than duplicate those now provided by private investors; universities should play to their strengths, and these strengths include the ability to take the long view, to creatively utilize real estate assets, and to create, disseminate and apply advanced knowledge.
The actions recommended in this report should not be taken as immutable; the stock market and investor enthusiasms will inevitably shift, opening new opportunities for universities.  But for now, universities should not attempt to “help” dotcom/e-commerce companies with narrow market windows by putting them in incubators that are subject to restrictive rules of university bureaucracy.  These companies are better served by private investor incubators, but the university can assist by contracting with the investors, to create the maximum interaction with university programs and resources.
University-owned incubators can best help other kinds of high-growth-potential companies.  In rural areas, this might mean plant biotechnologies (like the algae projects in Maui’s incubator), or telemarketing / service center businesses, or multi-level businesses that do not require venture capital to kick-start their growth.  University and rural incubators can take heed that “all businesses will be e-businesses,” helping local businesses survive and gain efficiency by automating their transactions.  University and rural incubators can grow companies that provide the telecommunications or other infrastructure services that facilitate the Internet economy.  They can also nurture companies that take the long view of the transformative power of the Internet, looking beyond the quick-hit profits to be made by “attracting eyeballs” to websites and selling groceries over the Net.
Tornatzky et al (1996) provide an admirable comparative view of many university-connected incubators.  While those authors, and the case studies above, include many universities in the eastern U.S., the individualistic ethos of the west might suggest that Oregon look to other western role models.  Two of Tornatzky et al’s summaries are extracted below to conclude this report.
UBC Research Enterprises at University of British Columbia is a good example of a positive organizational arrangement.  This office deals with all aspects of the university’s portfolio of sponsored research with industry, as well as all aspects of intellectual property management, patenting, and licensing.  In addition, it takes on the task of functioning as an incubator without walls....The office is willing to assist faculty inventors as they work through the entrepreneurial process.  In contrast with many university technology offices, which tend to focus exclusively on licensing to already established companies, UBC Research Enterprises routinely provides (or brokers) many of the services that traditional incubators offer.

Wichita Technology Corporation is one of three nonprofit “commercialization corporations” established by the Kansas Technology  Enterprise Corporation (KTEC), each of which is collocated with a state research university... the commercialization corporations ar independent not-for-profits.  However, they are programmatically linked with the university.... The commercialization center will review technologies emerging from the university and... identify those that have the potential... for a significant business.  WTC’s role...is... putting together the business - which might imply pulling in other technologies - identifying other business partners, securing capitalization, and so on.  Since the parent organization, KTEC, also invests heavily in university-based research centers of excellence, the commercialization corporation has ready access to university technologies.
 
 
 
 
 

About the Author:

Author Contact Information:
Fred Phillips
General Informatics LLC
15695 SW Bobwhite Cir., Beaverton, OR, 97007
503-579-0744
stilatexan@aol.com
 
 
 
 

APPENDICES

Bibliography: Literature reviewed for this study

Berglund, Dan.  University-Industry Partnerships: Examples & Lessons Learned.  State Science & Technology Institute.  September 1999.
Bienkowski, Dr. Robert S.  “Internal Incubators.”  Email: Office of Technology Transfer, North Shore - Long Island Jewish Health System.  January 26, 2000.
Bixby, Pam.  "Texas MBAS Hatch Big Ideas at the Austin Technology Incubator."  Texas.  Spring 1999: 18-20.
Breamer, Dallas.  “Prospective Tenant Questionnaire.”  Tri-Cities Enterprise Association, Richland, WA, 1998.
Christensen, Jean.  “High-Tech companies sprout on former Maui farm land.”  Associated Press, February 28, 2000.
Fox, Loren. "Hatching New Companies."  UPSIDE.  February 2000: 145-152.
Francis, Mike.  “Garage.com shops for deal among Oregon’s entrepreneurial elite.”  The Oregonian, November 29,1999, p.D1.
Hall, John.  Presentation for the Meeting with Jim Coonan & Diane Vines.  Portland, Oregon: January 2000.
Hayhow, Sally, ed.   A Comprehensive Guide to Business Incubation.  Athens, Ohio: NBIA Publications, 1996.
Jones, Steven D. “Oregon makes headway as breeder of high-tech.”  Wall Street Journal, December 15, 1999, p. NW1.
Kalis, Nanette. Equity and Royalty Agreements for Business Assistance Programs.  National Business Incubation Association.  Athens, Ohio, ©1997.
Kelly, Jason.  “Filling in the triangle: North Carolina’s tech center tries to come together.”  Upside.  December, 1999. p.229-230.
Kozmetsky, George.  “Gaining Perspective.” Remarks to the Austin Technology Incubator 1996 graduation ceremony, September 26, 1996.  IC2 Institute, University of Texas at Austin.
Manoa Innovation Center.  http://www.htdc.org/mic/mic.html
McKinnion, Susie & Sally Hayhow.  1998 State of the Business Incubation Industry.  Athens, Ohio: NBIA Publications, 1998.
Molnar et. al.  Business Incubation Works.  Athens, Ohio: NBIA Publications, 1997.
National Business Incubation Association.  “Industry Facts and Figures.”  March, 1995.  NBIA, Athens, Ohio.
National Business Incubation Association.  NBIA Review. Jan/Feb, 1996.  NBIA, Athens, Ohio.
Phillips. Fred. “Incubator Activities and the University-Incubator Relationship.”  Presentation to the Japan Research Institute, Tokyo, June, 1992.
Press, Eval, and Jennifer Washburn.  “The Kept University.”  Atlantic Monthly, March, 2000, 39-54.
Tice, Carol.  “UW incubator to be learning center for students, faculty.”  Seattle P-I (?), (1999, day and month unknown), sent to me by fax by Bill Newman of SVP.
Tornatzky, Batts, McCrea, Lewis, & Quittman.  The Art & Craft of Technology Business Incubation.  Athens, Ohio: Southern Technology Council, and the NBIA publications, 1996.
Wong, Daniel D.  “Comparative analysis of hi-tech entrepreneurship activity and its supporting environment between Portland, Oregon, and Vancouver, British Columbia.”  Oregon Graduate Institute of Science and Technology, December, 1995.
 
 

 Consulting Goliath Andersen's $1.2 Billion Net Initative

 The initial goal of the new Andersen centers will be to cut down on the time
 it takes an e-business to go from a seed-funded start-up to a
 revenue-producing business.

 "There is an incredible market demand for access to management and
 technology skills during the 'post-incubation' period," Tolan said in a
 prepared statement. "Venture capital firms, strategic investors and
 traditional corporations need to speed their investments to market in order
 to maximize the return on invested capital. Up until now, they had nowhere
 to turn."
 
 Andersen will target new companies with one or two rounds of funding behind
 them.
 
 "We are interested in what you might call the second-stage launch, when they
 already have a handful of employees and have developed a prototype based on
 their business model," Brian Johnson, partner and co-leader of Chicago's
 Launch Centre, told the Daily. "By then it's easier to separate the Internet
 winners from the Internet losers."
 
 Andersen is widely considered the Big Five front-runner in the dot-com
 space--Scient founder and Chairman Eric Greenberg considers them one of the
 only established consulting giants to become a serious competitor in the
 systems integration space. The company has worked with or invested in 175
 dot-coms within the past two years.
 
 "In creating these centers, we are providing our clients with unmatched
 resources to achieve success in the e-commerce marketplace, and in so doing,
 we will continue to play a leading role in the new economy," said CEO Joe
 Forehand in a prepared statement. The $8.3 billion firm employs nearly
 65,000 people in 48 countries.
 
 The centers will provide the usual angel and VC funding resources,
 management, financial, and technical support, and business development tools
 many incubators offer. But of Andersen's 17 centers in the works, 13 will be
 planted outside of the U.S.
 
 "Replicating your business model globally is key," Johnson said, noting that
 Microsoft earns 50 percent of its net income from outside the U.S. "As soon
 as you launch your site, some smart entrepreneur in another country can
 figure out how to clone your business... What we can do beyond the
 consulting is give [start-ups] an instant network they can use to connect
 with our worldwide client base."

 Andersen is widely considered the Big Five front-runner in the dot-com
 space--Scient founder and Chairman Eric Greenberg considers them one of the
 only established consulting giants to become a serious competitor in the
 systems integration space.
 
 According to Forrester, this move allows Andersen to claim ownership of the
 life cycle of a dot-com--from incubation to profitability. "Andersen
 recognizes that launching a dot-com is not just about securing funding and
 wooing Wall Street," Forrester Analyst Christine Spivey Overby wrote in a
 recent report. "With this international focus, Andersen will: 1) leapfrog
 other providers' U.S.-only incubation services, 2) build out its global
 portfolio of e-business clients, and 3) tap undiscovered Internet talent and
 ideas that feed both U.S. and international engagements."
 
 Blueprints have been drawn for Launch Centres in Atlanta, Boston, Chicago,
 Dublin, Frankfurt, Helsinki, Johannesburg, London, Madrid, Milan, Palo Alto,
 Paris, Sao Paulo, Singapore, Stockholm, Sydney, and Tokyo. Every center will
 be led by two Andersen partners, each under Tolan's tutelage.
 
 "We are providing fledgling dot-com businesses with the specific resources
 they require, at the moment they need them, to quickly enter the
 marketplace," Tolan said. "It's often said that in the e-economy it's better
 to be first than to be right--our clients will be able to be both."
 
 Contact Eric Jackson: 917-452-5151, eric.s.jackson@ac.com
 http://www.ac.com
 
 
 
 

A Capital Plan for College Ideas  (UVentures.com)

In 1966 a young physiologist at the University of Florida started giving an
experimental electrolyte drink to the freshman football team.
That year, the Gators began a winning streak that earned them a reputation
as a "second-half team" by kicking ass in the final plays.

The team's stamina was attributed to the fruity fluid-replacement drink,
developed by medical researcher Dr. Robert Cade.
"We didn't have Gatorade," the coach of an opposing team told Sports
Illustrated after losing to the Gators. "That made the difference."
With these words, one of the most successful products to come out of
university research was born.
Currently, Gatorade <http://www.gatorade.com/> earns the manufacturer,
Quaker Oats, $1.3 billion in annual sales, and for years has been one of the
University of Florida <http://www.ufl.edu/>'s top money-making spin-offs.
The Gatorade story, is not, however, typical.
With a few notable exceptions, most university research is never
commercialized. Instead, it is doomed to a life of obscurity on a laboratory
shelf.
But entrepreneur Craig Zolan wants to change that with a new Internet
technology marketplace that matches technology sellers with technology
buyers.
Zolan's UVentures <http://www.uventures.com/> is an eBay for patent holders.
Researchers at colleges around the globe list their inventions in the hopes
of catching the eye of a mega-corporation hunting for the next breakthrough
idea.
Zolan, who comes from a family of entrepreneurs -- all five siblings and his
parents started their own businesses -- knew a tech marketplace was a good
idea when he floated that idea one afternoon during a visit to a university.
He was immediately pitched 20 or more undeveloped technologies.
"There are a lot of lost opportunities," he said. "I did some investigating
and realized it was epidemic among institutions. There is a lot of
technology that can be commercially viable but it is just sitting there."
According to Zolan, with the exception of Stanford
<http://www.stanford.edu/>, the University of California, and MIT
<http://www.mit.edu/>, most universities and colleges are not very good at
capitalizing on the ideas hatched in their labs.
While many of these institutions have offices for "technology transfer," as
it's known, they tend to be under-funded, under-staffed, and rely on a
hopelessly outdated business practice: personal contacts.
"Universities aren't in the business of selling products," said Zolan,
UVentures' CEO. "They are in the business of teaching and research. They
want to license these things out but the problem is they don't know how to
do so in an efficient manner. A lot of opportunities are lying fallow and
going to waste."
Citing figures from the Association of University Technology Managers
<http://www.autm.net/>, Zolan said that in 1998 universities spent $24
billion on research, but earned only $725 million from licensing it.
If only a fraction of that expenditure can be recouped, Zolan reasons, the
rewards for UVentures, which takes a percentage of any licensing deals,
could be significant.
"Industry typically generates $10 for every $1 spent on R&D," he said.
"Universities are generating 10 or 20 cents on the dollar. Even a 10 to 15
percent increase translates into huge dollars."
So far the site has listed 3,200 technologies from 37 different universities
in the United States, Europe, and Asia. The technologies range from new
drugs, chemicals, and materials to new ways of performing Internet searches
and telephony over the Net.
Though UVentures has yet to make a sale, Zolan claims to have set up about
25 matches. He noted that the Byzantine licensing process sometimes takes
years to navigate.
"It can be very complex," he said. "It's not one-click shopping."
Carl Oppedahl, a patent lawyer with Oppedahl and Larson
<http://www.patent.com/>, said technology licensing is notoriously
haphazard.
"There are some universities that have made enormous amounts of money from
their patents," Oppedahl said. "But there are enormous untapped resources in
the patent portfolios of other institutions."
UVentures joins a rapidly growing sector of technology marketplaces on the
Internet. Late last year saw the launch of a slew of new Intellectual
Property marketplaces, including yet2.com <http://www.yet2.com>, which
concentrates on selling technology developed by corporations; TechEx
<http://www.techex.com>, which focuses on the life sciences; and the Patent
& License Exchange <http://www.pl-x.com/>, a patent auction.
While skeptical that new websites will sweep away the old ways of licensing
good ideas, Oppedahl predicted technology licensing will benefit from Net
matchmakers.
Terry Young, executive director of Texas A&M University System
<http://tamusystem.tamu.edu/>'s technology licensing office, also cast a
cold eye on the new startups.
"This is a growing area based on the notion that you can license technology
by just putting a piece of paper in someone's hand," Young said. "But that's
not the way it happens. You have to know how to transfer the know-how and
the technology. It's really a person-to-person kind of business."
Young said at best, IP marketplaces will prove to be just another tool for
good old-fashioned networking.
"We're all looking for ways to spread the word about our opportunities," he
said. "But when it comes right down to it, these things will only help you
find people. Then you have to do the face-to-face, person-to-person
transfer."