Universities: Your New Best Friend
Kathy Zelenock needed venture capital for her start-up, e-Cognita Technologies Inc., which makes transaction-management software for the mortgage industry. She found it at the University of Michigan.
When Darryl Brown came up with the idea of selling a coating and seasoning mix he created for chicken, pork, and seafood, he needed legal advice on setting up his new company, Tasty Delite International Ltd. He got it from the University of Chicago.
Howard Leventhal was thrilled to learn about a new technology that could help deter illegal copying of digital files. It was an obvious fit for his young company, BitzMart Inc., whose software helps sell video, music, and other media products over the Web. Leventhal licensed the technology from its developer, the University of Miami, and with the help of a company called Utek Corp., he didn't have to spend a dime of start-up capital to do so.
What's going on here? Universities a friend to business? What ever happened to all those tweed-jacket-and-blue-jean-garbed professors who liked nothing more than to thumb their noses at the money-grubbing business set? Sure, business schools have long had a habit of reaching out to companies, but that attitude hasn't necessarily been shared by the rest of academia. The cultural divide between those who like to theorize and those who like to do has always made it hard for college profs to become close collaborators with business execs, and vice versa.
Today that relationship is undergoing a fundamental change, as universities begin to understand just how much they stand to gain from closer ties to the business community, and companies realize just how rich the opportunities can be on college campuses. Among those who stand to gain the most from the glasnost are small entrepreneurial companies. Their work is often at the forefront of new industries and technologies, so it is often the most attractive to a university. And such businesses generally need the most help. "It's become OK for universities to work with the entrepreneurial community and not have that look like they're selling out," says Robert Sullivan, dean of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. "They're not ashamed anymore. That's a huge change."
ACADEMIC-LEE: University of Kentucky president Lee T. Todd Jr. has put the school's resources at the disposal of company builders.
The exciting result: the desire to work with business partners has spread from the traditional B-school venue to schools of law, engineering, and medicine, spawning an intriguing array of new programs and resources. New matchmaking services are springing up to help connect private businesses with the right school or faculty member. And there are even new funding opportunities, such as vouchers, to help business executives take full advantage of what colleges have to offer.
"I'm seeing what I like to call the engagement of entrepreneurs with the university and the university acting more like an entrepreneurial enterprise, reaching out," says Ray Smilor, president of Beyster Institute, based in La Jolla, Calif., and a former business-school professor at the University of Texas at Austin. "For entrepreneurs outside the university, I think they're finding the university far more receptive to their coming in."
One way to capture the magnitude of the change is to look at the kind of people who are joining the academic world. Consider Lee T. Todd Jr., who has been president of the University of Kentucky for just over a year. In his previous life, Todd started, ran, and eventually sold two high-tech businesses based in the Bluegrass State: Projectron Inc., a projection cathode-ray tube maker, and software company DataBeam Corp. When he was a company owner, part of his goal was to create good jobs in Kentucky. Now he's trying to do the same thing as president of the state's largest public university, in effect redefining its mission.
As Todd sees it, the university has a responsibility to drive economic development, especially at a time when traditional manufacturing jobs are disappearing or moving overseas. So Todd is taking steps big and small to encourage company building in Kentucky. They include beefing up the university's research capabilities, not just to boost the school's academic stature but to fuel a future generation of high-tech start-ups as well. The university is expanding its existing technology research park and is aiming to help the city of Lexington turn an old Woolworth's building into an incubator. For the first time, the school has put part of its endowment into venture-capital funds, investing $3 million in two regionally oriented funds. With a $2-million alumni gift, the business school is setting up an entrepreneurship center. Todd himself is advising the newly formed campus E-club, composed of would-be entrepreneurs among students and faculty.
Talk with a dozen university presidents, deans, and professors across the country, and it will become clear that there are several reasons a school like the University of Kentucky has decided to so wholeheartedly embrace the private sector. The first is the already-mentioned realization that they can be powerful engines of economic development, a role that state and local governments are increasingly demanding that public universities play. In Michigan, for example, a new "life sciences corridor" enlists the University of Michigan, Michigan State University, and Wayne State University in a collaborative effort to support emerging biotech businesses -- just one of many similar programs around the country.
Some private universities, too, are stressing partnerships with business as a way of strengthening community ties. At Rensselaer Polytechnic Institute, a relatively new president, Shirley Ann Jackson, emphasizes the school's responsibility to help boost the less-than-booming economy of the surrounding Troy, N.Y., region. Making the community stronger makes the university stronger, and vice versa, says Jackson. So, among other things, she's infusing entrepreneurship courses into the technology-based curriculum and expanding the school's 22-year-old incubator. "More and more universities understand that they perform a community-development role," says Simon Balint, manager of operations at the incubator. "That hasn't always been the case."
Then there's the allure of technology commercialization, made so visible during the Silicon Valley heyday. In 1980 the Bayh-Dole Act gave universities intellectual-property rights to the results of on-campus research done with federal funding. Since then, licensing that technology, a process usually known as technology transfer, has become a growing source of revenues for schools. Surveys that the Association of University Technology Managers has done of its members show that total university revenues from technology licensing in the United States and Canada shot up from $186 million in 1991 to $1.3 billion in 2000.
Some schools have benefited more than others. Just three institutions -- the University of California system, Columbia University, and Dartmouth College -- accounted for $467 million of that $1.3 billion. (Dartmouth, for instance, produced a new deicing method, using electrolysis, that has aerospace and automotive applications.) But even a small slice of that billion-dollar pie is tempting.
"Universities are now sitting on and have been sitting on a lot of good research that could form the basis of companies," says Tim Petersen, managing director of the Samuel Zell and Robert H. Lurie Institute for Entrepreneurial Studies at the University of Michigan. "It's not just big research universities; it's any university that has some research going on. Over the past 5 or 10 years, a lot of universities have seen the light. They have something that could provide some financial support for the university."
HAIL TO THE VICTOR: First, the University of Michigan gave Kathy Zelenock $100,000 in capital. Then they sent over six M.B.A.'s to provide gratis consulting services.
And these days institutions of higher learning need that monetary support more than ever. The financial pressures on them are considerable, notes UNC provost Robert Shelton. State schools have suffered budget cuts as the surpluses in many state treasuries have quickly turned into nasty deficits. The collapse of the stock market has bruised endowment funds at many private and public schools, too. And increasingly, when the government awards research grants, it expects universities to pick up more of the direct costs. Meanwhile, schools face competitive pressure to boost faculty salaries, the continuing costs of upgrading technology, and rising enrollments that translate into higher expenses.
Increasingly, universities are cashing in on their investments in research. In 2000 university-generated inventions spawned 454 start-ups, up from 241 in 1994, according to the Association of University Technology Managers. Sometimes the faculty or student inventors launch the companies; in other cases entrepreneurs outside the university license the technology. Either way, the university usually ends up with licensing income or equity in the new company, a strong inducement to fostering an entrepreneurial culture at the school.
Another major factor is the revolution in business-school curricula over the past 25 years, as entrepreneurship has gone from a curiosity taught in a handful of schools to a must-have. The change reflects the growth of entrepreneurship in the overall economy. "Big corporations don't play the same sort of dominant role that they used to," says Dennis Logue, dean of the Michael F. Price College of Business at the University of Oklahoma, explaining why his school is now launching an entrepreneurship center. "Increasingly, our students will end up working for entrepreneurial organizations." Now about 1,250 U.S. colleges and universities offer entrepreneurship courses, according to professor George Solomon at George Washington University, who tracks entrepreneurship programs.
To teach the subject properly, it helps to have access to company builders. Students need hands-on experience, whether in the form of an internship, a class consulting project, or simply a face-to-face conversation with someone who has started and run a business. Many of the new university programs that help entrepreneurs are really geared to giving students direct experience with growth companies.
For CEOs such developments mean that universities are offering more support and resources to young businesses than ever before. We've profiled some of the most intriguing and unusual new programs here. To find out what's available, you have to ask. But it's even trickier than that; you also have to make yourself desirable. Before you start dialing, see "The First Day of School," below, for the best way to proceed.
The payoff? Just ask Darryl Brown, Howard Leventhal, or Kathy Zelenock. The University of Chicago's Institute for Justice Clinic on Entrepreneurship incorporated Brown's business, drew up a nondisclosure agreement to protect his recipe, and reviewed contracts for him, as well as helped him write a business plan and apply for grant assistance. While Tasty Delite is not yet profitable, Brown's mix is now on supermarket shelves in 26 states.
The digital-file technology that Leventhal acquired from the University of Miami dovetailed precisely with BitzMart's existing offering, he says. Leventhal gave up a sizable chunk of his company -- 25% -- to acquire the technology through Utek but says that it was well worth it. "Frankly, it's evolved into the entire proprietary basis of our company," he says. With 12 employees, Chicago-based BitzMart is now beginning to license its software to large technology companies.
And for Zelenock, the $100,000 in venture funding that she got from the University of Michigan's Wolverine Venture Fund was just the beginning. That initial contact gave her entrée into other university offerings. Most notably, through a business-school internship program, Zelenock enlisted the help of six M.B.A. students full-time for seven weeks on marketing issues for e-Cognita. "We got resources that we would never be able to afford as a start-up," says Zelenock. "Every investor offers support and assistance, but this has been far and away the most valuable in that respect."
Emily Barker is a former senior staff writer at Inc.
The First Day of School
If you're looking for academic resources, what should your first step be? A good first contact is an entrepreneurship professor at the nearest business school. If the school has its own entrepreneurship center, even better, since it will likely have a community focus. For links to 60 centers around the country, visit the Web site for the National Consortium of Entrepreneurship Centers (www.nationalconsortium.org).
Some programs described in this article -- such as the Wolverine Venture Fund and the Kentucky Research and Development Voucher Fund -- will require you to fill out an application. Others, such as Utek Corp. (www.utekcorp.com) and TechKnowledge Point (www.techknowledgepoint.com), are intended to be portals into academia's rich but often hard-to-find resources.
At schools where the kind of help available to growth companies is very traditional -- along the lines of student consulting projects or internships -- networking is the key. You can often mingle with the entrepreneurship faculty by attending business-school events that are open to the public. With just a hint of self-interest, Donald F. Kuratko, executive director of Ball State University's entrepreneurship program, recommends taking someone in his position to lunch. Not only do you get the director's undivided attention, but you also avoid the nightmare of trying to find on-campus parking.
Once you meet, it's important to take the right approach. "If you call a college and say, 'What do you have to offer?' you won't get much," warns Babson College's Stephen Spinelli. Agrees Robert Sullivan, dean of the University of North Carolina's business school, "If there's an entrepreneur with a company and they're simply looking for a handout, generally we don't encourage them." Universities have limited resources just like everyone else these days, and their number one concern remains their students. So they want to know what you as a business owner can do for them.
Mostly, that means providing students with interesting learning experiences. "If entrepreneurs just want someone to go out and do a project for them, we're not as interested, as opposed to the entrepreneur that will allow our students to sit in on key meetings and really get a feel for what is going on in the business," says San Diego State University's Alex DeNoble. "If they're looking for cheap labor and they're not looking to give something back in return, to me it doesn't work." Some schools devise mechanisms for ensuring student satisfaction. In Pennsylvania State University's Learning Factory program, for example, companies submit engineering problems for seniors to solve, but students themselves bid for the projects that they want to work on.
You further enhance your chances of getting help by self-selecting. The owner of a family business is obviously better off approaching a school with a family-business program. Hinting that you might hire the students you work with is also a good tack to take. At UNC, Sullivan is looking for companies with big ambitions and good survival prospects in part because they might someday employ his students.
In short, the opportunities at universities are there. But as with any successful marriage, you'll need to commit as much as your partner.
Entrepreneurs in need of business and technical help can find them both at the new Center for Commercialization of Advanced Technology at San Diego State University (http://ccatsandiego.org). SDSU's Entrepreneurial Management Center and the University of California at San Diego's School of Engineering are collaborating with the Pentagon and a defense contractor to develop technology that has defense or homeland-security purposes. Once accepted into the program, businesses are eligible to receive a range of services. Students and faculty at the business school will hone business plans, while the engineering school can help with feasibility studies and R&D support.
Beyond the B-school
A number of schools, including the University of Chicago, Northwestern University, and the University of Pennsylvania, have started legal clinics aimed at helping small businesses. The University of Chicago Law School Institute for Justice Clinic on Entrepreneurship (http://clinic.ij.org), for instance, offers help to inner-city company builders. The clinic has three full-time staff members and is formally affiliated with the university's business school. It targets low- to moderate-income entrepreneurs in the Chicago area as well as ventures that have the potential to create jobs in depressed neighborhoods.
More Flexible VC Funding
Historically, university-run venture-capital funds have backed only teachers or alumni. No longer. Pennsylvania State University's student-managed Garber Fund invests in businesses outside the university. The University of Michigan's Wolverine Venture Fund (www.zli.bus.umich.edu/wolverine_vent_fund/) prefers companies with a blue-and-gold connection; simply employing an alum is enough. Penn State's Farrell Center for Entrepreneurship (www.smeal.psu.edu/fcfe) is run by a VC who trolls for deals at his day job. Meanwhile, the University of Maryland College Park's Dingman Center for Entrepreneurship (www.rhsmith.umd.edu/dingman) is much more focused: it seeks early-stage high-tech companies in low-income areas.
The Center for Design & Business (www.centerdesignbusiness.org), in Providence, a five-year-old joint venture between Rhode Island School of Design (RISD) and Bryant College, offers business help to designers and design help to businesses. In one part of the program, artists and designers with an idea for a product can take classes in entrepreneurial basics, such as writing a business plan or learning the ABCs of accounting. A second part is directed at established businesses that need to design a new product or refresh an old one. For $750, a company gets a two-hour brainstorming session with a roundtable of experts that includes design faculty or students from RISD and management faculty from Bryant, as well as other area experts and professionals.
The National Network for Technology Entrepreneurship and Commercialization (www.n2tec.org), based at the University of Southern California, links up universities across the country to help faculty and student entrepreneurs tap a broad range of management and technical expertise. It also extends that privilege to minority- and female-owned businesses outside the academic world. Those businesses are eligible to receive vouchers good for purchasing up to $5,000 worth of resources at USC and ultimately other universities in the network, including technology licenses, consulting services from business-school faculty and students, and the use of university facilities, like laboratories and machine shops.
Meanwhile, under the two-year-old Kentucky Innovation Act, small and midsize Kentucky companies can use awards from the Kentucky Research and Development Voucher Fund (www.tig.kstc.com) to pay for R&D services at any accredited university in the state. Awards can run up to $200,000 over two years, and companies are required to match the award dollar for dollar, although they can use a mixture of cash and equity to do so.
Companies have sprouted up to help businesses find the right professor for their needs. One is TechKnowledge Point (www.techknowledgepoint.com). B-school profs can put their profiles on the site, listing their qualifications. For a fee of $100 a year, CEOs can search the database to find the expert they're seeking. Utek Corp. (www.utekcorp.com) acts more as an intermediary in the important but often confusing area of technology transfer, helping small businesses license school technology.
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