How colleges do and don't promote entrepreneurship

Thanks to the vision of (and generous donations from) world-class venture capitalist John Pappajohn, the University of Iowa has one of the finest entrepreneurship programs in the country.

The John Pappajohn Entrepreneurial Center, housed in the University's College of Business, offers a core of more than 15 entrepreneurial classes in several courses of study leading to an entrepreneurial certificate. The university awards entrepreneurship certificates to students completing a curriculum that offers entrepreneurial business management, marketing, capital acquisition and cash flow management. Inc. magazine identifies this program "the first of its kind in the country."

Yet for universities striving to excel at encouraging future entrepreneurs, education is only part of the equation. In this era of tight budgets, some colleges and universities create aggressive technology transfer organizations to provide an additional source of revenue.

These organizations are populated with lawyers and staffers who may have little knowledge of the entrepreneurial process. These organizations often demand licensing fees (from patents developed by these entrepreneurs while students at the institution). Often these fees are excessive and front-end-loaded.

While this may appear to be a sound strategy for the institution, it prevents the entrepreneur from securing needed venture capital to properly launch the new enterprise; therefore, neither the entrepreneur nor the institution win.

When institutions take steps that discourage and stymie the entrepreneurial process, motivated entrepreneurs will find ways to bypass the institution's patent and start their company in a different form. They become driven not only to succeed but also to ensure their alma-mater never receives a dime of their money, either from licensing fees, royalties or future donations.

A few universities (thankfully not those in Iowa) evaluate their technology transfer organizations on the basis of near-term revenue growth.

Thus they become focused on short-term greed at the cost of long- term annuities. An avarice-laced quest by the institution can result in the potential of new technologies never being fully realized, and aspiring future entrepreneurs being discouraged from associating with that institution.

Consider Massachusetts Institute of Technology (MIT) as a case in point. Long a bastion of engineering excellence, it has spawned its share of successful world-class entrepreneurs, including Ray Stata, founder of Analog Devices, and Dr. Amar Bose, founder of the Bose Corp.

During the 1950s, Bose invented his sound system technology while at MIT, and MIT gave him the patent rights for nothing. In return, the Bose Foundation has donated more than $6 million to MIT. Subsequently Bose' son, Vanu Bose, also graduated from MIT. While working on his Ph.D., he invented (and the university patented) a technology that could ultimately lead to a "software radio" which may allow users to operate all their wireless electronics (e.g., cellular phones, security systems and garage door openers) from one device.

Dr. Vanu Bose decided to create a new business and approached MIT's Technology Licensing Office (or TLO). According to The Wall Street Journal, the TLO initially demanded over $1 million in licensing fees, royalties up to 10 percent covering all services, hardware and software, in addition to a 6 percent equity in the new company. As a result MIT has alienated the Boses. Even though the TLO subsequently reduced its demands, it appears unlikely MIT will see any further significant donations from the Bose family. This could result in the loss of many millions of dollars in donations to this venerable institution.

Colleges and universities take heed. If you want to encourage entrepreneurial activities among your students, entrepreneurial scholarship is only one part of the equation.

The other key is an entrepreneurial-friendly technology transfer program that seeks equitable compensation in a reasonable time frame.

Scott A. Clark welcomes your comments and contributions. You may send him your ideas for column topics by e-mail at mail

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