Operation innovation: Startups on campus

Colleges and universities launch business incubators to instill entrepreneurial spirit—and so much more

The 18,000-square-foot space in Boston has all the hallmarks of a typical startup: Computers running equations, whiteboards filled with scrawled revenue projections and caffeine-fueled meetings about venture capital in glass-walled conference rooms.

But the Venture Development Center (VDC) isn’t a startup; it’s a business incubator at University of Massachusetts, Boston that houses dozens of fledgling bioscience and computer science startups. And the companies are not made up of just UMass students; their founders come from other schools—sometimes other countries—to take advantage of the amenities.

“The VDC shows off the amazing resources we have on campus and how entrepreneurial we can be in creating something that benefits our students, faculty and the region,” says founder and executive director William Brah.

Since launching in 2009, the center has grown into a popular hub for startups. Currently, 23 companies and more than 100 entrepreneurs are working there—and demand continues to rise. Of 108 applications for lab space, UMass Boston accepted just two.

Although “business incubator” has become a buzzword, these entrepreneurial centers have existed on campuses for decades, says Kirstie Chadwick, president and CEO of the business incubation- and entrepreneurship-focused International Business Innovation Association (InBIA).

In the past, colleges and universities created incubators to turn faculty research into practical applications that would generate licensing revenue. Now, colleges and universities launch incubators for different reasons. Millennials are entrepreneurial and want opportunities to explore launching their own companies. Incubators also help strengthen relationships with local communities, drive economic development and generate revenues.

InBIA’s 2,100 members operate 3,700 business incubators—and almost one-third are affiliated with colleges or universities.

For incubators to be successful, campus leaders must decide how to encourage enterprise development without undermining the academic missions, as well as foster strong ties between schools and incubators.

‘A richer dynamic’

Incubators provide students with internship opportunities and potential for employment opportunities after graduation. The centers also generate ideas for new courses and build more robust intellectual property portfolios.

But perhaps the biggest benefits come from inviting entrepreneurs outside of academia to join these campus entrepreneurial centers.

UMass Boston, Wayne State University, North Carolina State University and other colleges and universities that open their incubators to outside companies agree that operations there must align with institutional goals.

To that end, incubators often encourage (or require) entrepreneurs to give lectures, share knowledge and equipment, hire student interns, offer insight into curriculum development, and participate on faculty search committees.

“Our entrepreneurs must be interested in integrating with campus life,” Brah says.

New York University’s Tandon School of Engineering launched its first incubator in 2009 and has grown to include three more centers in two New York City boroughs, housing up to 50 companies at a time.

Just one-third of Tandon’s startups are affiliated with the university. And, thanks to partnerships with higher ed institutions overseas, the incubator is home to a number of international entrepreneurs exploring opportunities in U.S. markets and, in turn, giving American entrepreneurs a global market perspective.

“It creates a much richer dynamic to open the space to both NYU and non-NYU companies,” says Kurt Becker, the school’s vice dean for research, innovation and entrepreneurship.

Focus on funding

While the benefits are undeniable, so is the cost. “Incubators are expensive to launch and run,” says Chadwick of InBIA.

UMass Boston used five government grants to cover the $7.8 million price tag for the Venture Development Center. A significant portion of the center’s ongoing operating costs are sustained through rents, but the university relies on one to two grants per year to cover the shortfall.

Spaces rent for between $750 and $7,500 per month, while comparable lab space in the Kendall Square Innovation District in Boston would cost $14,000 per month, Brah says.

At NYU, the annual operating budget for three incubators tops $150,000. Funding for the efforts comes from government grants, corporate sponsorships and rents. “All three together don’t quite make us sustainable,” say Becker.

To improve financial stability, NYU introduced an entrepreneurship training class and incubator manager program in 2016. Tuition from the classes, which are open to the public, is expected to provide much-needed revenue to cover operating costs.

Even though 350 startups use TechTown—the Detroit incubator affiliated with Wayne State University—rent does not cover the $4.5 million annual operating budget that it takes to operate the massive 135,000-square-foot operation.

The school used a combination of loans, government grants and fundraising to launch the incubator but officials got creative in covering ongoing operating costs. They rented the space for conferences and special events, and added a co-working space that local companies (not part of the incubator) can rent to generate revenue.

But campus leaders should still expect to support an incubator with their institutions’ operating budgets. “I’ve never seen a university not subsidize its own incubator,” Brah says.

Economic development emphasis

The return on investment for incubators extends beyond campus.

“It’s about more than funding universities and incubators, it’s about funding entrepreneurial ecosystems in communities,” says Chadwick. “It’s an economic development play.”

After “graduating” from campus incubators, companies often rent offices in their communities and hire additional staff, building the local tax base. Because campuses have the space, equipment and funding, Chadwick explains, “universities are in the position to become resources for their communities.”

One entrepreneur who participated in the Technology Incubator at North Carolina State University went on to raise “millions” in funding and remains engaged with the school, says Kelly B. Sexton, director of the university’s office of technology transfer.

“He’s still helping support our research and advising in the development of university technology,” she says. “He was only in the incubator for a short time but his involvement with [NC State] continues.”

The 66 startups that graduated from NYU’s Tandon Incubators raised more than $190 million in venture capital since 2009 and created 1,250 new jobs—an economic impact of $352 million, according to an external study.

At UMass Boston, startups have hired 170 of the school’s graduates and raised an average $3.5 million (more than twice the amount raised by startups that went through another local incubator).

“These companies are on the fast track to wealth and we hope they’ll be generous to the university in the future,” Brah says. “We’ve put UMass on the map for the innovation economy in Boston and that will pay dividends long into the future.”

The equity equation

Colleges and universities generated $2.6 billion in licensing income in 2015, according to the Association of University Technology Managers. When it comes to assuming ownership of intellectual property to generate licensing revenue, campus incubators take different approaches.

New York University owns the intellectual property for innovations developed on campus. Chadwick, of the InBIA, supports the idea. “If companies are successful and sell, the money goes back into the university’s research coffers or, at a minimum, it can be used to maintain their patent portfolio,” she says.

But North Carolina State declared certain areas on campus, including its Technology Incubator, intellectual property-free zones that allow students and entrepreneurs to retain their intellectual property. “IP-free zones help attract students who are entrepreneurially-minded,” says Sexton.

Finally, UMass Boston generates $60 million in patent income annually, says Brah. The university claims ownership of intellectual property only if companies did their research on campus. Startups that migrated from other schools (or have other institutional affiliations) retain their intellectual property. 

Jodi Helmer, a North Carolina-based writer, frequently covers entrepreneurship.

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