The Ivory Tower’s Children

Industrial cities are increasingly turning to universities as the source of economic expansion. Chicago, Cleveland, Columbus, Pittsburgh, and others have established formalized programs to support university-based start-ups. Often these programs are paid for by a combination of public and philanthropic (quasi-public) dollars. Thus, the policy question: are these good investments for the taxpayer?

The answer to this simple question includes numerous complexities beyond just one or two studies, but some data are worth point out.

Our first pass shows us that university start-ups turn out to have a higher rate of success than we all thought. In a recent study by myself and Arvids Ziedonis of the University of Michigan (Management Science, 2006 v 52: 173-186), we examined a novel data set of almost two decades of licensing activity at the University of California System. We compare the relative performance of start-ups and established firms in commercializing inventions discovered in the same university departments. We find little difference between start-ups and established firms in the time it takes to develop and introduce to the market a product based on a licensed invention. We also find that start-ups generate greater levels of licensing revenues for similar technologies than do established firms.

Moreover, >80% of the start-ups founded between 1986-1995 (all pre-dot com, “real companies”) were still operating companies by 2004.

The good news is that parallel examinations of Carnegie Mellon and Georgia Tech data yielded similar results. In personal discussions a few years ago with Ed Roberts at MIT, he told me he found the same for his university. Thus, of the few universities we know data from, we observe a really good success rate, certainly better that we all might expect.

This observation doesn’t definitively prove that university start-ups are the best use of public funds, but the data to date certainly support that they’re good investments. The larger policy question is what/how-should programs support this investment, and do university-based firms have a real pay-off for the regional economy.