Caltech’s
Adventures in Entrepreneurism
By Michael Rogers
For much of Caltech’s
history, entrepreneurship was not exactly a dirty word, but one certainly
didn’t hear it used on campus much. In the past few years, however,
many students and faculty at the Institute have either started a company
or are hatching plans to do so. There are numerous reasons—both inside
and outside Caltech—for this swelling interest in starting companies.
But one thing seems certain. Even with downturns in technology stocks
and the deflated prospects of many “dotcom” companies, the interest
in starting commercial ventures out of Caltech will not slow down anytime
soon.
Investigators at Caltech have always been focused on making fundamental insights and discoveries. While the Southern California aerospace industry grew out of Caltech engineering, Caltech usually left commercialization to others. A steady stream of government funding helped insulate Caltech from the business world, but then the stream started to slow down during the 1990s. And with the high-technology explosion that has erupted since the 1980s, along with a flood of venture capital, the notion that academic science could distance itself from commercial applications changed.
John Baldeschwieler, entrepreneurial mentor.
The changes at Caltech
have also been student driven, according to John Baldeschwieler, the J.
Stanley Johnson Professor and Professor of Chemistry, Emeritus, who has
spearheaded many entrepreneurial activities on campus and has started
six companies himself. “In the early 90s, the traditional path of
going from grad school to teaching and research became less frequent after
cutbacks in defense and federal spending. And jobs at industrial labs
became harder to get. This was balanced by a huge growth in start-up companies.
So students understood the change in career mix, leading to a natural
transformation.”
In recent years, more
Caltech faculty members have become entrepreneurial, translating their
research projects into commercial products and occasionally start-up companies.
More students are interested in pursuing careers with new business ventures
or in starting their own companies than ever before. The Institute has
started to adjust.
In 1995, Caltech took a big step toward encouraging the entrepreneurial spirit when it formed the Office of Technology Transfer (OTT) to foster and promote start-ups and licensing activity at Caltech. Before the office was formed, the Institute would receive from its faculty approximately 65 invention disclosures a year. In 1999, the OTT received 143 invention disclosures, and last year, it received 157 invention disclosures.
The Institute has
a long history of protecting its inventions through patents, and last
year, 115 patents were issued to Caltech, up from 110 the year before.
In the past few years, licensing efforts have increased dramatically,
and currently more than 50 patent licenses and options are executed each
year.
A start-up is a special
case of a license, since no company could get off the ground, let alone
survive, based on a single product. Caltech’s “grubstake”
program assists faculty members who may have a project that is commercially
viable by providing funds ranging from $30,000 to $50,000 to cover the
costs of the project for one year to determine its feasibility. If successful,
and if the project supports a start-up, Caltech may aid the faculty member/entrepreneur
in seeking funding from venture capitalists, corporations, wealthy private
individuals (so-called angels), or groups interested in supporting research
in its very early stages to take the project from feasibility to a working
prototype.
Since most start-ups are based upon technology developed with federal support, the grubstake program serves as a catalyst. Once a company has been formed, the research is done in labs outside Caltech, although some Caltech facilities are available on a fee-for-use basis. When a company is formed to commercialize the project, the expectation is that both Caltech and the faculty member spearheading the project—and possibly the postdocs and students integrally involved—will have an equity stake in the company.
Larry
Gilbert, director of
Caltech’s Office of Technology Transfer.
Caltech currently
hatches about 10 start-ups a year, a pace that few other academic institutions
can match, according to Larry Gilbert, director of the Office of Technology
Transfer. “When I came here in 1995, any entrepreneurial activity
that was done at all was done out the back door,” says Gilbert. “Now,
many of the faculty are eager to work with us. And the new programs at
Caltech provide enormous benefits to students. They will be better prepared
to enter the workplace and can be part of start-ups themselves.”
Caltech is good at
launching spin-offs, because its basic research leads to new technologies
and discoveries, which naturally lend themselves to products and sometimes
companies. Caltech is also primed as an incubator for spin-offs because
of its interdisciplinary approach to research, where there are no walls
within or between departments. So in an area like the biological sciences,
where the skills of computer scientists, mathematicians, and control theorists
can help modern molecular geneticists make sense out of the huge data
sets being produced by the human and other genome projects, Caltech is
poised to exploit this information.
Recent Caltech start-ups
range from high-tech companies like Xencor, which uses computers to design
gene sequences to improve a gene’s properties for use by companies
to make drugs, industrial enzymes, and agricultural biotechnology products,
to consumer-products companies like Materia, which uses a Caltech discovery
of a new catalyst to make a plastic with unique properties for use in
diverse applications, such as sports equipment and pheromones.
The Office of Technology
Transfer helps these companies get off the ground by assisting in filing
patents, preparing business plans, finding sources of financing, identifying
intellectual property firms, CPA firms, and real estate firms, and assisting
in other aspects of launching a company.
Besides offering assistance
to Caltech faculty who are starting a company, Gilbert organized a series
of seminars in the summer of 1999, geared primarily for students, in which
several entrepreneurs outlined the process for starting a company. Prior
to that, in 1996, Baldeschwieler created a course in entrepreneurship
called Entrepreneurial Development that has attracted more than 50 students
each time it has been offered. “I go through the steps of building
a company, discussing intellectual property, venture capital funding,
accounting, writing a business plan, understanding markets, and other
issues,” Baldeschwieler says. “We have great confidence in the
technological understanding of our students, but business is about other
things as well, such as managing people.”
To get credit for
Baldeschwieler’s class, students must write a business plan, and
some of these projects eventually become actual companies. The class also
sponsors the $10K Business Plan Competition—in which two $10,000
prizes are awarded annually—to encourage, appraise, and promote business
ideas from within the Caltech community. The prizes are presented by alumnus
and entrepreneur Glenn Hightower ’72, MS ’73. In 1998, Caltech
added two additional business classes—one on the management of technology
and another on product design.
In 1994, Caltech students
formed an Entrepreneur Club to promote entrepreneurship at Caltech. The
club has a membership of approximately 250 students and regularly invites
Caltech alumni who have formed businesses to speak about their experiences.
The club also serves as a support network for budding entrepreneurs, providing
job leads and other information about starting a company for students.
In 1997, the Caltech
Alumni Association began a mentorship program to give students the chance
to talk to experienced alumni about careers and other subjects. It recently
evolved into connect@caltech, a program designed to help the Caltech community
network with each other and with other people who can provide information
about people and careers in science and technology. The Caltech Career
Development Center also provides guidance for Caltech undergraduates,
graduate students, and postdocs who are considering a career as an entrepreneur.
In addition, the Caltech
Industrial Relations Center sponsors a wide range of programs, including
seminars with executives of technology-based companies, and the Caltech/MIT
Enterprise Forum, in which technology-based companies seeking help with
growth and other issues present their cases to a panel of experts. The
IRC sets aside a few seats at all of its programs so that students or
faculty can sit in for free.
Recently opened on
the Caltech campus is Pasadena Entretec, a nonprofit corporation that
provides guidance and advice to entrepreneurs, helping them find financing,
real estate, liability insurance, and other recources to speed the start-up
process, and helping them locate their businesses in Pasadena and the
San Gabriel Valley. Although Pasadena Entretec is independent of the Institute,
“Caltech is supportive of Pasadena Entretec as a way of helping Caltech
spin-offs once they graduate from campus,” said Stephanie Yanchinski,
executive director of Pasadena Entretec. “We’re here to create
a critical mass of companies to attract the financing and management needed
to help companies grow.”
Caltech and Art Center
College of Design in Pasadena also recently received a joint grant from
the National Science Foundation’s Partnership for Innovation. The
grant creates entrepreneurial fellowships with the goal of educating science,
engineering, and design students about business issues so that they can
transfer their skills and knowledge to commercial applications, and successfully
develop new start-up business enterprises.
Many companies that
originated in Caltech labs set up shop in Pasadena, partly because the
founders may already be living here and partly because they often hire
Caltech students or graduates. The city of Pasadena is also trying to
promote high-tech start-ups by creating areas where new companies are
encouraged through reduced red tape, lower fees, and other incentives.
Examples include the biotechnology corridor near Huntington Hospital and
a manufacturing area in East Pasadena.
Caltech officials
say that when Caltech faculty, staff, or students are involved in new
ventures, care must be taken to manage conflicts of interest and commitment.
Faculty members might take a sabbatical in the early stages of a commercial
enterprise, but they usually return to the Institute. To make sure that
they do not compromise their positions at the Institute, faculty must
agree not to become day-to-day managers of their company. Most assume
advisory roles or board positions. Caltech has put in place an oversight
committee to ensure that disclosure and review of potential conflicts
are monitored.
Given the sudden wealth
of many entrepreneurs, one would expect that the people behind the start-ups
are attracted by the possibility of making money, but Gilbert says that
this is not the primary reason Caltech faculty and students start companies.
“The majority of the Caltech people who start companies truly believe
that they can make a difference by saving lives or providing some benefit
through their product. They believe that it will improve the well-being
of the community. They usually don’t do it to make money. Of course,
if the company is successful, they will.”
Adds Baldeschwieler,
“We hope that the successful Caltech entrepreneurs will ultimately
become major supporters of Caltech through grants and gifts to the Institute.”
Like the research that is behind the new Caltech spin-offs, the start-up experience of each of these companies has been unique. Take, for example, the stories of Ortel, Rainfinity, and Clinical Micro Sensors. Each story could comprise a separate article, and so it does in this special issue on entrepreneurism.
Article Links:
RAINFINITY: From Outer Space to Interspace
Clinical Micro Sensors: Star Trek Meets the Human Genome
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