As Facebook IPO Nears, Universities Take Aim at Student Startups

Monday, March 12, 2012

Facebook's recent filing has many commentators likening the social networking site, started in a Harvard dorm, to the search giant Google, founded by two Stanford PhDs less than a decade earlier. But for all their similarities - visionary student founders, explosive marketshare, tremendous valuations - there is at least one difference that their respective alma matters are likely to take note of as the Facebook IPO grows near. While Stanford netted a $336 Million dollar pay-day from Google's 2004 IPO, Facebook's looming IPO will leave the trustees of Harvard with little more than a cameo in last year's Oscar-nominated film.

As an outgrowth of Stanford's Digital Library Project, where founders Sergey Brin and Larry Page were researchers, Google's underlying "PageRank" algorithm was property of the university. When Brin and Page left Stanford to spin-off off what would become Google, they had to license the technology from the university in a deal for 1.8 million shares of their new company, which today would be worth $1.1 Billion.

While Stanford's gain from Google is unusual, technology-transfer agreements have long been the primary means by which universities support and profit from startups. However, as Facebook illustrates, more student-founded companies are bootstrapping without university technology, leaving schools without any profit -- though that may be changing.

"The university has always been a supplier of both technology and talent," says Frank Rimalovski Managing Director of the NYU Innovation Venture Fund  "and its our job to foster and support that." Rimalovski's fund, which was created by the university in 2010, makes seed and series A investments in startups with ties to NYU. To date the $20 Million fund has made three investments two of which (Fondu and numberFire) were started by current students with no ties to university technology. "There's definitely been a groundswell of entrepreneurial interest from students," says Rimalovski "and if there's another Zuckerberg walking around our hallways, we want to be as supportive as we would of a faculty member working on a new cancer therapy."

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