WSJ: Why Stanford Is Celebrating The Google IPO
Abe Kohen
By ANN GRIMES
Staff Reporter of THE WALL STREET JOURNAL
August 23, 2004; Page B1
Stanford University won three ways by betting on Google Inc.
Not only did the California school have the smarts to admit the company's
co-founders, Larry Page and Sergey Brin, into its computer-science doctoral
program, turning the pair into a magnet to draw the best and the brightest,
but the university put its money behind their venture.
After last week's initial public offering, Stanford is left with 7,574
shares of Class A Google stock and 1,650,289 shares of Class B stock,
according to Securities and Exchange Commission filings. Those holdings are
valued at $179.5 million. The university's trustees sold 184,207 shares,
earning a quick $15.6 million.
The university owns key technology used by Google that was developed at
Stanford. Google paid the university in stock and cash for an exclusive
licensing partnership, plus annual royalties. That agreement expires in
2011.
Stanford also is poised to reap a windfall from its investments in the
company placed through two of Silicon Valley's top venture-capital firms.
Together, those holdings could bring the university a second windfall of
more than $200 million, depending on how the stock performs, people familiar
with the situation say.
Overall, the university earned royalties of $43.2 million from licensed
technology in 2003, according to its Office of Technology Licensing annual
report for fiscal year 2002-2003; only a fraction of it came from Google.
According to the report, the licensing office takes 15% of royalty revenue
to cover its expenses, then the remaining revenue is divided among the
inventors, their university departments and their university schools. Of the
Google equity stake, one-third goes to the inventors and the remaining
two-thirds to a university research and fellowship fund, according to
Katharine Ku, director of the Office of Technology Licensing and the
Industrial Contracts Office.
Messrs. Brin and Page are hardly the only Stanford luminaries who will enjoy
a Google profit. In March, Stanford President John Hennessy assumed a seat
on Google's board that brought with it 65,000 shares. The shares are valued
at $7.04 million based on Friday's closing price.
Other faculty also own stock or options, either through a personal
investment in the company or because of their work as technical advisers.
Last week, computer-science professor David R. Cheriton sold 340,436 of his
3,404,360 shares, earning $28,937,060.
To date, Stanford holds an equity stake in 80 companies, out of about 1,200
that got their start on campus, or by a Stanford alum, faculty or staff,
according to the university. They include big names such as Sun Microsystems
Inc., Cisco Systems Inc. and Yahoo Inc. Among U.S. universities, it stands
fifth, after Columbia University, the University of California System, New
York University and Florida State University, in technology-licensing and
equity revenue, according to the Association for University Technology
Managers.
It is that kind of success that is prompting more colleges and universities
to launch technology-transfer offices hoping that their best minds will
produce a hit like Google. Some already have made waves with unconventional
products: A University of Florida spokesman says the school has earned $94.1
million over 30 years from licensing the formula and trademark for Gatorade,
a drink invented by a kidney-disease specialist at its College of Medicine
in 1965.
Before 1980, when a federal law was passed to permit universities to own and
patent inventions developed under federal research programs, fewer than 250
patents were issued to U.S. universities, according to the Association for
University Technology Managers, which has seen its membership expand to
3,159 in 2003 from 470 in 1985. The pace for new patents grew 77% between
1991 and 1999.
Like many schools, the California Institute of Technology had a very
academic view of itself. Then, in 1995, it started to encourage faculty to
patent more technology for commercial gains. Since then, the school has
launched 70 companies in which it has an equity stake, according to Scott R.
Carter, assistant director of Caltech's Office of Technology Transfer. Last
year, he says, Caltech claimed credit for 139 patents issued by the U.S.
Patent Office, more than any other single campus.
Former Harvard University President Derek Bok cautioned against moving
toward commercialization too fast in a book he published last year titled,
"Universities in the Marketplace: The Commercialization of Higher
Education." At Tufts University, Sheldon Krimsky also examined the growing
trend in his book "Science in the Public Interest," also published last
year. "Because of a few significant gains by a few universities ... others
feel inclined to jump on the tech-transfer bandwagon," Mr. Krimsky says,
adding: "There are very few universities that can get a windfall profit from
a patent or equity investment in a company."
Mr. Krimsky also points to conflicts of interest that can arise when
professors co-found companies and are too busy to teach or mentor students,
or keep discoveries secret rather than publishing them quickly. "When you
allow the faculty to earn substantial amounts outside the university, it
distorts the mission of the university. It becomes a place to leverage money
rather than as a place to educate young people and produce basic knowledge,"
he says.
Indeed, outside of Silicon Valley, some are raising eyebrows at Mr.
Hennessy's Google holdings. Charles M. Elson, a corporate-governance expert
at the University of Delaware, wonders: "Can he remain independent? Is there
any expectation that the [Google] founders will be contributors to Stanford?
If substantial sums of money are expected from them or solicited from them,
that raises independence questions."
Stanford spokesman Gordon W. Earle says in an e-mail, "John Hennessy serves
on the Google board of directors in a personal capacity. He does not
participate in any decisions concerning Stanford University and Google, and
Google does not disclose to the university any information about Google."
Stanford itself sells its equity stakes as soon as it can in order to skirt
conflicts. The university must wait for "lockup periods," traditionally 180
days. In Google's case lockup windows will open in 15, 90, 120, 150 and 180
days. Mr. Earle declines to say when Stanford will sell the shares, citing
university policy.
Still, some worry about the increase in corporate-backed research on campus,
especially given that Stanford is such an integral part of the Silicon
Valley ecosystem. Stanford's Office of Technology Licensing says in its most
recent annual report that the university's Industrial Contracts Office has
worked with more than 150 companies, "a growing number of them overseas."
In Silicon Valley, many industry players view the Google IPO as a boost for
entrepreneurship. "I think it will inspire more Stanford students to go
start companies rather than go to McKinsey," the consulting firm, says David
Ladd, a general partner at Mayfield, a venture-capital firm located near the
university campus.
Write to Ann Grimes at ann.g...@wsj.com
IDEA LABS
A few recent university innovations:
Taxol cancer drug, Univ. of Florida, 1998
Lycos search engine, Carnegie Mellon, 1999
Polywood synthetic lumber, Rutgers, 2000
PawPaw Lice Remover shampoo, Purdue, 2001
SpeechEasy anti-stuttering device, East Carolina Univ., 2002
Source: Association of University Technology Managers
Corrections & Amplifications:
The cancer drug Taxol was developed at Florida State University. A chart
accompanying this article incorrectly said it was developed at the
University of Florida.
Copyright 2004 Dow Jones & Company, Inc. All Rights Reserved
rick++
its fingers. Apple computer was introduced its first several models at the
homebrew computer club that held its meetings at Stanford. Apples first office
was in the Stanford med center business park. The 'S' in Sun Microsystems is
Stanford. Its first model was a grad student project. So was the geometry
engine that became Silicon Graphics. CISCO was started by two Stanford computer
employees. Netscape was started by Stanford prof. Yahoo was another grad student
hack like google. None of these fore-mentioned companies has strong initial
investment stakes by Stanford. In fact, Stanford was uninterested in a couple
of them when approached and wrote off the rights. Much of this is documented
in the PBS Revenge of the Nerds documentaries. Many of the famous VC firms
are located on or adjacent to Stanford property on Sand Hill road.
Stanford and Berkeley did make a bundle off the recombinant DNA patent.
Abe Kohen
"rick++" <ric...@hotmail.com> wrote in message
news:f7422d8e.04082...@posting.google.com...
> Stanford finally captured a high tech IPO after letting many slip through
Finally? Surely you jest.
> its fingers. Apple computer was introduced its first several models at
the
> homebrew computer club that held its meetings at Stanford. Apples first
office
> was in the Stanford med center business park. The 'S' in Sun Microsystems
is
> Stanford. Its first model was a grad student project. So was the
geometry
For completeness: The SUN in Sun Micro stands for Stanford University
Network.
> engine that became Silicon Graphics. CISCO was started by two Stanford
computer
> employees. Netscape was started by Stanford prof. Yahoo was another grad
student
> hack like google. None of these fore-mentioned companies has strong
initial
> investment stakes by Stanford. In fact, Stanford was uninterested in a
couple
> of them when approached and wrote off the rights. Much of this is
documented
> in the PBS Revenge of the Nerds documentaries. Many of the famous VC
firms
PBS as a source of anything?
> are located on or adjacent to Stanford property on Sand Hill road.
>
> Stanford and Berkeley did make a bundle off the recombinant DNA patent.
When I was a CS student at Stanford, almost twenty years ago, most of my
profs were involved in startups. Many were successful entrepreneurs and
still teaching. Stanford invested in many companies. Successful alumni also
increased Stanford's endowment.
From Hewlett and Packard to Brin and Page, the great tradition goes on.
Abe
