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Entrepreneurs, Startups and Innovation at the University of California

The University of California system plays an important and growing role in California’s economy, by producing cutting edge technology and know-how through its research programs, but also by enabling and supporting the formation of new companies by faculty and students.

Startups are important because in the vast majority of cases they locate in California, usually close to the founding faculty member’s campus or to the campus from which the founding entrepreneur/CEO graduated. They also tend to grow in the communities where they are founded, magnifying the importance of UC’s campuses to long-term job and business growth in the regions where they are located. Because of this, each campus plays an important catalytic role in local economic development. This role varies with the age and size of each campus, and whether or not it is located in a major urban center. Each campus, however, is playing a distinct and growing role in moving technology from the laboratory to the market and in engaging the entrepreneurial energy of its faculty and students to accelerate the process.

Acknowledgments

The Economic Institute is deeply grateful to the many individuals who generously gave time to discuss their programs, their campuses, their ideas, and the future of entrepreneurship programs at the University of California. We are particularly indebted to Dr. Martin Kenney and Dr. Donald Patton of UC Davis, who together with their team provided valuable data on startups generated by the UC system, and to Dotti Miller in the University of California Office of the President, whose team supported the development of the data.

Development of this report at the Bay Area Council Economic Institute was led by Sean Randolph, Senior Director, with support from Vice President Jeff Bellisario, Research Manager Patrick Kallerman, and Research Analyst Camila Mena. Adair Rosin, an intern with the Institute from Brown University, assisted with the research. Pam Winter, Senior Advisor to the Institute, was the copyeditor.

UC-Affiliated Startups Generated
1,267
UC-Affiliated Startups Generated Between 1968 and June 2015
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UC-Affiliated Startups Active
622
UC-Affiliated Startups Still Active in June 2015
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UC-Affiliated Startups Revenue
$16.2 billion
Recent Aggregate Revenue Reported for 440 Active UC-Affiliated Companies
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UC-Affiliated Startups Employment
38,832
     Jobs in Active      UC-Affiliated      Companies
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UC-Affiliated Startups Venture Capital Acquired
$16.4 billion
Venture Capital Investment Acquired by UC-Affiliated Companies Since 1968
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UC-Affiliated Startups Economic Value Added
$20.1 billion
Value Added to the State Economy by UC-Affiliated Startups Headquartered in California
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Part One: Measuring Impacts

The Bay Area Council Economic Institute used three separate sources to compile data on startup formation and related employment, revenue, venture capital, and federal awards. First, the Office of Research and Graduate Studies division of the University of California Office of the President (UCOP) provided the dataset used in its annual Technology Commercialization Report. The second dataset was a university-wide spinoff firm database compiled under the leadership of Dr. Martin Kenney at UC Davis. The Economic Institute also used a third UCOP-compiled dataset on startups at UC incubators. There were many occurrences of companies appearing in more than one of the three datasets. To avoid double counting, only one record for each company was kept in the final compiled database ­analyzed by the Economic Institute.

Counting only startups in STEM-related fields (science, technology, engineering and mathematics) that were formed using UC-generated intellectual property or were founded by faculty, staff, or postdoctoral, graduate, or undergraduate students within one year of completing their UC affiliation, 1,267 companies were generated by the University of California between 1968 and June 2015, the time period covered by the data used in this report. Of these companies, 622 were still in business—referred to in this report as “active”—in June 2015, and 603 of those still active companies were headquartered in California.

The aggregate revenue reported for the 440 active companies for which information was available in each company’s most recent fiscal year was $16,170,859,930. Among the active companies 189 received Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants totaling $326,139,269. These federal grant programs enable domestic small businesses to research new technologies and advance their commercialization.

Venture capital investment totaling $9,812,978,018 was attracted by 268 active companies. All types of venture investment in all companies related to the University of California system—including those that are no longer operating—totaled $16,352,978,679 since 1968.

The focus of these UC affiliated companies spanned a range of 12 industry sectors defined by the university’s offices of technology transfer, with the medical therapeutics sector showing the highest concentration, followed by software and services, research tools, electronic systems and components, medical diagnostics, and medical devices. These leading categories of activity reflect the university’s strong life sciences and medical programs, as well as the strength of its engineering, computer science, and chemistry departments. Other significant concentrations of activity were in communications, information technology and data processing; advanced materials; energy; agriculture; environmental services; and transportation.

Of the counted 1,267 companies affiliated with UC, 1,240—or 97.8%—were formed after 1980. Startup activity has been particularly strong in recent years, with 956—or 75.4%—of these UC-affiliated companies having been formed between 2000 and 2015. These companies contribute to California’s economy through the revenues they generate, the jobs they directly create, and the indirect and induced effects of their spending and their employees’ spending in other sectors of the economy.

To assess the impact of UC-related entrepreneurial activity on the California economy, data for 603 active UC-affiliated companies headquartered in California was analyzed using IMPLAN, an input-output system that models the effects of changes in economic activities, in order to predict the impacts on specific state, regional, or local economies. Of the 603 active companies, 447 have reported employment of 38,056. Through direct, indirect, and induced effects that result from their activity in the state, these companies support a total of 146,516 jobs and $20.1 billion in economic value added to the California economy. An additional $503.8 million in corporate taxes is paid to the federal government, and an additional $88.1 million is paid to state and local governments in California. These figures are conservative, as data on employment and revenue is not publicly available for all of the companies.

Part Two: Catalyzing Innovation

Campus Initiatives

While there are many variants, UC initiatives to support entrepreneur-led startups largely fall into four categories: business plan competitions, entrepreneurial education and support, incubators and accelerators (which provide cost-effective lab or office space), and funding. These blocks of activity are not mutually exclusive and frequently overlap. For example, programs with large entrepreneurial education components can also sponsor business plan competitions or host accelerators. Some campuses also help to accelerate research at highly affordable rates by offering access to sophisticated research facilities and equipment (“user facilities”) that would be too expensive for startups to own independently.

UC’s campuses also connect to what can be termed “associated programs and facilities.” These incubators, accelerators or other programs are located off-campus and are not directly administered by UC but are symbiotically linked and exist in large part to leverage their proximity to a UC campus. This is one important way that the campuses serve as focal points of local and regional innovation ecosystems.

Every UC campus has programs or initiatives in one or all of the four major categories, as well as associated programs in the vicinity. Not surprisingly, the largest programs tend to be on campuses in major urban centers, where they benefit in some degree from their proximity to large business communities that serve as sources of mentors, investors, and customers. Campuses that are smaller, younger and not in major urban centers in most cases have less developed programs. However, some campuses such as Davis and Irvine that are not in large urban centers have successfully leveraged their resources and partnerships in the community to create dynamic and sophisticated programs.

Not all UC-associated startups have participated in formal support programs. While a few entrepreneurial initiatives date back to the 1980s, most—even on the large campuses—are more recent, having been launched within the last four years. For this reason, more time will be required to evaluate their success. All campuses, however, are increasing their focus on entrepreneurial support and are increasing their ties to surrounding communities through collaborative initiatives to enable locally-based startups.

Findings and Recommendations

While a university’s primary purpose is not to create companies—that role rests with its graduates—UC’s status as a research university and its public service role for the state point to a growing opportunity to leverage the research and academic resources of the university to support entrepreneurs and the companies they found.

To this end, community engagement must be a key part of a 21st century research university’s DNA and deeply woven into its mission. There is a growing interest in starting new companies—from faculty and particularly from students. This cultural shift represents an opportunity for the state. Viewed from this perspective, the university’s support for entrepreneurs and startups should be seen not as a shift away from traditional academics, but as an important way to amplify their impact.

In Chapter 4, this report makes a number of recommendations for how the University’s fast-developing initiatives to support technology commercialization and new company formation can be strengthened.