Kauffman MIT

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Edward B. Roberts and Charles Eesley MIT Sloan School of Management February 2009 Entrepreneurial Impact: The Role of MIT

Transcript of Kauffman MIT

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Edward B. Roberts and Charles Eesley MIT Sloan School of Management

February 2009

EntrepreneurialImpact:

The Role of MIT

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© 2009 by Edward B. Roberts. All rights reserved.

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Edward B. Roberts and Charles Eesley

Entrepreneurial Impact: The Role of MIT

Edward B. Roberts is the David Sarnoff

Professor of Management of Technology,

MIT Sloan School of Management, and

founder/chair of the MIT Entrepreneurship

Center, which is sponsored in part by the

Ewing Marion Kauffman Foundation.

Charles Eesley is a doctoral candidate in the

Technological Innovation & Entrepreneurship

Group at the MIT Sloan School of Management

and the recipient of a Kauffman Dissertation

Fellowship. We thank MIT, the MIT

Entrepreneurship Center, the Kauffman

Foundation, and Gideon Gartner for their

generous support of our research.

The views expressed herein are those of the authorsand do not necessarily reflect the views of the EwingMarion Kauffman Foundation or MIT. Any mistakes

are the authors’.

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TABLE OF CONTENTS

Executive Summary................................................................................................................................4

Economic Impact of MIT Alumni Entrepreneurs......................................................................................4

The Types of Companies MIT Graduates Create......................................................................................5

The MIT Entrepreneurial Ecosystem ........................................................................................................6

The Role of MIT Alumni Companies in the U.S. Economy ................................................................8

Additional Trends over the Decades .......................................................................................................9

Growth in Numbers .........................................................................................................................9

More Diverse Entrepreneurs ...........................................................................................................10

Younger Entrepreneurs....................................................................................................................12

Serial Entrepreneurs........................................................................................................................14

MIT Founders and MIT Course Majors............................................................................................16

Industry Composition and Effects ...................................................................................................17

Global Markets ...............................................................................................................................19

Patents and Research Expenditures.................................................................................................22

Comparative Edge, Obstacles to Success ........................................................................................23

Firm Location Decisions..................................................................................................................24

Startup Capital................................................................................................................................25

Special Case: MIT Alumni Companies in California ........................................................................25

Special Case: MIT in Massachusetts................................................................................................26

MIT—Its Unique History, Culture, and Entrepreneurial Ecosystem ................................................28

Early Influences: The Heritage of World War II Science and Technology...............................................28

Building on a Tradition .........................................................................................................................29

The Neighboring Infrastructure .............................................................................................................31

Accelerating Upward from the Base: Positive Feedback........................................................................34

Technology Clusters..............................................................................................................................35

Other “Pulls” on Potential Entrepreneurs ..............................................................................................38

A Unique Culture .................................................................................................................................40

“Pushes” on Entrepreneurship...............................................................................................................41

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T a b l e o f C o n t e n t s

An Evolving MIT Internal Entrepreneurial Ecosystem ......................................................................44

Alumni Initiatives: Seminars and the MIT Enterprise Forum ..................................................................44

Case Example: Brontes Technology.................................................................................................47

The MIT Entrepreneurship Center .........................................................................................................47

Classes............................................................................................................................................48

Academic Classes in Entrepreneurship ....................................................................................49

Practitioner Classes in Entrepreneurship...................................................................................49

Mixed-Team Project Classes.....................................................................................................49

Case Example: SaafWater................................................................................................................50

Clubs ..............................................................................................................................................51

From $10K to $100K and Beyond ...........................................................................................51

Lots of Clubs ............................................................................................................................54

Conferences....................................................................................................................................55

Impact of the MIT Entrepreneurship Center and Network ..............................................................56

Technology Licensing Office.................................................................................................................56

Case Example: A123 Systems .........................................................................................................59

Recent MIT Institutional Broadening and Growth ...........................................................................61

MIT Venture Mentoring Service ............................................................................................................61

MIT Deshpande Center.........................................................................................................................62

Case Example: Myomo ...................................................................................................................63

MIT Sloan Entrepreneurship & Innovation MBA Program......................................................................64

Conclusions: Enhancing the Role of Research/Technology Universities in an Entrepreneurial Economy .....................................................................................66

Appendix: Sources of Information .....................................................................................................68

Company Database ..............................................................................................................................68

Alumni Survey ......................................................................................................................................68

Estimation Methods ..............................................................................................................................69

References.............................................................................................................................................72

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Economic Impact of MIT AlumniEntrepreneurs

Research- and technology-intensive universities,especially via their entrepreneurial spinoffs, have adramatic impact on the economies of the UnitedStates and its fifty states. This report is an indepthcase study, carried out during the past few years, of a single research/technology university, theMassachusetts Institute of Technology, and of thesignificant consequences it has helped to produce forthe nation and the world via its broad-basedentrepreneurial ecosystem. From our extensive datacollection and analyses, we conclude that, if theactive companies founded by MIT graduates formedan independent nation, conservative estimatesindicate that their revenues would make that nationat least the seventeenth-largest economy in theworld. A less-conservative direct extrapolation of theunderlying survey data boosts the numbers to 25,800currently active companies founded by MIT alumnithat employ about 3.3 million people and generateannual world revenues of $2 trillion, producing theequivalent of the eleventh-largest economy in the world.

The ultimate value of this study is to help us understand the economic impact of theentrepreneurial ventures of university graduates. We know that some universities play an importantrole in many economies through their core education,research and development, and other spillovers. But in order to support economic growth throughentrepreneurship, universities must create programs

and a culture that make entrepreneurship widelyaccessible to students. While MIT’s leadership indeveloping successful entrepreneurs has been evidentanecdotally, this study—one of the largest surveys ofentrepreneur alumni ever conducted—quantifies thesignificant impact of MIT’s entrepreneurial ecosystemthat supports firm startups. And, while MIT is moreunique and unusual in the programs it offers and inits historical culture of entrepreneurship, MIT providesa benchmark by which other institutions can gaugethe economic impact of their alumni entrepreneurs.The report also provides numerous examples ofprograms and practices that might be adopted, intactor modified as needed, by other universities that seekenhanced entrepreneurial development.

Our database is from a 2003 survey of all livingMIT alumni1, with additional detailed analyses,including recent verification and updating of revenueand employment figures from the 2006 records ofCompustat (public companies) and Dun & Bradstreet(private companies). For further conservatism of ourprojections, we have deliberately excluded from ourdatabase companies in which the MIT alumnusfounder had died by 2003, even if the company stillsurvives, such as Hewlett-Packard or Intel. Even if thefounder is still alive, we generally have excluded fromour numbers those MIT alumni-founded companiesthat had merged with or been sold to other firms,such as Digital Equipment Corporation, which hadpeak employment of 140,000 people prior to itsmerger with Compaq in 1998. Nor do the databasenumbers include MIT alumni-founded firms that had

Executive Summary

1 Throughout the report we use the term “alumni” to include both male alumni and female alumnae.

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closed prior to our 2003 survey. These estimatessimilarly ignore all companies founded by non-alumniMIT faculty or staff. Thus, we feel that our overallportrayal of MIT’s entrepreneurial impact is quiteconservative. Nor do we examine in addition to theseentrepreneurial spinoffs the impact of MIT-generatedscience and technology on the overall innovation andcompetitiveness of government and industries thatbenefit from direct and indirect transfer of scientificknow-how and discoveries emerging from MIT, itsfaculty, staff, and graduates.

While the economic estimates we presentcontain some degrees of uncertainty, the trends inthe numbers are clear. More entrepreneurs emergeout of each successive MIT graduating class, and theyare starting their first companies sooner and at earlierages. Over time, the number of multiple companiesfounded per MIT entrepreneurial alumnus also hasbeen increasing, therefore generating dramaticallyincreased economic impact per graduate. MIT acts asa magnet for foreign students who wish to studyadvanced engineering, science, and management,and a large fraction of those students remains in theUnited States. Well over half of the firms created byforeign students who graduate from MIT are locatedin the United States, generating most of theireconomic impact in this country.

Thirty percent2 of the jobs in the MIT alumnifirms are in manufacturing (far greater than the 11 percent of manufacturing jobs in the United Statesoverall) and a high percentage of their products areexported. In determining the location of a newbusiness, entrepreneurs say the quality of life in theircommunity, proximity to key markets, and access toskilled professionals were critical considerations, butalmost all locate where they had been working orattending university, including near graduate schoolsother than MIT.

The study reveals that the states benefiting mostfrom jobs created by MIT alumni are Massachusetts(for which we estimate just under one million jobs

worldwide for the entire population of more than6,900 active MIT alumni-founded, Massachusetts-headquartered companies), California (estimated at526,000 jobs from its current approximately 4,100MIT alumni-founded firms), New York (estimated at231,000 jobs), Texas (estimated at 184,000) andVirginia (estimated at 136,000). Fifteen other statesare likely to have more than 10,000 jobs each andonly eleven states seem to have fewer than 1,000jobs from MIT alumni companies.

As a result of MIT, Massachusetts has for manyyears been dramatically “importing” companyfounders. The estimated 6,900 MIT alumni firmsheadquartered in Massachusetts generate worldwidesales of about $164 billion. More than 38 percent of the software, biotech, and electronics companiesfounded by MIT graduates are located inMassachusetts, while less than 10 percent of arrivingMIT freshmen are from the state. Not only do MITalumni, drawn from all over the world, remain heavilyin Massachusetts, but their entrepreneurial offshootsbenefit the state and country significantly. GreaterBoston, in particular, as well as northern Californiaand the Northeast, broadly, are homes to the largestnumber of MIT alumni companies, but significantnumbers of MIT alumni companies are also in theSouth, the Midwest, the Pacific Northwest, and inEurope. About 30 percent of MIT’s foreign studentsform companies, of which at least half are located in the United States. Those estimated 2,340 firmslocated in the U.S. but formed by MIT foreign-studentalumni employ about 101,500 people.

The Types of Companies MIT Graduates Create

MIT alumni companies are primarily knowledge-based companies in software, biotech, manufacturing(electronics, instruments, machinery), or consulting(architects, business consultants, engineers). Thesecompanies have a disproportionate importance to

2. We round off most numbers in this report to the nearest percent.

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their local economies because they typically representadvanced technologies and usually sell to out-of-stateand world markets. Their global revenues peremployee are far greater than the revenues producedby the average American company. Furthermore, theyemploy higher-skilled as well as higher-paidemployees. They also tend to have far lower pollutionimpact on their local environments.

An important subset of the MIT alumnicompanies is in software, electronics (includinginstruments, semiconductors, and computers), andbiotech. These firms are at the cutting edge of whatwe think of as high technology and, correspondingly,are more likely to be planning future expansion thancompanies in other industries. They export a higherpercentage of their products, hold one or morepatents, and spend more of their revenues onresearch and development. (Machinery and advancedmaterials firms share many of these samecharacteristics but are not nearly as numerous as the electronics, software, and biotech companies.)

More than 900 new MIT alumni companies werefounded each year during the decade of the 1990s.But the bulk of total MIT-generated employmentresults from the estimated 800 companies of 1,000or more employees who have created nearly 85percent of the jobs. Not surprisingly, most of thelarger companies have been in existence for sometime, but many younger entrepreneurs have builtsizable companies in a short period of time. One in six of the companies founded by a graduate out of school fifteen years or less already has 100 ormore employees.

The MIT Entrepreneurial EcosystemRather than any single or narrow set of

influences, the overall MIT entrepreneurial ecosystem,consisting of multiple education, research, and socialnetwork institutions and phenomena, contributes tothis outstanding and growing entrepreneurial output.The ecosystem rests on a long MIT history since its1861 founding and its evolved culture of “Mens etManus,” or mind and hand. The tradition of valuing

useful work resulted in the development of strongties with industry, including encouraging facultyconsulting and even faculty entrepreneurship sincebefore the beginning of the twentieth century. Overthe years, the increasingly evident MIT entrepreneurialenvironment has attracted entrepreneurship-inclinedstudents, staff, and faculty, leading to a strongpositive feedback loop of ever-increasingentrepreneurial efforts.

Alumni initiatives in the 1970s appear to be thefirst direct institutional moves to encourageentrepreneurship, leading to the establishment of thenow-worldwide MIT Enterprise Forum. Since itsbeginning, the Cambridge, Mass., chapter alone hashelped nurture more than 700 young companies,with equivalent numbers across the rest of thecountry. Beginning in 1990, the MIT EntrepreneurshipCenter has crystallized these efforts by launchingnearly thirty new entrepreneurship courses at MIT,and by assisting in the formation and growth of alarge number of related student clubs. The resultingincrease in networking among students, and betweenthem and the surrounding entrepreneurship andventure capital community appears in survey resultsto be the primary MIT-related factor influencing thegrowth of new-company formation.

Classes taught by discipline-based academics andexperienced, successful entrepreneurs and venturecapitalists have generated an effective blend forlearning both theory and practice. Mixed-teamproject classes, consisting of both managementstudents and engineers and scientists, have had greatimpact on MIT students in their understanding of theentrepreneurial process, have initiated their exposureto and engagement with real-world new enterprises,and have influenced the subsequent founding ofmany new companies. Student-run activities such asthe MIT $100K Business Plan Competition havemoved numerous students, often with faculty asteam members, to develop their ideas to the point ofpublic scrutiny. At least 120 companies have beenstarted by participants in these student-runcompetitions.

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The MIT Technology Licensing Office hasconsistently led the country’s universities in licensingtechnology to startup firms, licensing to 224 newcompanies in just the past ten years. The TLO alsohas brought its experience and knowledge into activeengagement with MIT students, faculty, and alumni.

In recent years, creation of formal MITinstitutions focused on encouraging entrepreneurshiphas accelerated. In 2000, the Venture MentoringService was begun to help any MIT-relatedindividual—student, staff, faculty, alumnus/a—whowas contemplating a startup. It already has seenmore than eighty-eight companies formed by those it has counseled.

The Deshpande Center for TechnologicalInnovation was initiated in 2002 to provide smallresearch grants to faculty whose ideas seemedespecially likely to be able to be commercialized. In its first five years, the Deshpande Center hasfunded eighty faculty research projects. Fifteenspinout companies already have been formed fromthese projects.

In 2006, the MIT Sloan School of Managementcreated a new Entrepreneurship & Innovation trackwithin its MBA program to provide intensiveopportunities for those students who seem dedicatedto an entrepreneurial life. It is too soon to know whatoutcomes this focused approach will produce, butabout 25 percent of incoming MBA candidates noware enrolling in this concentration and initial studentsalready have engaged in numerous company-buildingactivities and have won important university businessplan competitions.

Beyond the MIT influences on firm formation, 85 percent of the alumni entrepreneurs reported in the survey data that association with MIT hadsignificantly helped their credibility with suppliers and customers. Fifty-one percent of the entrepreneursalso felt that their association with MIT helped inacquiring funding.

All of these forces—from initial orientation andculture to all-encompassing clubs and activities tonow-concentrated educational opportunities—

contribute to building and sustaining the MITentrepreneurial ecosystem. That system has beenuniquely productive in helping to create new firmsthat have had impressive economic impact.

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The Role of MIT Alumni Companies in the U.S. Economy

For some time, anecdotes and research haveindicated significant entrepreneurial impact from MIT.In 2003, along with professional staff from MIT, theauthors set about to attempt to quantify throughsurveys and research the actual economic impact ofentrepreneurship among MIT alumni. The resultspresented here—the first disclosure of this research—are supplemented with some detail on the history,institutions, and culture that have combined toinfluence entrepreneurship at MIT.

In 2001, MIT sent a survey to all 105,928 livingalumni with addresses on record. MIT received43,668 responses from alumni. Of these, 34,846answered the question about whether or not theyhad been entrepreneurs. A total of 8,179 individuals(23.5 percent of the respondents) indicated that theyhad founded at least one company. In 2003, wedeveloped and sent a survey instrument focused on the formation and operation of these firms to the8,044 entrepreneur respondents for whom we hadcomplete addresses. Of this group, 2,111 founderscompleted surveys. The database reported on in thisreport was created from these surveys, as well asadditional detailed analyses, including verification andupdating of revenue and employment figures fromthe 2006 records of Compustat (public companies)and Dun & Bradstreet (private companies). TheAppendix provides further details on the survey and estimation methods.

Based on our extensive data collection andanalyses, we conclude that, if the active companiesfounded by MIT graduates formed an independentnation, conservative estimates indicate that theirrevenues would make that nation at least theseventeenth-largest economy in the world. A less-conservative direct extrapolation of the underlyingsurvey data boosts the numbers to some 33,600 totalcompanies founded over the years by living MITalumni, of which 25,800 (76 percent) still exist,

employing about 3.3 million people and generatingannual worldwide revenues of $2 trillion, theequivalent of the eleventh-largest economy in the world.

For conservatism of our projections, we havedeliberately excluded from the database companies in which the MIT alumnus founder already had died,even if the company still survives, such as Hewlett-Packard or Intel. If the founder is still alive, we haveexcluded from our database those MIT alumni-founded companies that had merged with or beensold to other firms prior to 2003, such as DigitalEquipment Corporation, which had peak employmentof 140,000 people prior to its merger with Compaqin 1998. Nor do the numbers include MIT alumni-founded firms that had closed prior to our 2003survey. These estimates similarly ignore all companiesfounded by non-alumni MIT faculty or staff. Inaddition, we do not examine the impact of MIT-generated science and technology on the overallinnovation and competitiveness of government andindustry beyond alumni-founded firms. Clearly,entrepreneurship likely has benefited from additionalspillovers from the scientific and non-scientificadvances emerging from MIT, its faculty, staff, andgraduates. Thus, we attempt to portray only anaspect of MIT’s entrepreneurial impact.

Companies founded by MIT alumni have a broadfootprint on the United States (and the globe). While more than a quarter of these active companies(projected to be 6,900) have headquarters inMassachusetts, nearly 60 percent of the MIT alumni companies are located outside the Northeast.These companies have a major presence in the San Francisco Bay Area (Silicon Valley), southernCalifornia, the Washington-Baltimore-Philadelphiabelt, the Pacific Northwest, the Chicago area,southern Florida, Dallas and Houston, and theindustrial cities of Ohio, Michigan, and Pennsylvania.

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T h e R o l e o f M I T A l u m n i C o m p a n i e s i n t h e U . S . E c o n o m y

More than 10,000 0.3% 15,000 1,523 1,339,361 1,389,075

1,000–10,000 1.8% 1,927 308 1,043,932 235,532

Less than 1,000 97.9% 39 <1 900,001 226,671

Total 100.0% 155 <1 3,283,294 1,851,278

Table 1Estimated Employment and Sales Data for All Active MIT Alumni Companies

JobsPercent ofCompanies

MedianEmployees

Median Sales(Millions)

Estimated TotalEmployees

Estimated TotalSales (Millions)

As shown in Table 1, relatively few but largercompanies account for a substantial proportion of the total sales and employment of MIT alumni-founded companies. We estimate that the 796largest current MIT alumni companies (about 2 percent of the total estimated companies)—thosewith employment of 1,000 or more—account formore than 80 percent of total sales and 70 percent of employment of all the MIT alumni-founded firms.Most of these larger firms are quite old. But manyyoung graduates have managed to build companiesof impressive size in a short period of time. Weestimate that 213 companies with a founder whograduated in the last thirty years (and fifteen withfounders who graduated in the last fifteen years)have 500 or more employees. Of these 213 younger-but-larger companies, about 28 percent are insoftware, 10 percent are in telecommunications, and21 percent are in electronics. Of the approximately14,700 firms founded by MIT graduates from the lastfifteen years, 10 percent already have 100 or moreemployees. This compares to 12 percent for founders out fifteen to thirty years, and 13 percentfor founders out thirty to fifty years.

Two-thirds of the MIT alumni companies over theentire sixty-year span of our data have been co-founded, with the size of the founding group steadilyincreasing from 2.3 in the 1950s to 3.3 in the 2000s.We also have found consistency over all these yearsin the attributed sources of the ideas for these newenterprises. On average, two-thirds of the foundersclaim that the ideas for the firm came from industry

work experience, about 15 percent from networking,and about 10 percent from research.

Additional Trends over the Decades

Growth in Numbers We estimate that 2,900 currently active

companies were founded during the 1980s and asmany as 9,950 companies were founded during the1990s, of which 5,900 are still active. More than5,800 companies were created between 2000 and2006. For each decade (using our linear projection),Figure 1 shows the estimated yearly growth over thepast fifty years of the number of “first firms”

Figure 1Estimated Number of “First-Time” Firms Founded Each Decade by MIT Alumni

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All Alumni Women Non-Domestic Citizens

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founded by all MIT alumni. New companyformation by MIT graduates is accelerating.(We omit from this figure but will later present ourevidence on the second, third, and more companiesgenerated by many of the MIT alumni over theirentrepreneurial careers.)

Further evidence on the acceleration of MITalumni entrepreneurship through the past fivedecades is obvious in Figure 2, where we limitourselves for consistency to just the Bachelor’s degree recipients who responded to the limitedsurvey of MIT alumni that was done in 2003. Thefigure shows clearly that the cohort of Bachelor’sdegree graduates from each successive decade has been forming more new first companies.3

More Diverse Entrepreneurs We find evidence of significant shifts in

demographics among MIT entrepreneurs, particularlyon gender and citizenship. The numerical growth ofwomen entrepreneurs appears to mirror the growthin number of women graduating from all levels atMIT, rising from just over ten female graduates peryear (1 percent) in the 1930s to 43 percent ofundergraduates and 30 percent of the graduatestudent population in 2006. Women alumnae lagtheir male classmates (but slowly are catching up) inthe proportion that become entrepreneurs. Womenfounders start appearing in the 1950s and, as shownin Figure 1, grow to 6 percent of the reportingsample by the 1990s, and are up to 10 percent bythe 2000s.

Figure 2Cumulative Number of First Firms Founded by

Each Decade’s Cohort of Alumni (from limited sample only)

Cumulative Firms Founded by Decade (Bachelor’s Degree)

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3. The MIT undergraduate class grew from about 900 per year in the 1950s to about 1,050 in subsequent decades. Graduate school enrollmentshave grown considerably, as well, over the same time period, including, in particular, the institutionalization of the MIT Sloan School of Management in1952. In many of our analyses, we took these size changes into account via normalization per 1,000 alumni at each decade. But these normalized analysesdid not alter any of the underlying trends reported here.

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Alumni who were not U.S. citizens whenadmitted to MIT founded companies at different(usually higher per capita) rates relative to theirAmerican counterparts, with at least as manyremaining in the United States as are returning totheir home countries. Figure 1 indicates that non-U.S.citizens begin slight visibility as entrepreneurs in the1940s, grow steadily to 12 percent of the new firmformations during the decade of the 1990s, and areup to 17 percent by the 2000s.

About 30 percent of the foreign students whoattend MIT found companies at some point in theirlives. This is a much higher rate than for U.S. citizenswho attend MIT. We assume (but do not have datathat might support this) that foreign students aremore inclined from the outset to becomeentrepreneurs, as they had to seek out and getadmitted to a foreign university, taking on the addedrisks of leaving their families and their homecountries to study abroad. (MIT has only its onecampus in Cambridge, Mass., and, despitecollaborations in many countries, does not operateany degree program outside of the United States.)We estimate that about 5,000 firms were started byMIT graduates who were not U.S. citizens when theywere admitted to MIT. Half of those companiescreated by “imported” entrepreneurs, 2,340firms, are headquartered in the United States,generating their principal revenue ($16 billion)and employment (101,500 people) benefits here.

As shown in Table 2, an even higher fraction of theforeign student-founded manufacturing firms, whichusually have the greatest economic impact, arelocated in the United States. The largest non-U.S.locations of alumni firms founded by foreign studentsare in Europe and Latin America. More than 775 MITforeign-alumni businesses are in Europe, most ofwhich are in software and consulting. The greatestnumbers of these firms are in England, France, andGermany. Latin America has an estimated 500 firms,most of which are in Mexico, Brazil, and Venezuela.Asia has 342 firms, of which the largest numbers arein China, Japan, and India.

As is true of all the alumni-founded firms, manyof these now are sizable businesses, but most aresmall; the median number of employees of thosefounded by foreign students in Europe and Asia iseighteen employees and the median revenues are alittle more than $1 million. Almost three-quarters ofthese businesses are started by alumni with MITgraduate degrees; not too surprising, as historicallyMIT has had few undergraduates from outside of theUnited States. About half of the American foundershave advanced degrees from MIT.

Of the U.S.-located companies founded by MIT’sforeign students, 66 percent were started in the1990s or 2000s. European alumni started 36 percentof the 2,340 U.S.-located firms and alumni fromAsian countries started 28 percent of them. This

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T h e R o l e o f M I T A l u m n i C o m p a n i e s i n t h e U . S . E c o n o m y

United States 2,340 673

Europe 790 51

Latin America 495 63

Asia 342 43

Location Total Manufacturing

Table 2Estimated Number of CompaniesFounded by “Foreign” MIT Alumni

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Figure 3Firms Founded by Years After Graduation for

Each Decade’s Cohort of Alumni (from limited sample only)

Cumulative Firms Founded by Decade (Bachelor’s Degree)

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Graduates from the

1950s1960s1970s1980s1990s

geographic source distribution of foreign-alumnientrepreneurs will no doubt shift as Asians become alarger fraction of the MIT foreign-student population.

Younger Entrepreneurs The tendencies shown in Figures 1 through 4

are clear: More entrepreneurs emerge out of eachsuccessive MIT graduating class, and they start their first companies sooner and at earlier ages. To illustrate this, in Figure 3 we display for Bachelor’sdegree graduates only how many companies werefounded by each decade’s cohort group as a function of the number of years following their MIT graduation. During each successive decade, the cohort of graduating alumni got started in itsentrepreneurial behavior sooner (i.e., the cumulativenumber of companies rises much faster in terms of years after graduation) than the precedingdecade’s cohort.

Figure 4 shows three frequency distributions ofthe ages of MIT alumni first-time entrepreneurs for

firms founded during and prior to the 1970s, forthose founded in the 1980s, and for those foundedin the 1990s. Note the general shifts in the threecurves over the years. The distributions show that themore recent entrepreneurs include many more fromthe younger age brackets, as well as slightly morefrom the late forties and fifties age brackets. Duringand prior to the 1970s, 24 percent of the first-timeentrepreneurs were under thirty years of age; duringthe 1980s that number grew to 31 percent; in the1990s, 36 percent of the founders were under thirty.During and prior to the 1970s, 30 percent of thefirst-time founders were older than forty years of age;during the 1980s, 28 percent were older than forty;and, in the 1990s, 35 percent were older than forty.More than half of all MIT alumni companies now arefounded within ten years of the time the foundergraduates from MIT; one-quarter of the companiesare founded within six years of graduation. Themedian age of first-time entrepreneurs gradually hasdeclined from about age forty (1950s) to about agethirty (1990s). Correspondingly, the average time lag

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Figure 4Age Distribution of Entrepreneurs at

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22-24 28-30 34-36 64-6658-6040-42 46-48 52-54

Firms founded in the 1980s

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Firms founded in the 1990s

between graduation and first firm founding foralumni from the more recent decades dropped to aslow as four years from graduation during the“Internet bubble” years of the 1990s.

To check on possible industry effects, weseparated out those who had formedsoftware companies. Figure 5 showsthat the majority of softwarefounders over all the decades of ourstudy are age thirty or younger andthe majority of non-software industryfounders are below age thirty-five theyear they found their first firms. But,not shown in this report, the increasein software entrepreneurship inrecent years does not statisticallyaccount for the continuing decline inthe average entrepreneurial age attime of first company formation.

We support the above argumentswith the data in Table 3,demonstrating that the ages of first-time MIT alumni entrepreneurs havebeen getting younger each decade,whether male or female, U.S. or

Figure 5Age of Founders: Software vs. Other Industries

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1 67% 61% 56% 54% 48% 57% 61% 59%

2 0% 11% 21% 20% 23% 22% 23% 28%

3 0% 9% 10% 11% 16% 11% 9% 9%

4 11% 8% 7% 7% 6% 5% 3% 3%

5+ 22% 11% 7% 9% 7% 5% 4% 0%

Percent Repeat 33% 39% 44% 46% 52% 43% 39% 41%

Total Number of Firms Founded

Decade1950s1940s1930s 1960s 1970s 1980s 1990s 2000s

Table 4One-Time and Repeat MIT Founders by Decade of Graduation (percent)

foreign citizen. (The big drop in the 1990s no doubtreflects the fact that many more graduates from the1990s will form companies later, moving the averageage upward to some extent.)

Serial EntrepreneursTo this point, we have focused primarily on the

vast number of MIT alumni who have founded theirfirst enterprises. Yet the phenomenon of MITgraduates embarking on careers of repeat or “serial”entrepreneurship appears to be growing over time.Using only the limited data from the 2003 surveyresults, without any scaling adjustment, Figure 6shows the number of first firms, second firms, andthird (and more) firms by their founding year. By

definition, “first-time” firms are the most prevalent,and the number of first firms founded increases overthe years. Separate from any other trends, we expectthis increase due to the fact that each year addsanother year of graduates with the potential forentering entrepreneurship. Table 4 presents, by theirdecade of graduation, the number of entrepreneursfounding one firm (the top line) up to five or morefirms (the high in the database is eleven firmsfounded by an alumnus). The bottom row, labeled“Percent Repeat,” is the percentage of founders fromeach decade of MIT graduates who have startedmore than one firm. Across the decades, MIT alumnifounders who have founded multiple startups havegrown from 33 percent of those who graduated in

All 40.5 39.0 35.0 32.0 28.0

Non-U.S. Citizens 38.0 35.5 36.5 32.0 29.0

Women 42.0 41.0 40.0 35.0 29.0

Table 3Median Age of First Firm Founders

First Firm FoundersDecade of Graduation

1950s 1960s 1970s 1980s 1990s

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Figure 6Histogram of Repeat Founders Among MIT Alumni

Entrepreneurs (from limited sample only)

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the 1930s to 52 percent of those who graduated inthe 1970s.4 The decrease in the Table 4 entrypercentage from the 1980s on is likely due to the factthat many of the more recent graduates have not yethad time to start a second (or more) firm but certainlymay do so in the future.

The MIT alumni entrepreneurs who eventuallyfound multiple companies differ substantially from“single-firm-only” entrepreneurs, and theircompanies are quite different, too. For example,proportionately more of the repeat founders are notU.S. citizens and a slightly higher proportion of therepeat entrepreneurs hold Master’s degrees. Relativeto the repeat entrepreneurs, those who found onlyone company throughout their lives are older whenthey establish their sole company and have a longerlag from graduation to that founding. Repeat/serialentrepreneurs enter entrepreneurship much sooner,

which likely reflects their own strong entrepreneurialtendencies while also giving them more time to startsubsequent firms.

Table 5, directly from our limited 2003 sample,contains economic impact indicators of the one-timeand repeat entrepreneurs in terms of firms founded,revenues, and employees. The representative MITalumni entrepreneur founds 2.07 companies over hislifetime. We see in Table 5 that repeat entrepreneurshave a substantial economic impact relative to thepercentage of total entrepreneurs, accounting forabout three times the total company revenues andemployees as the single-firm founders. Thus, a thirdobserved trend is that, over time, the number ofmultiple companies founded per MIT entrepreneurialalumnus has been increasing, with dramaticallyincreased economic impact per graduate.

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Total Sales (in '000 $2006) $9,876,900 $29,190,000

Total Employment 111,915 344,208

Total # of Firms Founded 1,086 3,193

Total Founders in the Sample 1,086 981

Percentage of Entrepreneurs 52.5% 47.5%

Percentage of Firms 25.4% 74.6%

Percentage of Total Revenues 25.3% 74.7%

Percentage of Total Employment 24.5% 75.5%

Category of Entrepreneur One-Time Entrepreneurs Repeat/Serial Entrepreneurs

Table 5.Economic Impact of One-Time and Repeat Entrepreneurs (from limited sample only)

MIT Founders and MIT Course MajorsMore MIT founders—more than 20 percent of

the total—come from the Institute’s electricalengineering and computer science programs (the twoare linked in the same MIT department) than fromany other department. Other programs heavilyrepresented among the founders are management;mechanical, chemical, and civil engineering;architecture; physics; and aeronautics.

Over the years, an interesting shift has occurred,reflecting underlying change at MIT in the coursemajors taken by company founders. More than 65percent of the founders who graduated more thanfifty years ago were engineering majors. Only 44percent of company founders who graduated in thelast fifteen years are engineers, while 32 percent arefrom the social sciences/management departments.We estimate the total number of MIT alumnicompanies founded by living engineering majors as17,090 compared with 9,100 companies founded byscience majors and 6,860 companies by managementmajors, certainly affected by the relative sizes of thegraduating populations.

Some correlation, but no predictable connection,exists between the founder’s major and the type of

company. For example, only 10 percent of alumni-created biotech and medical companies are foundedby life-science graduates; 59 percent are founded byengineers. Social science and management graduatesaccount for 9 percent of electronics firms, 10 percentof other manufacturing firms, and 20 percent ofsoftware companies, while engineering graduatesaccount for 46 percent of the companies in financeand 45 percent of the management consulting firms.These differences reflect, in part, the additionaldegrees of the MIT alumni, whether from MIT orfrom other universities, and/or the backgrounds oftheir co-founders.

We normalized the number of entrepreneursfrom each MIT school (MIT contains five schools),using the numbers graduating in each decade as ourbases for normalization. Despite increasedparticipation over time from science graduates, thepercentage of them who become entrepreneurs is stillthe smallest of all study areas, over essentially theentire time studied. The data show that,proportionately, from 50 percent to 100 percent moreMIT engineering graduates than science alumnieventually have become entrepreneurs. Managementgraduates overall seem to be at least as inclinedproportionately to become entrepreneurs as are MIT

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EE and CS degrees 20.4% 26.5% 18.7% 25.4% 22.7%

Life Sciences degrees 0.0% 2.7% 4.0% 4.9% 4.7%

Management degrees 16.7% 14.3% 13.5% 13.8% 15.8%

First Firm FoundersDecade of First Firm Founding

1950s 1960s 1970s 1980s 1990s

Table 6Proportion of Founders from Three Selected Academic Areas of MIT (percent of all MIT alumni companies founded during the decade)

engineering graduates. Architecture alumni are, on aproportional basis, perhaps surprisingly, the mostlikely among graduates of all the MIT schools to strikeout on their own. But this no doubt reflects adominant “industry” structure of large numbers ofsmall architectural practices, with relatively frequentchanges in partnerships (i.e., new “firms”).

Table 6 provides further details on the trends inthree selected academic areas of MIT: electricalengineering and computer science (EECS), biology/lifesciences, and management. EECS has, by tradition,been the largest MIT department and the mostevident home of its entrepreneurial offshoots.Biology/life sciences is an up-and-coming “technologychange area,” and we wish to portray itsentrepreneurial inclinations. Management appears tohave established itself as a common ground forentrepreneurial interest development and we want toexamine how deeply rooted are these indicators.

The data show that the percentage of foundersgraduating with degrees in biology/life sciences hasindeed increased over the years, but appears to haveleveled off in recent decades at around 5 percent.The percentage of founders who are EECS majors

remains the highest at slightly more than 20 percent,and those with management degrees hover around15 percent. Both EECS and management appear tobe relatively stable in their proportionate supply ofentrepreneurs over the decades.

Industry Composition and Effects Table 7 shows an estimated industry breakdown

of MIT alumni companies by number of firms, sales,and employment. MIT alumni found companies in adiverse array of industries, although they do tend tocluster in certain sectors. About 3,300 companies,employing an estimated total of 436,100 people, arein electronics, which (as used here loosely) includescomputers, semiconductors, instruments,telecommunications equipment, and electricalmachinery and appliances. These electronics firmsmake up 13 percent of the MIT alumni companies.All told, manufacturing firms make up 13 percent ofthe MIT alumni companies, 21 percent of totalemployment, and 6 percent of total sales.5 In theUnited States as a whole, manufacturing accounts forless than 11 percent of total employment. Naturally,company size varies according to industry. Although

5. Not all electronics firms are in manufacturing. Some, for example, are in IC design (computer companies and telecommunications also weregrouped with electronics). The estimate depends on how we calculate what is truly manufacturing. The Standard Industrial Classification (SIC) codes (whichare admittedly imperfect) of the companies indicate 13 percent with manufacturing codes. However, the entrepreneurs’ industry self-reports suggest thatmanufacturing constitutes as much as 31 percent. The truth is probably between these two estimates at around 20 percent, much higher than for theUnited States as a whole, as we would expect for graduates of a technical university.

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Aerospace 467 15 1,200

Architecture 1,209 5 265

Biomedical 500 27 2,000

Chemicals and Materials 742 25 1,275

Consumer Products 1,417 23 1,500

Management Consulting 2,239 2 200

Electronics 3,285 25 2,000

Energy and Utilities 789 8 507

Finance 1,111 7 1,800

Law and Accounting 1,046 8 450

Machinery 322 25 2,600

Publishing and Schools 564 12 1,200

Software 5,009 22 1,500

Telecommunications 902 5 143

Other Manufacturing 773 20 1,600

Other Services 5,395 30 1,750

Industry # of Firms Revenue (Median–in $000s)Employment (Median)

Table 7MIT Alumni Companies by Industry

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their cumulative impact is significant, the median sizein every industry is quite small, reflecting the overallnational experience and the large number of young firms.

Firms in software, electronics (includinginstruments, semiconductors, and computers), andbiotech form a special subset of the MIT alumnicompanies. These high-technology firms (1) spendmore of their revenues on research and development,(2) are more likely to hold one or more patents, and(3) tend to export a higher percentage of theirproducts. They are more likely than companies in

other industries to provide the bases for long-termeconomic growth. Together, firms in these threeindustries account for one-third of the employment inall MIT alumni companies; electronics and instrumentfirms alone account for more than 13 percent.

The expansion plans of the companies wesurveyed form an interesting “leading indicator,”pointing to growth prospects by industry. More than30 percent of the firms in chemicals, aerospace, andbiotech are planning to expand. They are followedclosely by telecommunications and consumerproducts companies.

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Figure 7Sales of MIT Alumni Companies Out-of-State

and Exported Abroad

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Global Markets In any regional economy, firms that sell out-of-

region play the major role in driving economic growthbecause, as these firms grow in total revenues, theyalso are growing in local employment, and theycreate markets for utilities, service firms, retailers, andother local-market businesses. MIT alumni companieshave a disproportionate importance to their localeconomies because so many of them aremanufacturing, biotech, and software firms (48percent of the employment of MIT alumni companies)that tend to compete in and sell to national andworld markets. Overall, 54 percent of company salesare to out-of-state markets; 13 percent of total salescome from goods or services sold by U.S. firmsabroad. Figure 7 shows these percentages byindustry. For electronics, chemical, machinery, biotech,software, and management consulting firms, 65percent of sales are out-of-state. The only companies

that have in-state sales amounting to 50 percent ormore of total revenues are architects, financecompanies, publishing, and law firms.

Across all industries, exports (outside of theUnited States by U.S.-based firms) account for 13 percent of the sales revenues of MIT alumnicompanies. Exports are slightly higher for biomedical,machinery, and electronics firms (more than 20 percent). Companies in all other industries have anaverage export share of just under 10 percent. Thesehigh-tech, high-growth industries clearly depend onforeign as well as domestic markets.

Figures 8 and 9 present the distributions byindustry of the 2003 survey responses. Amongmanufacturing industries, electronics has held its ownfor six decades as a major opportunity area for MITalumni entrepreneurs. On the services side, softwarefirms have grown strikingly as a percentage of firmsfounded since the 1950s. Also of note is the rapid

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Figure 8Changing Industry Mix of Manufacturing Startups

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Figure 9Changing Industry Mix of Services Startups

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Figure 10Steady Decline in Manufacturing

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growth since the 1960s of ventures in financialservices and management/financial consulting, nodoubt reflecting both the market opportunities aswell as the growth of the number of MIT SloanMaster’s degree graduates during this period. Someof the trends may be attributable to changes in thesize of certain departments relative to the rest of MIT(for example, architecture).

Figure 8 shows the trends over sixty years in themix of new manufacturing companies being formedby MIT grads, the dominance of electronics firms, andan increase in drug and biomedical firms. Mirroringsimilar trends in the overall United States and worldeconomies, the percentage of MIT alumnimanufacturing firms has been slowly decreasing over

the decades, as shown in Figure 10. From a high ofabout 20 percent manufacturing firms in the 1950s,about 10 percent of the firms founded in the 1990sand 2000s were manufacturing firms. On averageover the decades, 13 percent of the firms founded byMIT alumni are manufacturing firms. But they employabout 30 percent of the total employees of all MITalumni firms. An interesting observation from Table 2shown earlier in this report is that the U.S.-locatedcompanies founded by MIT foreign-student alumniinclude more than 28 percent in manufacturing. Theoverseas-located firms established by foreign alumniinclude less than 10 percent in manufacturing.

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Figure 11Percent of Surveyed Firms Holding One or More Patents

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Patents and Research ExpendituresIn all, between nearly 30 percent up to more

than 40 percent of the surveyed firms in aero/astro,biomed, chemicals, electronics, and machinery hold atleast one patent. Consistent with their reputations asthe two premier technology locations in the country,as shown in Figure 11, California and Massachusettsfirms are more likely to hold patents than are theircolleagues in the same industries in other states. Thecompanies that hold patents average around twenty-six patents each. Since larger companies are morelikely to have had the time and legal resources togenerate and protect intellectual property portfolios,larger companies are more likely to hold patents (59 percent of companies with 500 or moreemployees hold at least one patent, compared to only 16 percent of companies with fewer than fifty

employees). The larger companies also hold morepatents (sixty-four per company for those with 500 ormore employees versus only 0.78 for those withfewer than fifty workers).

Aerospace, biotech, electronics, chemicals, andsoftware firms tend to report spending more on R&D,as shown in Figure 12. The average for all surveyedMIT alumni companies is 24 percent of total revenuesspent on research and development, whereassoftware companies spend 29 percent. In contrast,the average R&D spending for all U.S. firms isestimated by the National Science Foundation to be2.6 percent of GDP in 2006, demonstrating ratherdramatically the extraordinary scientific andtechnological base of the MIT alumni firms. AverageMIT companies’ spending on marketing is 18 percentof revenue.

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Figure 12Spending on R&D and Marketing in MIT Alumni Companies

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Competitive Edge, Obstacles to SuccessThe recent survey of MIT alumni entrepreneurs

has generated some interesting insights into theseknowledge-based companies and what gives them acompetitive advantage. The survey listed competitivefactors and asked respondents to rank each of themin importance. The most frequently cited factorsperceived as vital to competitive advantage were: (1) superior performance, (2) customer service/responsiveness, (3) employee enthusiasm, (4) management expertise, and (5) innovation/newtechnology—all ahead of product price. Althoughprice is not unimportant (it is hard for a company tocompete if its price is unreasonable), if a startup has acutting-edge product with outstanding performanceand good customer service, it reasonably can chargea premium.

In the aerospace industry (where government isthe major client), price is the second-most importantfactor (behind superior performance). Price is leastimportant to finance and consulting firms. Time tomarket is particularly important in electronics andinstruments, software, and aerospace, and leastimportant in management consulting and finance.Innovation, new technology, and time to market areparticularly important to founders who graduated inthe last fifteen years.

Eighty-five percent of the alumni entrepreneursreported association with MIT as having helped boosttheir credibility with suppliers and customers. Fifty-one percent of the entrepreneurs also felt that theirassociation with MIT helped in acquiring funding.Had we studied alumni entrepreneurs from StanfordUniversity, Cal Tech, or other research-intensive

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Figure 13Location of MIT Alumni Firms in the United States

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universities, we no doubt would have found similarlinkages between entrepreneur credibility and thereputation of the alma mater.

Government regulation mattered most toaerospace, chemical, and energy firms, reflecting therole of the government in defense procurement,environmental regulation, and utility regulation.Government regulation made much less difference tosoftware and publishing companies and to companyfounders who graduated in the last fifteen yearsrelative to their older counterparts.

Firm Location DecisionsAlmost all founders (89 percent) started their

companies in the general location in which they wereliving at the time. The largest fraction of thesefounders (65 percent) indicated that they were livingthere because this was where they had beenemployed, and 15 percent indicated that they wereliving there because that location was where theyattended university, which often was MIT and, inother cases, another graduate school. When askedwhat factors influenced the location of theircompanies, the most common responses (in order)were: (1) where the founders lived, (2) network of

contacts, (3) quality of life, (4) proximity to majormarkets, and (5) access to skilled professional workers(engineers, technicians, and managers). Taxes and theregulatory environment were rated as less-importantfactors for most industries. High-tech startups arehighly dependent on the availability of skilledprofessionals to build reliable, high-quality, innovativeproducts. The companies locate where theseprofessionals like to live.

Within the United States, the development ofSilicon Valley and other entrepreneurial locations inCalifornia is shown in Figure 13 by the shift towardabout 22 percent of MIT graduates starting theircompanies there, while still having about 26 percentlocating in Massachusetts. New York and Texas arehome to about 8 percent of the firms in total, slightlyincreasing over the years, leaving about 45 percent ofthe alumni-formed firms being located in the otherforty-six states.

MIT alumni firms in the high-growth, high-techindustries (software, electronics, biotech) areparticularly likely to locate in California orMassachusetts, especially in the premier technologyregions of Silicon Valley and Greater Boston. Thesetwo states account for 66 percent of all MIT alumni

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Figure 14Startup Funding, MIT Alumni Companies (percentage)

Percentage of Capital Funding for Manufacturing vs. Service Firms

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electronics firms, 62 percent of software firms, and62 percent of drug and medical firms. By contrast,they are host to only 36 percent of firms in all other industries.

Startup CapitalMost MIT alumni companies start with funds

from the founder’s personal savings or by re-investingcash flow, as shown in Figure 14. Personal savingswas the primary source determined in earlier studies,as well (Roberts, 1991, pp.124–159). Little differencesgenerally exist in the funding patterns acrossindustries or regions of the country, with but a fewinteresting exceptions. Entrepreneurs’ dependence onpersonal, family and friends, and informal investors isnot just an MIT-related phenomenon, but seems toalways have been true both in the United States andglobally. Strategic corporate partners are important toelectronics, machinery, and chemical firms. Venturecapitalists are important to software, electronics, andbiotech firms, as well as to chemicals and materialsfirms. In none of these cases, however, were these

alternate sources more important at the outset thanthe founders’ own savings. Although venture capitalwas not a major source of initial or even later fundingfor smaller firms, it was important for companies thatgrew to fifty or more employees, and was even moresignificant for companies that achieved 500 or moreworkers.

Special Case: MIT Alumni Companies in California

We estimate that California has the head officesof 4,100 MIT alumni firms, which employ 526,000people worldwide and have $134 billion in sales. The2,675 MIT alumni firms we project for northernCalifornia alone account for the greater part of theMIT presence in California—$78 billion in worldwidesales and worldwide employment of 322,100. Totalemployment of MIT alumni companies in SiliconValley alone is estimated at just over 260,000—abouthalf of total California employment of MIT alumnicompanies. Of this number, some 135,200 work inmanufacturing and 75,500 in electronics.

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A 1990 study by the Chase Manhattan Bankidentifies 176 MIT-founded companies just innorthern California (the Silicon Valley area),employing more than 100,000 with aggregate salestopping $20 billion. The growth over the fifteen yearssince that report has been impressive, perhapsattributable in part to a 1990 underestimation of thenumber and size of the MIT alumni firms. ChaseManhattan notes that 1924 MIT graduate FrederickTerman, former dean of engineering at StanfordUniversity, has been acknowledged as the “father ofSilicon Valley.” Other MIT figures in Silicon Valley’spast are William Shockley ’36, who co-invented thetransistor, won the Nobel Prize, and foundedShockley Semiconductor Laboratory, which gave birthto the semiconductor industry; Intel co-founderRobert Noyce ’54, who devised the integrated circuit;William Hewlett, also a 1936 MIT graduate who co-founded Hewlett-Packard; and Robert Swanson ’69,who co-founded Genentech, the world’s firstbiotechnology company. Due to their deaths prior to2003, none of these individuals or their firms wasincluded in the survey database.

Well over half of the current sales andemployment of California MIT alumni companies are in electronics and instruments, but more than $1 billion in sales are estimated to be in software andbiotech. The region’s largest MIT alumni firms includeHewlett-Packard, Intel, National Semiconductor,3Com, Qualcomm, Tandem Computer, Raychem,Cirrus Logic, Lam Research, Genentech, andSymantec.

Special Case: MIT in MassachusettsAn estimated 6,900 MIT alumni companies are

headquartered in Massachusetts. The estimated salesof these companies—$164 billion—represent 26percent of the sales of all Massachusetts companies.Worldwide employment of these 6,900 companies isnearly one million, with a substantial share of thesejobs spread across the United States. MIT alumnicompanies in Massachusetts are located primarilythroughout its eastern region.

However, these numbers understate the impactof MIT alumni companies on Massachusetts. In oneindustry after another, these companies representcutting-edge technologies in their fields. Historicalexamples include Raytheon in missile and guidancesystems; ThermoElectron in instruments andenvironmental technology; Lotus Development (nowpart of IBM, so not included in our impact estimates),Medical Information Technology, and ProgressSoftware, all in software; Analog Devices andAnalogics in integrated circuits and electronicsdevices; A123 Systems and American Superconductorin advanced materials; Teradyne in testing equipmentfor electronic components; M/A Com in microwavetechnology; BBN in electronics and networking;Genzyme, Biogen, and Alpha-Beta in biotechnology;Bose in acoustic systems; and AVID in videoconferencing. Together, these leading companiesprovide a substantial part of Massachusetts’ high-techenvironment, helping to attract highly skilledprofessionals and other firms to the state.

One reason MIT is so important to theMassachusetts economy is that, without MIT, most ofthese companies never would have been located inMassachusetts. Most of the MIT alumni companies inMassachusetts were founded by former students whocame to the state to attend MIT, liked what they saw,settled down, and eventually started their companiesin Massachusetts. Less than 10 percent of MITundergraduates grew up in the state, butapproximately 31 percent of all MIT alumnicompanies are located in Massachusetts. In the last five years, more than 37 percent of the newlyfounded MIT alumni companies in software, theInternet, biotech, and electronics have located in Massachusetts.

MIT attracts some of the brightest young peoplein the country (and the world); many of them like theBoston area and choose to stay there. As just oneexample, the late Alex d’Arbeloff ’49 came to MITfrom Paris just after World War II. His first job aftergraduation was in New York, but he chose to comeback to Boston, where eleven years later d’Arbeloffand his MIT undergraduate classmate Nick DeWolf

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’49 started an electronic testing equipment companyin DeWolf’s home. When they outgrew the house,they rented space in downtown Boston because theyliked living on Beacon Hill and wanted to walk towork. Today, Teradyne has more than a billion dollarsin revenues and still is located in the Boston area.Another MIT founder located his company north of Boston so he could have easy access both todowntown and, on weekends, to the Maine coastand the New Hampshire mountains. These storiesunderscore the critical importance of the fact thatscientifically oriented entrepreneurs like living in theBoston area. Absent the symphony, the parks, theocean, MIT and other universities, the art museums,and the other cultural and sports attractions thatmake Boston unique, the city would likely fail to holdthese entrepreneurs and the regional economy wouldgrow more slowly or shrink.

Another advantage of locating in Massachusettsis the proximity to MIT and other Boston-Cambridge-area universities. When asked the importance ofvarious location factors, Massachusetts firms rankedaccess to MIT and other universities ahead of lowbusiness cost; in every other region of the country,business cost was more important than contact withuniversities. (As indicated earlier, the most importantlocation factors are quality of life and access to skilledprofessionals. These factors have average scores wellabove those for business cost and university access.)

Approximately 32 percent of the MIT alumnientrepreneurs report having or anticipate having anongoing connection with MIT. Most frequently, thisongoing connection has taken the form of recruitingnew employees, doing joint research, and/or havingfaculty advisors or directors. The companies of thosewho graduated more than thirty years ago are slightlyless likely to maintain regular contacts than are themost recent graduates.

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MIT—Its Unique History, Culture,and Entrepreneurial Ecosystem

Global pursuit of research- and technology-basedindustrial development has mushroomed in the pastseveral decades. Greater Boston’s Route 128 andCalifornia’s Silicon Valley are the prototypes for otherregions’ and other nations’ visions of their ownfutures. But what caused the original AmericanTechnopolis around Greater Boston to develop? What forces continue today to encourage young localscientists and engineers to follow entrepreneurialpaths? This section of our report traces the evolutionof MIT’s and Boston’s high-technology community,indicating the central role of MIT in buildingentrepreneurial practice and the supportiveentrepreneurial environment or ecosystem. Our owntakeoff from Webster defines an ecosystem as acomplex community of living and nonliving thingsthat are functioning together as a unit. Wedemonstrate here that such a system has beenevolving for at least the 150 years since MIT’sfounding to make entrepreneurship so vibrant in andaround MIT.

Overwhelming anecdotal data argue that thegeneral environment of the Greater Boston areabeginning during the post-World War II period and,in particular, the atmosphere at MIT have playedstrong roles in affecting “would-be” localentrepreneurs. The legitimacy of “useful work” fromMIT’s founding days was amplified and directedtoward entrepreneurial expression by prominent earlyactions taken by administrative and academic leaders.Policies and examples that encouraged faculty andstaff involvement with industry and, more important,their “moonlighting” participation in spinning offtheir ideas and developments into new companieswere critical early foundation stones. MIT’s tacitapproval of entrepreneurism, to some extent evenmaking it the norm, was, in our judgment, adramatic, perhaps the defining, contribution to theGreater Boston entrepreneurial culture. Key individual

and institutional stimulants such as Stark Draper ’26and the MIT Enterprise Forum reinforced the potentialentrepreneurial spinoffs that derived from a widevariety of advanced technology development projectsin MIT labs as well as those of other local universitiesand medical centers, and in the region’s high-techindustrial firms. These actions fed into a graduallydeveloping positive feedback loop of productiveinteractions with the investment community that, intime, created vigorous entrepreneurial activityespecially at MIT, and a vital Route 128 communityand beyond.

Early Influences: The Heritage of WorldWar II Science and Technology

The atomic bomb, inertial guided missiles andsubmarines, computer-based defense of NorthAmerica, the race to the moon, and the complex ofhigh-technology companies lining the Route 128highway outside of Boston are phenomena thatbecame prominent in the post-World War II years.This was a time marked by a plethora of scientificand technological advances. The war had identifiedtechnology as the critical element upon which thesurvival of the nation rested and brought scientistsfrom the shelter of their labs into the confidence ofthose in the highest levels of government. And in thepostwar years, their power and their products and by-products began to shape society, the economy, andthe industrial landscape.

How had this started? The sudden need for warresearch in the early 1940s transformed universities likeMIT into elite research and development centers wherethe best scientific and technological talent wasmobilized for the development of specific practicaldevices for winning the war. Virtually whole universitiesredirected their efforts from pure scientific inquiry tothe solving of critical problems. While many scientists

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had to neglect their previous research in favor of war-related innovations, the scientists themselves were notneglected. Science and its offspring technology hadbecome the property of the whole nation with animmediate relevance for all the people.

In addition to the urgent expansion andredirection of university research, the war madenecessary the reorganization of research groups, theformation of new working coalitions among scientistsand engineers, between these technologists andgovernment officials, and between the universities andindustry. These changes were especially noteworthy atMIT, which during the war had become the home ofmajor technological efforts. For example, the MITRadiation Laboratory, source of many of the majordevelopments in wartime radar, evolved into thepostwar MIT Research Laboratory for Electronics. TheMIT Servomechanisms Lab, which contributed manyadvances in automatic control systems, started theresearch and development project that led to theWhirlwind Computer near the end of the war, creatednumerically controlled milling machines, and providedthe intellectual base for undertaking the MIT LincolnLaboratory in 1951. After the war, the Servo Labbecame the Electronic Systems Lab and continuestoday as the MIT Laboratory for Information andDecision Systems. Lincoln Lab focused initially oncreating a computer-based air defense system (SAGE)to cope with the perceived Soviet threat. To avoidcontinuing involvement in production and operationsonce the SAGE system was ready for implementation,MIT spun off a major group from Lincoln Lab to formthe nonprofit MITRE Corporation, chartered to aid inthe later stages of SAGE and to undertake systemsanalysis for the government. Lincoln then reaffirmedits R&D thrust on computers, communications, radar,and related technologies primarily for the U.S.Department of Defense. The MIT Instrumentation Lab,growing out of the wartime gun-sight work ofProfessor Charles Stark Draper, its founder anddirector throughout his career at MIT, continued itsefforts on the R&D needed to create inertial guidancesystems for aircraft, submarines, and missiles. Itfollowed up with significant achievements in the race

to the moon with developments of the guidance andstellar navigation systems for the Apollo program. The former Instrumentation Lab now bears Draper’sname in its spunoff-from-MIT nonprofit status. Draper testified as to the scope of these endeavors: “Personal satisfaction ... was greatest when projectsincluded all essential phases, ranging from imaginative conception, through theoretical analysisand engineering, to documentation for manufacture,supervision of small-lot production, and, finally,monitoring of applications to operational situations.”All these MIT labs were spawned during a period in which little debate existed about a university’sappropriate response to national urgency. They have successfully fulfilled their defined missions, while also providing a base of advanced technologyprograms and people for other possible societal roles, importantly including significant entrepreneurial birthing.

Building on a TraditionThe World War II efforts and the immediate

postwar involvements of MIT with major nationalproblems built upon a much older tradition at MIT,enunciated by its founder William Barton Rogers in1861 when he created an institution to “respect thedignity of useful work.” MIT’s slogan is “Mens etManus,” Latin for “mind and hand,” and its logoshows the scholar and the craftsman in parallelpositions. For a long time, MIT was seen as virtuallyalone as a university that embraced rather thanshunned industry. Early alumni of “Boston Tech”(what MIT was “fondly” called before its move fromBoston to Cambridge in 1910) pioneered newindustries, such as automobiles. For example, AurinChase, MIT class of 1900, soon after in 1906 foundedand ran Chase Motor Truck Company, a major truckand track vehicle supplier to the U.S. Army duringWorld War I. From its start, MIT had developed closeties with technology-based industrialists, like ThomasEdison and Alexander Graham Bell, then later with itsillustrious alumnus Alfred P. Sloan (MIT 1892) duringhis pioneering years at General Motors and with closeties to the growing U.S. petroleum industry. In the

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1930s, MIT generated The Technology Plan to linkindustry with MIT in what became the first and is stillthe largest university-industry collaborative, the MITIndustrial Liaison Program.

These precedents were accelerated by thewartime leadership of MIT’s distinguished president,Karl Taylor Compton, who brought MIT into intimacywith the war effort while he headed all national R&D coordination in Washington. In the immediatepostwar years, Compton pioneered efforts towardcommercial use of military developments, among other things helping to create the firstinstitutionalized venture capital fund, AmericanResearch and Development.

“AR&D was, in part, the brainchild of Compton,then head of MIT. In discussions with MerrillGriswold, chairman of Massachusetts Investors Trust,and Senator Ralph Flanders of Vermont, thenpresident of the Federal Reserve Bank of Boston,Compton pointed out that some of the A-bombtechnology that had been bottled up for four yearshad important industrial applications. At the sametime, it was apparent to Griswold and Flanders thatmuch of New England’s wealth was in the hands ofinsurance companies and trusts with no outlet tocreative enterprises. Griswold and Flanders organizedAR&D in June 1946 to supply new enterprise capitalto New England entrepreneurs. [Compton became aboard member, MIT became an initial investor, and ascientific advisory board was established that includedthree MIT department heads. General Georges]Doriot, who was professor of Industrial Managementat Harvard, was later asked to become president”(Ziegler, 1982, p. 152) . AR&D’s first severalinvestments were in MIT developments, and some ofthe emerging companies were housed initially in MITfacilities. For example, in 1947, AR&D invested inHigh Voltage Engineering Corporation, which waslocated in the so-called “back lot” of MIT to takeadvantage of Professor John Trump’s Van de Graafgenerator that stood there. AR&D also invested inIonics Inc., which became the United States’preeminent water purification company, purchased byGeneral Electric in 2004 for $1.3 billion, but housed

initially in the basement of the MIT ChemicalEngineering building. MIT provided the space, heat,and light, and AR&D paid for the staff and out-of-pocket R&D expenses. That kind of arrangementcertainly was most unusual for its time, albeit quiteentrepreneurial, and today would be seen at mostuniversities, including MIT, as a source of controversyand potential conflict. Compton’s successor aspresident of MIT, James Killian ’26, furthered theencouragement of entrepreneurial efforts by MITfaculty and staff as well as close ties with bothindustry and government. At various times Killianserved on the boards of both General Motors andIBM and as President Eisenhower’s Science Advisor.

The traditions of MIT involvement with industrylong since had been legitimatized in its official “Rulesand Regulations of the Faculty,” encouraging activeconsulting by faculty members of about one day perweek and, more impressive for its time, approvingfaculty part-time efforts in forming and building theirown companies, a practice still questioned at manyuniversities. Early faculty-founded companies includeArthur D. Little, Inc. (ADL), Edgerton Germeshausenand Grier (EG&G, Inc.), Bolt Beranek & Newman(BBN, Inc.), and many others. Initially, these wereconsulting firms that only later extended theirdomains into the realm of products. Facultyentrepreneurship, carried out over the years withcontinuing and occasionally heightened reservationsabout potential conflicts of interest, generally wasextended to the research staff as well, who werethereby enabled to “moonlight” while being “full-time” employees of MIT labs and departments. Theresult is that a large fraction of all MIT spinoffenterprises, including essentially all faculty-initiatedcompanies and many staff-founded firms, are startedon a part-time basis, smoothing the way for manyentrepreneurs to “test the waters” of high-techentrepreneurship before making a full plunge. Thesecompanies are obvious candidates for most directmovement of laboratory technology into the broadermarkets not otherwise served by MIT. Few of thefaculty founders, including Amar Bose ’51, founder ofBose Corporation, or Robert Langer ’74, a brilliant

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biomaterials scientist who has co-founded more thana dozen companies, ever resigned their MIT positions,preferring to remain at MIT for years while turningover the full-time reins to their former graduatestudents and lab colleagues. George Hatsopoulos ’49,founder of ThermoElectron Corporation; Jay Barger’50, co-founder with another faculty colleague ofDynatech; Alan Michaels ’44, founder of Amicon; andTom Gerrity ’63, co-founder of Index Systems, areamong the few faculty who left to pursue theirentrepreneurial endeavors full-time, with greatsuccess achieved in all four cases.

Although today regional and nationalgovernments worldwide seek to emulate the Boston-area pattern of technological entrepreneurship, in theearly years the MIT traditions spread to otherinstitutions very slowly. The principal early disciplewas Frederick Terman ’24, who took his Cambridgeexperiences as an MIT PhD student back to StanfordUniversity, forsaking a faculty offer by MIT, toeventually lead Stanford into technological excellence.From his earlier MIT studies, amplified by his WWIIservice in Cambridge, Terman gained first-handexposure to the close ties between MIT and industry,made more important to him by his being mentoredby Professor Vannevar Bush ’16, later dean ofengineering and then vice president of MIT, whoparticipated in founding the predecessor of RaytheonCorporation. The attitudes he developed while at MITled Terman to encourage and guide his formerstudents, such as William Hewlett ’36, David Packard,and the Varian brothers, to start their high-technology firms and eventually to locate them nextto the university in the newly formed StanfordResearch Park. While these efforts obviously helpedfound what has become known as “Silicon Valley,”the resulting early proliferation of firms there cameheavily from multiple spinoffs of other companies anddid not follow the dominant Greater Boston patternof direct fostering of new firms from MIT labs anddepartments. The MIT-Route 128 model still todayremains unusual in its degree of regionalentrepreneurial dependence upon one majoracademic institution.

The Neighboring InfrastructureYet, MIT has not been alone over the past several

decades in nurturing the technology-basedcommunity of Boston, an entrepreneurial ecosystemnow sprawling outward beyond Route 128 to thenewer Route 495. Northeastern University, a largeurban institution with heavy engineering enrollmentand an active cooperative education program withindustry, has educated many aspiring engineers whoprovide both support staff and entrepreneurs to thegrowing area. Wentworth Institute educates many ofthe technicians needed to support the developmentefforts at both the university labs as well as thespinoff companies. Boston University and TuftsUniversity, both with strong science and engineeringfaculties, also play important roles. Even small liberalarts Brandeis University has participated, withProfessor Orrie Friedman in 1961 startingCollaborative Research, Inc., forerunner of the muchlater biotechnology boom in the Greater Boston area.And that firm also illustrates the beginnings of cross-institutional ties among faculty entrepreneurs, withMIT Professor David Baltimore becoming the ChiefScientist of Collaborative while in his young thirties.Baltimore later became the founding director of theMIT Whitehead Institute, a major building block ofthe Cambridge biotech entrepreneurial cluster, andstill later president of Rockefeller University, presidentof the California Institute of Technology, a Nobel Prizewinner, and a co-founder of several companies.

Possibly surprising to readers from outside of theBoston area, Harvard University had not had asubstantial role in entrepreneurial endeavors until therecent biotechnology revolution, in which HarvardMedical School and its affiliated teaching hospitalsare playing a major role. In many ways over the years,Harvard has looked down its “classics” nose withdisdain at the “crass commercialism” of itstechnological neighbor a few miles down the CharlesRiver. An Wang, who worked at the HarvardComputation Laboratory before founding WangLaboratories, Inc., is the most prominent exception tothis rule. But change in regard to encouragingentrepreneurship has been in the wind over the past

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two decades, even at Harvard. The outpouring ofexcellent research and discovery from Harvard’sChemistry and Biology Departments, as well as fromthe Harvard Medical School across the river in Boston,have caused Harvard faculty and staff recently tobecome much more active and successful participantsin entrepreneurial startups, although not withoutvoiced reluctance and controversy at the university. Infact, in a dramatic early attempted revolution of itspolicies, Harvard asked Professor of BiochemistryMark Ptashne to start Genetics Institute in 1979, acompany in which Harvard would hold 15 percent to20 percent equity (something MIT has never done!).But protest by critics as to possible influence of suchownership caused Harvard to pull out. Ptashne wentahead and formed the company, while still remainingon the Harvard University faculty. In 1989, theHarvard Medical School took the far-reaching step oforganizing a venture capital fund (discontinued a fewyears later) to invest in new companies whosefounders relate to Harvard Medical, in some waysmimicking MIT’s much earlier but less-direct activitiesin regard to AR&D, but nevertheless a pioneering stepamong academic institutions. And, recently, a groupof Harvard Medical-affiliated hospitals (PartnersHealthcare) has formed its own venture capital firmto invest in its potential commercial spinoffs.

Encouraged no doubt by the unique venturecapitalist role of Professor Doriot, and separated bythe Charles River from main campus influence, manyHarvard Business School graduates joined alumnifrom the MIT undergraduate management programand, after its 1951 founding, from the MIT Sloangraduate school as well, in finding welcome homes ineven the early high-tech company developments.These business school graduates got involved instartup teams initially as administrators and salespeople, and in more recent years participatingfrequently as primary founders. Thus, Aaron Kleiner’69 from the MIT Sloan School of Managementshares the founding of nine high-technologycompanies with his MIT computer scienceundergraduate roommate Raymond Kurzweil ’70.And Robert Metcalfe ’68 combined MIT educational

programs in both engineering and management priorto his launch of 3Com. The Greater Bostonenvironment has become so tuned toentrepreneurship that even student projects with localcompanies, a part of routine course work in everylocal management school, have ended up helping tocreate numerous entrepreneurial launches. Severalfirms were generated from feasibility studies done aspart of Doriot’s famed “Manufacturing” course at theHarvard Business School. And Inc. magazine founderBernard Goldhirsh ’61 credited an MIT Sloan Schoolmarketing course with confirming for him the hugemarket potential for a magazine targeted towardentrepreneurs and small business managers.

Boston entrepreneurs also eventually benefitedfrom understanding bankers and private investors,each group setting examples to be emulated later inother parts of the country. The First National Bank ofBoston (later becoming BankBoston and now part ofBank of America) had begun in the 1950s to lendmoney to early-stage firms based on receivables fromgovernment R&D contracts, a move seen at the timeas extremely risky even though the loans seemed tobe entirely secured. Arthur Snyder, then vice presidentof commercial lending of the New EnglandMerchants Bank (which became Bank of NewEngland and later part of Citizens Bank), regularlytook out full-page ads in the Boston Globe thatshowed himself with an aircraft or missile model inhis hands, calling upon high-technologyentrepreneurs to see him about their financial needs.Snyder even set up a venture capital unit at the bank(one of the first in the United States) to make smallequity investments in high-tech companies to whichhe had loaned money. Several scions of old BostonBrahmin families became personally involved inventure investments even in the earliest time period.For example, in 1946, William Coolidge helpedarrange the financing for Tracerlab, MIT’s first nuclear-oriented spinoff company, eventually introducingWilliam Barbour ’33 of Tracerlab to AR&D, whichcarried out the needed investment (Ziegler, 1982, p. 151). Coolidge also invested in National ResearchCorporation (NRC), a company founded by MIT

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alumnus Richard Morse ’33 (later the first teacher ofentrepreneurship at MIT) to exploit advances in low-temperature physics. NRC later created severalcompanies from its labs, retaining partial ownershipin each as they spun off, the most important beingMinute Maid orange juice, later sold to Coca-Cola.NRC’s former headquarters building, constructedadjacent to MIT on Memorial Drive in Cambridge,now houses the classrooms of the MIT Sloan Schoolof Management. Incidentally, long before theconstruction of Route 128, Memorial Drive used tobe called “Multi-Million Dollar Research Row”because of the several early high-technology firmsnext to MIT, including NRC, Arthur D. Little Inc., andElectronics Corporation of America. The comfortableand growing ties between Boston’s worlds ofacademia and finance helped create bridges to thelarge Eastern family fortunes—the Rockefellers,Whitneys, and Mellons, among others—who alsoinvested in early Boston startups. Although thesefunds existed, they were not available in generousamounts. Even in 1958, Ken Olsen ’50 and HarlanAnderson ’53 had to surrender more than 70 percentof startup Digital Equipment Corporation (DEC) forthe $70,000 they received from AR&D. Other aspectsof the surrounding infrastructure also were slow inhappening. By and large, lawyers were uninformedabout high-tech deals, and general law firms had nospecialists in intellectual property. As late as the early1980s, the MIT and Harvard co-founders of ZeroStage Capital, Boston’s first “seed capital” fund,eventually found Paul Brontas, the senior partner ofBoston’s then-leading law firm Hale & Dorr, to beamong the only lawyers in town who knew how toset up the complex structure of a venture capital firm.

By the end of the 1940s, when space constraintsin the inner cities of Boston and Cambridge mighthave begun to be burdensome for continuing growthof an emerging high-technology industrial base, thestate highway department launched the building ofRoute 128, a circumferential highway (Europeans andAsians would call it a “ring road”) around Bostonthrough pig farms and small communities. Route 128made suburban living more readily accessible and land

available in large quantities and at low prices. MITLincoln Lab’s establishment in 1951 in Concord,previously known only as the site of the initial 1776Lexington-Concord Revolutionary War battle with theBritish, “the shot heard round the world,” or, tosome, as the home of Thoreau’s Walden Pond, helpedbring advanced technology to the suburbs. TodayRoute 128, proudly labeled by Massachusetts as“America’s Technology Highway,” reflects thecumulative evidence of sixty years of industrial growthof electronics, computer, and software companies.Development planners in some foreign countriesoccasionally have been confused by consultants and/orstate officials into believing that the once-convenient,now traffic-clogged Route 128 highway systemactually caused the technological growth of theGreater Boston area. At best the Route 128 highwayitself, later followed by the more distant Route 495circumferential road, has been a moderate facilitatorof the development of this high-technology region.More likely the so-called “Route 128 phenomenon” isa result and a beneficiary of the growth caused by theother influences identified earlier.

Throughout this period since World War II (andto a lesser extent prior to that time), the sometimes-overlooked but in reality quite vital formation of high-tech companies in the Greater Boston area, as well asin most other high-tech regions in the United States,has been aided powerfully, even if indirectly, bygovernment research funding. One visible example at MIT and nearby was the foundation for themodern computer industry, which benefited fromhundreds of millions of dollars of defense researchinto semiconductors and electronics, much of it spentin New England.

MIT depends on federal agencies forapproximately 75 percent of its $587.5 million of on-campus-sponsored research. Another $636 millionof research and development is at MIT LincolnLaboratories, which MIT runs for the Air Force. (Ken Olsen, founder of Digital EquipmentCorporation, worked on computer research anddevelopment there.) A very early (1964) study byRoberts documented forty-seven companies that

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Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=207) (N=313) (N=373) (N=315) (N=214)

Chose MIT for its Entrepreneurial Reputation 17% 12% 19% 26% 42%

Proportion of Founders Choosing MIT for the Entrepreneurial Environment (percentage)

Table 8.Role of MIT’s Positive Feedback Loop in Venture Funding (from limited sample only)

already had emerged from Lincoln Lab. On theoccasion of its fiftieth anniversary in 2001, LincolnLab itself documented eighty-two companies thathad been founded by former employees, many ofwhom were not MIT alumni.

On-campus research accounts for about 29percent of the Institute’s budget and, because ofthese research funds, the faculty is likely to be muchlarger than otherwise would be the case. In addition,more than $52 million goes to hiring graduatestudents as research assistants. The flow of federaldollars thus helps to bring thousands of the brightestyoung students in the United States and from othercountries to Boston, involves them in cutting-edgeresearch projects, and helps pay for their graduateeducation. As we’ve seen, many of these studentsstay in the area and start companies, often with theirfaculty mentors.

Accelerating Upward from the Base:Positive Feedback

A critical influence on entrepreneurship inGreater Boston (and we assert in other regions aswell, when they do indeed take off) is the effect of“positive feedback” arising from the early role modelsand successes. Entrepreneurship, especially whensuccessful, begets more entrepreneurship.Schumpeter observed: “The greater the number ofpeople who have already successfully founded newbusinesses, the less difficult it becomes to act as anentrepreneur. It is a matter of experience thatsuccesses in this sphere, as in all others, draw anever-increasing number of people in their wake”(1936, p. 198). This certainly has been true at MIT.

The earliest faculty founders were senior faculty ofhigh academic repute at the times they started theirfirms. Their initiatives as entrepreneurs wereevidences for others at MIT and nearby that technicalentrepreneurship was a legitimate activity to beundertaken by strong technologists and leaders. Karl Compton’s unique role in co-founding AR&Dwhile president of MIT furthered this image, as didthe MIT faculty’s efforts in bringing early-stagedevelopments to AR&D’s attention. Obviously, “if theycan do it, then so can I” might well have been arallying cry for junior faculty and staff, as well as forengineers in local large firms. Our comparative studyyears ago of Swedish and Massachusettstechnological entrepreneurs found that, on average,the U.S. entrepreneurs could name about ten othernew companies before they started their own, threeor four of which were in the same general area ofhigh- technology business. Few of the Swedishentrepreneurs could name even one or two otherslike them. A prospective entrepreneur gains comfortfrom having visibility of others like herself or himself;this evidence is more likely if local entrepreneurshiphas a critical mass, making the individual’s break fromconventional employment less threatening.

The positive feedback loop affecting MIT’sentrepreneurial output is no doubt most affected by the increasing attraction of the Institute tostudents, staff, and faculty who are entrepreneuriallyinclined even before they arrive. The moreentrepreneurial MIT appears to be, the more potentialentrepreneurs want to be there. Table 8 indicates theresponses from those MIT alumni entrepreneurs whocompleted the 2003 survey. Clearly, for more thanfifty years, MIT has been attractive to those who later

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form new companies. But the table shows anamazing escalation over the past thirty years. Indeed,42 percent of those 1990s graduates who alreadyhave formed companies within their very first decadeout of MIT claim they were attracted to MIT originallyby its reputed entrepreneurial environment. The moreentrepreneurs MIT produces, the stronger theentrepreneurial environment and reputation, themore likely entrepreneurs, both students and faculty,are attracted to come to MIT!

The growing early entrepreneurial developmentsat MIT and, more broadly, in the Greater Boston areaalso encouraged their brave investors and broughtother wealthy individuals forward to participate. Asan example of the spiraling growth of new firms,even in the early days, Ziegler (1982) shows theproliferation of thirteen nuclear-related companies‘fissioning’ within fifteen years from Tracerlab’s 1946founding, including Industrial Nucleonics (whichbecame Accuray), Tech Ops, and New EnglandNuclear (purchased by DuPont). Inevitably, that lednot only to more new firms but to a technologicalcluster of companies that interacted with each otherto the benefit of all. With now more than fifty yearsof intensive regional entrepreneurial activity in theBoston area, a positive feedback loop of newcompany formation has generated significantoutcomes, even if the initial rate of growth was slow.In the mid-1960s, through dramatic proliferation ofspinoff companies, Fairchild Semiconductor (co-founded by MIT alumnus Robert Noyce ’53 before heleft to co-found Intel) gave birth to similar and rapidpositive feedback that launched the semiconductorindustry in Silicon Valley. And Tracor, Inc., provided acomparable impetus to new-company formation,especially in military electronics, in Austin, Tex.

A side benefit of this growth, also feeding backto help it along, is the development of supportinginfrastructure in the region—technical, legal,accounting, banking, and real estate, all betterunderstanding how to serve the needs of youngtechnological firms. In Nancy Dorfman’s early (1983)assessment of the economic impact of the Boston-area developments, she observes “a network of job

shoppers that supply made-to-order circuit boards,precision machinery, metal parts, and sub-assemblies,as well as electronic components, all particularlycritical to new startups that are developing prototypesand to manufacturers of customized equipment forsmall markets. In addition, dozens if not hundreds ofconsulting firms, specializing in hardware andsoftware, populate the region to serve new firms andold.” Of course, this massive network is itself madeup of many of the entrepreneurial firms we havebeen investigating. Within this infrastructure in theBoston area are now “not-so-new” “networking”organizations, like the MIT Enterprise Forum (to bediscussed later) and the 128 Venture Group, whichbring together on a monthly or even more frequentbasis entrepreneurs, investors, and other participantsin the entrepreneurial community, contributingfurther positive loop gain.

Technology Clusters This positive feedback effect certainly occurred in

the Greater Boston region as a whole and, asillustrated by the Tracerlab and Fairchild examples,also frequently occurs in many places at the singleorganizational level. As one individual or groupdeparts a given lab or company to form a newenterprise, the entrepreneurial phenomenon maymushroom and tend to perpetuate itself amongothers who learn about the spinoff and also get theidea of leaving. Sometimes one group of potentialentrepreneurs feels it is better suited than itspredecessors to exploit a particular idea ortechnology, stimulating the second group to followquickly. Five groups left the Draper Lab over a two-year period to establish new companies based on thelab’s advances in micro-electronics. The “outsideenvironment” can help this process by becomingmore conducive to additional new enterpriseformation. In particular, venture capitalists, learningmore about a “source organization” of new ideasand/or key people from the organization’s earlierspinoffs, may actively seek to encourage furtherspinoffs from the same source. This certainly playedan important role in the 1980s’ beginning of the still-

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continuing proliferation of biotechnology spinoffsfrom MIT and Harvard academic departments andmedical centers. Sometimes a “keystone” companyassists many others to be formed, as was done byBioInformation Associates, a company formed byeight MIT professors, including Anthony Sinskey ’67and Charles Cooney ’70, to provide technical andstrategic assistance to others interested in startingnew firms. It provided major help in the creation anddevelopment of Genzyme Corporation, amongothers. And the increasing critical mass of companiesand their skilled scientists and engineers attract other

companies, even very large global firms like Novartis,to locate laboratories and other facilities in the midstof the clusters, enhancing the availability of scientistsand engineers, and further strengthening the relevantinfrastructure.

As evidences of the results that come from thispositive feedback effect within a given industry, weshow two local maps of the area near MIT. The first,Figure 15, indicates the recent status of thebiotechnology cluster in and around Kendall Square,Cambridge, within blocks of MIT. Ninety-five biotech

Figure 15 Biotech Companies Clustered in Greater Kendall Square, Cambridge, Mass.

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companies had been documented by early 2008 aslocated within this complex, compared with fifty-fivejust three years prior. Thirteen of the Kendall Squarelife sciences companies accounted for two-thirds ofthe $1.8 billion Massachusetts companies spent onR&D in 2000. By the year 2001, twenty-one of theKendall Square companies either were founded byMIT alumni or faculty, or had MIT-licensedtechnology; their revenues were $2.5 billion.

Since 2001, the biotech numbers have continuedto grow substantially. In ongoing research on the MIT-related life sciences complex in Cambridge, ProfessorFiona Murray of MIT Sloan now finds that sixty-six ofthe 493 MIT “life scientists” (including those at theaffiliated Broad and Whitehead Institutes) havefounded or served on the boards of directors of atleast one venture-funded company, totaling 134companies in all. Eighteen of these faculty or staffhave founded or been board members of at leastthree companies each, with one MIT faculty memberhaving twenty such relationships. Fifty additional MIT“life science” people serve as science advisory boardmembers of an additional 108 companies, bringing atotal of at least 242 life-science companies into strongties with the MIT community. These ties are bothcause and result of the interconnections between MITand the entrepreneurial and industrial community. Alarge fraction of these life sciences faculty, post-docs,and staff do not have MIT degrees, and therefore arenot counted among the MIT alumni entrepreneurshipfirms discussed in the earlier part of this report.Therefore, the economic and technological impact ofthese companies, by and large, supplement the datapresented in the beginning of this report.

Another sign of linkage of this cluster to MIT isthe record of biotech/biomedical winners and runners-up in the MIT $50K Competition, the student-runbusiness plan competition that will be discussed ingreater depth later in this report. Data compiled bythe MIT Entrepreneurship Center, listed in Table 9,shows fourteen bio-related companies in the lastdecade, several of which became real companiesfollowing their MIT $50K successes.

A second cluster has formed rapidly in theenergy field. Over the past five decades, 3 percent of MIT entrepreneurs classified their firms as being inthe energy sector. We now estimate that MIT alumniare creating thirty to thirty-five new energy-focusedfirms every year. Several hundred companies are inthe New England energy cluster, with 263 inMassachusetts alone by early 2008. In Figure 16, we show the Boston metropolitan portion, containingtwenty-two energy companies in Cambridge andtwenty-five more in Boston. The broad geographicdistribution of the energy firms, relative to thebiotech companies shown in Figure 15, reflect thelarge number of source organizations of the energycompanies, their wide diversity of technologicalbases, and their need for somewhat greater physicalspace than is readily available in central Cambridge. A high percentage of the new energy firms are MIT-related in terms of their founders and/ortechnology sources.

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SteriCoat 2006 Winner

Balico 2005 Winner

Active Joint Brace 2004 Winner

SmartCells 2003 Winner

Ancora Pharmaceuticals 2002 Finalist

Crosslink Medical 2002 Finalist

Angstrom Medical 2001 Winner

Iptyx 2001 Finalist

SiteSpecific Pharma 2001 Finalist

SmartCure 2001 Finalist

EyeGen 2000 Winner

MolecularWare 1999 Winner

Virtmed 1998 Finalist

Actuality Systems 1997 Winner

Company Year Outcome

Table 9 Recent Biotech/Biomed MIT $50K Leaders

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Figure 16 The Emerging Energy Cluster in Greater Boston

Other “Pulls” on Potential EntrepreneursIn addition to the general environmental

encouragements on technological entrepreneurship inMIT’s surroundings, specific “pulls” are at work onsome of the people, making entrepreneurship anattractive goal to attain. Such influences may inherein the general atmosphere of a particularorganization, making it more conducive to the newenterprise spinoff process. For example, until hisrecent death, Stark Draper ’26, visionary leader of theMIT Instrumentation Laboratory (later renamed theDraper Lab), was a key source of encouragement toanyone who came in contact with him. No wonderthat the National Academy of Engineering establishedthe Draper Prize to be the equivalent in engineeringof the Nobel Prizes in science. Having had the good

fortune to fly coast-to-coast with Draper one nighton a “red eye” from Los Angeles, one of our co-authors learned much about Draper’s uniqueattitudes toward developing young technologists.

“I try to assign project managers who are just abit shy of being ready for the job,” Draper said. “That keeps them really hopping when the work getsunderway, although the government officials usuallywant to wring my neck.

“I break up successful teams once they’vereceived their honors. That way every one remembersthem for their success, rather than for some laterfailure. Also, this causes every young person in theLab to be sitting within one hundred feet of someonewho’s had his hand shaken by the President of theUnited States.

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“The Lab is a place for young people to learn.Then they can go someplace else to succeed.

“When I give speeches, I single out those whohave already left the Lab—to become professorselsewhere, VPs of Engineering in industry, or foundersof their own companies. Staying behind in the lab isjust for a few old ‘beezers’ like me who have noplace else to go!”

Draper’s organizational environment was one ofhigh achievement, but with negative incentives forremaining too long. Salaries flattened out quickly,causing the income gap between staying and leavingto grow rapidly as an engineer gained experience.Engineers completing a project had a sharpbreakpoint, a good time for someone confident fromthe success of his or her project to spin off. Inretrospect, Stark Draper clearly consciously tried toencourage spinoffs of all sorts from his laboratory,perhaps the highest attainment achievable by anacademic scientist.

No questions were asked if Instrumentation Labemployees wanted to borrow equipment to takehome over the weekend, and many of them begantheir new companies “moonlighting” with this kindof undisguised blessing. Draper wanted reasonablyhigh levels of turnover and constant introduction tothe Lab of bright, eager, young people. Over afifteen-year period, during which we traced Labperformance, the average age of InstrumentationLaboratory employees remained at thirty-three years,plus or minus six months. This young-age stability,maintaining the lab’s vitality and fighting offtechnological obsolescence, was not true at most ofthe other MIT labs we studied.

Draper apparently produced similar effects in histeaching activities at MIT. Tom Gerrity ’63, founder ofIndex Systems, which, in turn, later created IndexTechnology and Applied Expert Systems as sponsoredspinouts, reports that Draper’s undergraduate electivesubject showed him the importance of being able toput together lots of different skills and disciplines toproduce a result. Gerrity adopted this systems pointof view in co-founding Index several years later, after

three MIT degrees and a stint as a faculty member inthe MIT Sloan School of Management. Still later,Gerrity became dean of the Wharton School of theUniversity of Pennsylvania.

Some other MIT laboratory directors followedsimilar patterns of entrepreneurial “sponsorship” insmaller, less-well-known labs. For example, the headof the Aero-elastic and Structures Laboratory of theMIT Department of Aeronautics and Astronautics hadthe attitude that the lab provided an internship typeof position and that staff members were more or lessexpected to move on after a reasonable period. Inother labs, the environment just seemed to breedentrepreneurism. Douglas Ross ’54, who left theElectronics Systems Lab with Jorge Rodriguez ’60 tofound SofTech, Inc., commented: “Theentrepreneurial culture is absolutely central to MIT.The same mix of interests, drives, and activities thatmakes a [Route] 128-type environment is the very lifeblood of MIT itself. No other place has the sameflavor.” Ross epitomizes this “life blood” quality.When SofTech was established, MIT took theexceptional step for that time of making a smalldirect equity investment in his ground-zero company,joining a large number of friends and associates whoshared great confidence in Ross’s vision.

Indeed, the challenging projects underway atmost of the labs create a psychological “let-down”for their participants when the projects end. Many of the entrepreneurs indicate that they became soinvolved with their work on a given project that,when these projects were completed, they felt thattheir work, too, was completed. Several of theentrepreneurs attest that their sense of identificationwith their lab began to wane as the project nearedcompletion. Only through the challenge of startingtheir own enterprises did they think they couldrecapture the feelings that they were doingsomething important.

Beyond the labs themselves, other activities atMIT have over the years encouragedentrepreneurship. The MIT Alumni Associationundertook special efforts to encourage

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entrepreneurship among its members, which will bediscussed indepth later. All of these efforts havespread the word, legitimatized the activities ofentrepreneurship, and produced significant results.

New policies instituted by John Preston andstrengthened by Lita Nelsen ’64, successive directorsof MIT’s Technology Licensing Office (to be discussedin more detail), further encouraged entrepreneurship,especially by faculty and research staff. In addition toconventional technology licensing to mainly largecorporations for fees, the TLO actively licenses MIT-originated technology in exchange for founder stockin a new enterprise based on that technology. In thefirst year of this new practice, 1988, six newcompanies were born based on licensed MITtechnology, with sixteen firms started in the secondyear of policy implementation. Complete, morerecent TLO spinoff data are shown later.

A Unique Culture History, tradition, and accelerating forces

contribute over time to creating a culture. Our studiesof MIT alumni entrepreneurs also draw on a series oftelephone interviews with MIT founders. We askedthese founders whether and how their stay at MIT hadplayed a role in their decision to start their owncompanies and, if it had, how it had done so. Allagreed that MIT had encouraged them to become risk-takers. One founder sees it this way: “Let me try togive you my personal perspective about ‘risk-taking.’ Ithink it is a combination of several different factors. Iknew I was not going to work for big companies whenI was about to leave MIT. I would rather take the riskof failure than the risk of becoming nobody. Theremust be many alumni who felt the same way I did.MIT offers great mentors [professors] and moreopportunities [professors’ consulting/research activities]for students to test the water in establishing their ownbusinesses. MIT exposes students to cutting-edgetechnologies and new ideas. It probably is easier toexplore business potential of these new ideas andtechnologies as entrepreneurs. It seems to be quitenatural that MIT becomes a cradle of entrepreneurs.”

Respondents indicated that being an MIT studentnot only encourages individuals to becomeentrepreneurs, but also facilitates social interaction,enhances their reputations [association with MIT], andtrains them to solve problems—all of which arevaluable inputs to new-venture development. Onesurveyed alumnus stated: “I look at the MITexperience as training in problem solving. Business isa series of ‘problem sets’ that must be solved, so MITis a key training ground.”

Another founder says that MIT instills theentrepreneurial spirit in its graduates. “You know thatlots of people [students and professors] start theirown companies.” Many of this former student’sclassmates started businesses while in school. Thisfounder combined an electrical engineering degreewith a management degree from the MIT SloanSchool, where he learned that high risk could lead tohigh return. After graduation, he passed up a saferjob with a large company to take a senior position ina startup.

Until his recent death, Teradyne co-founder/CEOAlex d’Arbeloff taught a graduate class at MIT Sloan.Having the entrepreneur who founded and built abillion-dollar high-tech company as a courseinstructor must have been a powerful role model forhis students. Amar Bose, founder/CEO of BoseCorporation, still teaches acoustics classes at MIT.Several founders observed that enrollment at MIT wasthe first time they realized they were not the“smartest person in the world.” One founder feltthat this teaches humility, critical to CEOs who mustlearn to listen to customers and to respect theopinions of their employees. On the other hand,successful completion of an MIT education instills theconfidence that bright people working together cansolve problems.

“It’s a ‘hands-on’ place; if there’s a problem,students are encouraged to go down to the basement,build the appropriate equipment and develop asolution,” said Ray Stata ’57, co-founder and long-timeCEO of Analog Devices (fiscal 2008 revenues of $2.6billion). He asserted that MIT taught him that no

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problem was too difficult to solve. It was just aquestion of how hard and how long you were willingto work.

Along the same lines, another founder said that,because of the research and industrial ties of thefaculty, MIT students get to work on “real stuff.”Students are “right in the middle of something big”—topics being argued about and worked on at thatmoment in the industrial world. Professors don’thesitate to work on real-world industrial and globalproblems. Founders point out that anyone who’s atMIT for a few years knows the state of the art in his or her field. Other founders mentioned the importanceof ties forged at MIT with fellow students who laterbecome customers or co-founders: “The ‘brass rat’[MIT’s unique and long-time traditional graduation ringthat features a beaver] opens lots of doors.”

“Pushes” on EntrepreneurshipSome environmental forces affecting the “would-

be” entrepreneur are the “negatives” about his orher present employer, rather than the “positives” ofgoing into business. The uncertainties due to the upsand downs of major projects often have been cited asa source of grief, and sometimes even have led toexpulsion of individuals into a reluctantentrepreneurial path. The evidence suggests that astable work environment probably would produce farfewer entrepreneurial spinoffs than one marked bysome instability. For example, the entrepreneurs whoemerged from one large diversified technological firmmost frequently rank “changes in work assignment”as the circumstance that precipitated formation oftheir companies, followed by “frustration in job.”One-fourth of the companies from that firm werefounded during the three years that the firm sufferedsome contract overruns and laid off some technicalpeople, although none of those actually laid off fromthis firm became entrepreneurs. The “worry aboutlayoff” and seeing the parent firm in a terrible stateare cited by many of that period’s spinoffs. Even atthe Draper Lab, staff was cut by about 15 percentthrough layoff and attrition after the completion of

the Apollo lunar program, stimulating a number ofnew firms. Ninety-two percent of the spinoffs fromthe MIT Electronic Systems Lab (ESL) occurred duringan eight-year period, when only 28 percent wouldhave been expected if spinoffs occurred randomlyover time as a function only of total employment. The large number of ESL projects completed duringthat period is one explanation for the “lumpiness” ofnew company creation.

Frustration with the noncommercial environmentin the MIT labs and academic departments botheredsome of the potential entrepreneurs. MargaretHamilton, founder of Higher Order Software,exclaims: “The Draper nonprofit charter wasfrustrating, especially if you wanted to get intosomething exciting. There was always the sense ofliving in a no-man’s land.” Many of the entrepreneurswanted to market specific devices or techniques.Others had no definite products in mind but sawclear prospects for further applications of thetechnology or skills they had learned at their currentorganizations. The prospective entrepreneurs usuallyfelt they could not exploit these possibilities at MITlabs, because the labs concentrated on developingnew technology rather than finding applications forexisting technology. Unfortunately for their industrialemployers, many of the spinoffs from industrialcompanies report the same frustration, despite thenot unreasonable presumption that their large-firmemployers should welcome at least some of thesenew ideas. In Silicon Valley, too, Cooper (1986) foundthat 56 percent of the new company founders hadbeen frustrated in their previous jobs. Yet frustrationshould manifest itself more reasonably with just job-changing, not company-creating, behavior. Clearly,the overall environment promoting entrepreneurshipin Greater Boston, and in Silicon Valley as well, makesthe new-company option an active choice if otherconditions are right.

As evidence of the significant historic flow of MIT alumni-founded firms, we show in Table 10 asmall selection of prominent firms founded by MITgraduates. (Many other companies in a wide diversityof fields could be added to this list, such as Campbell

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Koch Industries Wichita, Kan. 80 110,000 Charles Koch 1957 1967David Koch 1962 consolidation

Intel Corporation Santa Clara, Calif. 86 38,300 Robert Noyce 1954 1968

Hewlett-Packard Palo Alto, Calif. 156 22,600 William Hewlett 1936 1939

Raytheon Co. Lexington, Mass. 72 21,300 Vannevar Bush 1916 1922

McDonnell Douglas St. Louis, Mo. 70 14,470 James McDonnell, Jr. 1925 1939

Texas Instruments Dallas, Tex. 30 13,830 Cecil Green 1923 1930

Digital Equipment Corp. Maynard, Mass. 140 13,000 Kenneth Olsen 1950 1957(DEC) (acquired by (in 1997) Harlan Anderson 1953Compaq/HP)

Genentech San Francisco, Calif. 12 11,724 Robert Swanson 1970 1976

Qualcomm Inc. San Diego, Calif. 13 9,800 Irwin Jacobs 1959 1985

ThermoElectron Waltham, Mass. 30 9,000 George Hatsopoulos 1949 1956

America Online Dulles, Va. 15 6,110 Marc Seriff 1973 2001

Symantec Corp. Cupertino, Calif. 16 4,143 Denis Coleman 1968 1982

Analog Devices Norwood, Mass. 9 2,570 Ray Stata, Matthew Lorber 1957 1965

Gillette Boston, Mass. 29 2,250 William Emery Nickerson 1876 1901(in 2003)

Bose Corp. Framingham, Mass. 10 2,000 Amar Bose 1956 1964

Teradyne Boston, Mass. 4 1,600 Alex d’Arbeloff, 1949 1960Nick DeWolf

International Data Boston, Mass. 13 1,520 Patrick McGovern 1959 1964Group (IDG)

E*Trade Group New York, N.Y. 4 1,400 William Porter 1967 1991

3Com Corporation Marlborough, Mass. 6 1,300 Robert Metcalfe 1969 1979

Sepracor Marlborough, Mass. 2 1.225 Robert Bratzler 1975 1984

Avid Technology Tewksbury, Mass. 1 930 Bill Warner 1980 1987

Millennium Cambridge, Mass. 1 527 Eric Lander 1986 1993Pharmaceuticals

Medical Information Westwood, Mass. 3 400 Neil Pappalardo 1961 1969Technology Edward Roberts 1957

Curtis Marble 1961Jerome Grossman 1962

The Math Works Natick, Mass. 2 230 Jack Little 1978 1984

Table 10Examples of Important MIT Alumni-Founded Companies (ordered by $ sales)*

Company LocationEmployment(thousands)

Sales*(millions)

MIT ClassMIT Founder

YearFounded

*All sales and employment data are from 2006 or the most recent year available, and are rounded off to the nearest whole number.

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Soup Company; AMP—$5.5 billion in revenues whenacquired by Tyco International; EG&G—acquired byPerkin-Elmer; Kota Microcircuits—acquired byFairchild Semiconductor; or Minute MaidCorporation—acquired by Coca-Cola.) As we havepointed out before, because of founder deaths orcompany mergers, most of the firms shown here areconservatively omitted from the economic impactprojections in our study.) In Table 11, we show asimilar small selected list of more recently created,

growing MIT alumni companies, which also mayspawn giants in future years. (Due to the young age and small size of this group, we are awaredisproportionately about firms near MIT. Over time,we assume that most alumni-founded companies willbe located outside of Massachusetts, as wedemonstrated earlier in this report.) The combinationof large and small, old and young, mature and rapidlygrowing, always has characterized the mix of MITalumni-founded enterprises.

A123 Systems Watertown, Mass. 1,800 41 Ric Fulop 2006 2001Yet-Ming Chiang 1980

Akamai Cambridge, Mass. 1,300 636 Tom Leighton 1981 1998Jonathan Seelig 1998Preetish Nijhawan 1998

Brontes Technologies Lexington, Mass. 32 3 Douglas P. Hart 1985 2006

Codon Devices Cambridge, Mass. 41 3 Joseph Jacobson, 1992 2004Drew Endy

E-Ink Cambridge, Mass. 55 4 Joseph Jacobson 1992 1997

iRobot Corporation Burlington, Mass. 75 249 Colin Angle 1989 1990

Lilliputian Systems Wilmington, Mass. 54 3 Samuel Schaevitz, 2000 2001Aleks Franz

LS9, Inc. San Francisco, Calif. 33 ---- Noubar Afeyan 1987 2005David Berry 2000

Momenta Pharmaceuticals Cambridge, Mass. 163 4 Robert Langer 1974 2001

Rive Technology Ochelata, Okla. 2 ---- Javier Garcia Martinez 2004 2006

Svaya Nanotechnologies Los Angeles, Calif. 5 ---- Benjamin Wang 2007 2008Erik Allen 2008Kevin Krogman 2009

Visible Measures Cambridge, Mass. 40 ---- Brian Shin 2006 2005

Zipcar Cambridge, Mass. 16 3 Robin Chase 1986 2000

Table 11Some Examples of Younger, Fast-Growth Companies Founded by MIT Alumni*

Company LocationEmploy-

mentSales*

(millions) MIT FounderMIT Class

YearFounded

*All sales and employment data are from 2006 or the most recent year available, and are rounded off to the nearest whole number.

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An Evolving MIT Internal EntrepreneurialEcosystem

As indicated above, the history and uniqueculture of MIT began even before its founding in1861 with the stated vision of William Barton Rogersfor creating an institution dedicated to usefulknowledge. But institutional elements in support ofthis culture, both within and surrounding MIT, wereslow in coming until about thirty-five years ago. In1964, when Edward Roberts started his first researchproject to study entrepreneurial spinoff companiesfrom MIT labs and departments, he was able to findmany companies previously formed, some of whichalready were quite successful (Roberts, 1991). Butonly one subject in entrepreneurship was beingtaught at MIT (begun in 1961, 100 years after MIT’sbirth) and no student clubs existed to encouragepotential or would-be entrepreneurs.

Alumni Initiatives: Seminars and the MIT Enterprise Forum

In 1969, a small volunteer group of the MITAlumni Association organized the MIT AlumniEntrepreneurship Seminar Program, hoping to attractat least thirty New England alumni from the classes of1953-1963 to a day-and-a-half weekend session atMIT on “Starting and Building Your Own Company.”All sessions on topics such as organizing, financing,marketing, and legal issues were to be run by GreaterBoston MIT alumni. When advance registrationpassed 300, the committee cut off enrollment (330actually attended on October 4-5, 1969), scheduled asecond seminar at MIT for six months later, andbegan planning a nationwide rollout. Over the nextthree years, the committee conducted seminars ineight cities across the United States, using local MITalumni to run the sessions, with a total of more than3,000 MIT alumni in attendance, the largestattendance ever generated by the MIT Alumni

Association for any program before or since. As far aswe know, this was the first effort by any part of MITto promote entrepreneurial activity.

One of the authors of this report recalls that,over the years, many entrepreneurs have introducedthemselves, saying they remember hearing his talks atvarious MIT Alumni Entrepreneurship Seminars acrossthe country. His first meeting with Neil Pappalardo’64, with whom he later co-founded MedicalInformation Technology, Inc. (known as Meditech, butnote that the initials are MIT, arising from having fourMIT alumni co-founders, plus one from NortheasternUniversity), occurred at an early MIT alumni seminar.Our survey generated many other unexpectedtestimonials to the direct effects of those and similar,later seminars. Bob Metcalfe ’69, the principalinventor of the Ethernet and later the founder of3Com, a great success in the computer networkingmarket, reports that after attending an MIT alumniluncheon on starting your own business, he resignedfrom Xerox’s Palo Alto Research Center, returned toBoston, and established his company with two otherengineers. Similarly, the founders of Applicon, nowthe CAD division of Schlumberger, decided to createtheir firm after listening to a seminar at MIT LincolnLab that reported on the characteristics of theprevious Lincoln spinoff entrepreneurs.

The seminars stimulated a variety of responses bylocal MIT alumni clubs. The parent committee itselforganized and distributed directories of alumni whohad attended the seminars and who wished tobecome visible to other MIT would-be entrepreneurs.“Networking” was beginning even before the termwas used for that meaning! To continue its mission ofencouraging entrepreneurship by MIT alumni andothers, the committee also organized and authored abook published in 1974, How to Start Your OwnBusiness, edited by William Putt ’59.

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The first significant local follow-on effort was theNew York MIT Venture Clinic, which invited early-stage entrepreneurs to present their business plansand progress in an open diagnostic session of clubmembers, aimed at providing feedback andsuggesting ideas for improvement to the participatingentrepreneurs. A New York alumnus who wasspending the year in Boston transferred the clinicapproach to a group of eight MIT alumni who wereactive members of the MIT Club of Boston. Theresulting MIT Enterprise Forum of Cambridgeflourished from its 1978 founding and still continueswith its monthly entrepreneur presentations, withthree panelist reviewers per company, to an activelyengaged audience of two to three hundred personsat each meeting. Early on, non-MIT alumni wereinvited to join, creating the opportunity for allrelevant elements of the interested Greater Bostonentrepreneurial population to commingle andbecome involved—lawyers, venture capitalists, angelinvestors, and experienced entrepreneurs, as well as“wannabes.” Periodic major events, such asconferences focused on key emerging technologies oron major issues facing startups and growingcompanies, supplemented the monthly meetings andenlarged the community. The Cambridge chapter’sevents calendar for January 2008 illustrates the scopeof current activities: January 9, Startup Clinic,featuring two brand-new companies; 10, Get Smart,educational session on term sheets; 17, ConceptClinic, covering issues related to technologycommercialization; 21, Special Interest Group onSoftware Entrepreneurship; 23, Special Interest Groupon Digital Media; 24, Start Smart, educational sessionon Choosing the Right VC. This level of nurturing andnetworking must be contributing enormously to MIT(and nearby) entrepreneurship.

In 1982, the Cambridge group initiated itsStartup Clinic, following a format similar to the bigmonthly meeting, but focused on very early-stageentrepreneurs who might not be ready to handle alarge audience presentation. That monthly Startupsession was held in an informal dinner at the MITFaculty Club, limited to a rotating audience of forty

to fifty attendees. In that same year, the firstentrepreneurship course offered during MIT’s “open”January Independent Activities Period, “Starting andRunning a High-Technology Company,” wasorganized by the Cambridge Enterprise Forum. Since1989, that course has been led by Joe Hadzima ’73,an active participant in the Cambridge EnterpriseForum and recent president and chair of the globalMIT Enterprise Forum organization. In January 2008,that continuing course drew about 200 MITundergraduate and graduate students and staff todaily sessions for one week.

The Startup Clinic’s work with early hesitantentrepreneurs has been very rewarding to all whoparticipate. For example, Bill Warner ’80 was verydiscouraged and about to pull the plug on his newcompany, Avid Technology, until he presented at theCambridge Startup Clinic. After attendees therekicked around and were enthusiastic about his ideas,Warner decided to continue his efforts. Avid went onto change the way film is edited, has won an Oscarand numerous other awards, and has grown to 2007revenues of $930 million. Eric Giler, a Harvardgraduate, was struggling with the beginnings ofBrooktrout Technologies when he appeared at theStartup Clinic. He says that the help he received ledhim to key customers and employees, and new ideasfor forging ahead. He later presented at the regularEnterprise Forum meeting, hired a seniormanagement team of MIT alumni, went public, thenmerged with Cantata Technologies, and eventuallysold to Excel.

Stan Rich, then chair of the MIT Enterprise Forumof Cambridge, in 1985 assembled and publishedmaterials derived from the sessions to that point intime, “Business Plans that Win $$$: Lessons from theMIT Enterprise Forum,” to provide guidance tonascent entrepreneurs and to further stimulateentrepreneurial activities.

After the mid-’70s, local MIT alumni in othercities began to mimic the Cambridge and New Yorkactivities for new and early-stage enterprises, usuallywith non-MIT participants as well, sometimes co-

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sponsored with alumni groups of other universities,such as Cal Tech and Stanford. This movement led tothe MIT Alumni/ae Association organizing thenationwide (and now global) MIT Enterprise Forum,Inc., in 1985, now numbering twenty-four chapters,including six in other countries. The national office,housed at MIT, creates frequent televised paneldiscussions on major trends and topics of interest toentrepreneurs. For example, the January 2004program, “Innovation at the Interface: TechnologicalFusion at MIT,” featuring MIT professors and serialentrepreneurs Robert Langer ’74 (biomaterials) andRodney Brooks (robotics), had a live audience at MITof 630, with simultaneous satellite-fed live audiencesof an additional 700 in twenty-five cities, and manyadditional copies downloaded for later replay by localchapters. As an example of the diversity of topics, theSeptember 2008 global forum program focused onthe issues affecting female entrepreneurship. Typically,80 percent of the viewing audience is not MITalumni, indicating the manner by which the MITEnterprise Forum is encouraging entrepreneurship allacross the country by MIT alumni and many others.Antoinette Muller, director of the national office,indicates that the Association’s 2007 telecastaudience was 5,500 people.

There is no way to know precisely how manycompanies have presented over the years, nor whatsuccesses have been fostered by MIT EnterpriseForum endeavors. Well-documented anecdotesabound, including that Michael Dell presented to theHouston chapter while he was still a student at theUniversity of Texas. The MIT Enterprise Forum of

Cambridge did an intensive job of trying to assembleits history on the occasion of its twenty-fifthanniversary in early 2003 and was able to document234 company presentations to its regular monthlymeeting from 1981 (prior years’ data are lost). TrishFleming, director of the Cambridge chapter, estimatesthat, over the years from 1978 until now, some 700companies presented to and were helped by the MITEnterprise Forum of Cambridge alone in its regularsessions or supplemental clinics. The recordsdocument a large number of later acquisitions of andpublic offerings by these companies. On average,about 5,000 total attendees participate annually inthe Cambridge meetings. Perhaps an additional 700startups received support and assistance in the otherEnterprise Forum chapters. We have no idea howmany of these companies were founded by MITalumni, MIT-related persons, or others, as today all ofthe chapters are open in membership to all interestedparticipants, with or without MIT connections.

In the responses from MIT’s limited 2003 alumnisurvey, we find indications of what aspects of MITplayed a role in the entrepreneurs’ founding of theircompanies. Table 12 shows just those responses thatare linked to alumni activities. As we have indicated,the Alumni Regional Clubs were the first MIT channelfor presenting to alumni the series of educationalseminars on starting a new company. The graduationyears of those affected, as shown in the table, nicelycorrespond to the beginnings of the alumnientrepreneurship programs aimed at earlier graduatesas described above, and their continuations in variousforms in different alumni regions. Further, as

Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=73) (N=111) (N=147) (N=144) (N=145)

Alumni Regional Clubs 5% 5% 3% 12% 3%

MIT Enterprise Forum 7% 16% 15% 22% 9%

Proportion Rating Alumni Factors as Important in Venture Founding* (percentage)

Table 12Alumni Organization Influences on Alumni Entrepreneurship (from limited sample only)

*Respondents could check all relevant categories

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documented above, these programs then led to thefounding of the MIT Enterprise Forum in 1978,which, over time, grew dramatically and spreadgeographically, attracting participation from alumni ofmany classes, as well as many non-MIT participants.(The drop-off in Table 12 in the most recent decademerely reflects the need for more time to elapsebefore full impact on recent graduates is measurable.)In recent years, current MIT students actively haveattended the MIT Enterprise Forum’s Cambridgechapter meetings, suggesting that the future impactof the Enterprise Forum is likely to come sooner andalso will increase in magnitude.

Case Example: Brontes TechnologyWe end this section by describing some of the

dynamics associated with Brontes Technology, anexample of a successful outcome from the MITEnterprise Forum, but clearly one that illustrates theinterplay among multiple parts of the MITentrepreneurial ecosystem, some of which wedescribe later in this report. The Brontes single-lens3D imaging technology derived from MIT DeshpandeCenter research funding to Professor Douglas Hart’85, which the MIT Technology Licensing Officelicensed to Brontes at its formal company startupstage in 2003. Professor Hart was a reluctantentrepreneur who had thought the principal marketapplication would be facial recognition for security.

“I came from an era where your job was to be afaculty member and teacher, not to spin outcompanies,” he said. But, encouraged by theDeshpande Center’s executive director, he attended a2002 MIT $50K networking event and met the twograduate students who eventually became hiscompany co-founders. They all presented theirpreliminary ideas to the Cambridge Enterprise ForumConcept Clinic to discuss the commercializationalternatives they were evaluating for the 3Dtechnology. That helped them formulate theirbusiness plan for the $50K competition, where theywere selected as the runner-up. As the teamdeveloped a prototype system, they explored themarket opportunities and discovered a large need in

dental imaging. After forming the actual spinoutcompany, they returned to present at the EnterpriseForum Startup Clinic, and then received two roundsof seed capital, followed by venture capital funding in2004. Brontes was scheduling a case presentation tothe regular Enterprise Forum when it was purchasedby 3M in 2006 for $93 million.

In appraising the impact of the MIT EnterpriseForum, Trish Fleming, director of the Cambridgechapter, observes: “The VCs, the lawyers, the CEOs,the management types all got used to coming here,to learning about technology, to making connections,to finding employees, to providing mentoring tostudents and new startups through the Forum. As theMIT entrepreneurial ecosystem grew, thoserelationships were able to grow, too.” The MITEnterprise Forum, with thirty years of life and nowtwenty-four chapters nation- and worldwide,inevitably has strongly influenced the culture andentrepreneurial environment not just of MIT,Cambridge, Greater Boston, and beyond, but also hashad untold vast effects elsewhere, influencing MITalumni and many others to form and build newcompanies.

The MIT Entrepreneurship CenterIn 1990, Professor Edward Roberts ’57 proposed

to Lester Thurow, then dean of the MIT Sloan Schoolof Management, that he support the formation of anMIT-wide entrepreneurship program to serve not justMIT Sloan, but the rest of MIT as well. Its goal wouldbe to educate and develop those who will create,build and lead tomorrow’s successful high-techventures. It also planned to increase dramatically, andthen provide central coordination and integration of,MIT entrepreneurship classes and student activities.But, unlike nearly all other university entrepreneurshipprograms, which rested primarily on experience-sharing by entrepreneurs and investors, the proposedEntrepreneurship Center would follow the MITtradition of “Mens et Manus.” It had to connectrigorous scholarly pursuit of knowledge underlyingentrepreneurial success with effective transfer of that

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knowledge into practice. Thus, Roberts proposed a“dual-track faculty” of “tenure-track” academics andadjunct practitioners, linking entrepreneurialresearchers with successful entrepreneurs and venturecapitalists, building an ambitious teaching programaccompanied by direct coaching and mentoring ofstudent would-be entrepreneurs. Academic facultywhose primary thrust is entrepreneurship but whosediscipline base is marketing, or finance, or humanresources, for example, would be jointly appointed totheir underlying discipline group as well as to theTechnological Innovation & Entrepreneurship (TIE)faculty group at MIT Sloan, which would provideoverall program coordination. In the past eighteenyears, almost all of the leading business schools haveadopted this dual-track model for managing theirentrepreneurship programs.

With co-sponsorship by MIT Sloan faculty acrossmultiple disciplines, the MIT Entrepreneurship Center(E-Center) was launched with an advisory boardconsisting of prominent MIT entrepreneurial alumni,including Amar Bose ’51 of Bose Corp., KenGermeshausen ’31 of EG&G, Bernard Goldhirsh ’61of Inc. magazine, George Hatsopoulos ’49 ofThermoElectron, Patrick McGovern ’59 ofInternational Data Group, and Ken Olsen ’50 ofDigital Equipment Corp. At that time, MIT still offeredonly one related class, “New Enterprises,” and hadonly one faculty member doing research in the field.

In 1996, Kenneth Morse ’68 became the firstfull-time managing director of the MIT E-Center,which then was given a small amount of space nearthe MIT Sloan classrooms. Filled with cubicles, desks,and filing cabinets, the physical space provided awonderful home base for housing and nurturing awide array of entrepreneurship-related clubs andactivities, with immediate access to adult coachingand guidance, frequently including an entrepreneur-in-residence in addition to Morse and staff. Overtime, the MIT E-Center label has come to represent tomany—at and outside of MIT—both that physicalspace and the broad-based MIT program ofeducation and activities. The rapidly expanding MITentrepreneurial program has contributed to a

dramatic increase in the number and ambition ofclasses, clubs, conferences, and the resulting breadthand depth of content and contacts that facilitateentrepreneurial behavior. Some have called it a frenzyof entrepreneurship!

ClassesOnce the E-Center was underway, its leaders

began to create new subjects, attracted existing MITSloan faculty to teach them and, when authorized,recruited and hired both practitioners (senior lecturers)and academics (assistant professors and above) into theprogram. The sole original “New Enterprises” classgradually was expanded into two sections and thendoubled again as student interest in entrepreneurshipgrew across the Institute. While never tabulated, thenumber of new companies produced by that subject’sMIT alumni is very high, including as examples suchcompanies and graduates as MAST Industries, foundedby Martin Trust ’58, and Genentech, co-founded byRobert Swanson ’69. Jon Hirschtick ’83 and hisroommate Axel Bichara ’88 both took “NewEnterprises;” later they co-founded and sold a CADcompany. Hirschtick went on to found SolidWorks, apioneering company later sold to Dassault.

In 1993, the first new full-time academic facultymember was hired into the Entrepreneurship Program,kicking off the dual-track design and beginning toexpand course offerings. In 1994, the MIT SloanSchool launched a series of educational-career“tracks” within its Master’s degree program. The MITEntrepreneurship Center, collaborating closely with theschool’s TIE and Marketing faculties, created the NewProduct & Venture Development Track. NPVD, knownby the students as the “Entrepreneurship Track,”quickly became the most popular track for MIT Sloangraduate students, demonstrating the strong, rapidlygrowing interest in entrepreneurial studies and careerpaths. All of these “tracks” were dropped a few yearslater when a major change occurred in the MBAcurriculum and were not reinstated until 2006 withthe birth of the “Entrepreneurship & InnovationTrack” (to be discussed later).

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Soon, additional entrepreneurship-focusedtenure-track faculty were hired into various MIT Sloangroups, such as international, human resources,technology and innovation, finance, and marketing,with central coordination provided by the TIE groupas earlier described. Additional senior faculty fromwithin MIT Sloan and from other MIT departmentsassociated themselves with the growingentrepreneurship educational efforts. A significantnumber of adjunct faculty, all successfulentrepreneurs and/or venture capitalists, also wererecruited to bolster the dual-track elaboration, usuallyas unpaid volunteers eager to share their insights andenthusiasm with the younger entrepreneurialaspirants. By 2001, the number of entrepreneurshipsubject offerings had grown rapidly to twenty-oneand the number of student registrants from all MITdepartments had jumped to almost 1,500. Nowstudents across MIT enroll in more than thirtyentrepreneurship classes of all sorts, albeit 76 percentof the enrollments are from MIT Sloan, with 16percent from the MIT School of Engineering.

Academic Classes in EntrepreneurshipOver the years, regular MIT “tenure track”

faculty have developed and taught several newsubjects, focusing on their own PhD training andscholarly research. These classes include such titles as: “Designing & Leading the EntrepreneurialOrganization;” “Entrepreneurial Finance;”“Managing Technological Innovation &Entrepreneurship;” “Corporate Entrepreneurship;”“The Software Business;” “Strategic Decision-Makingin the Biomedical Business;” “Entrepreneurshipwithout Borders;” and “Competition inTelecommunications.” Each of these subjects provides an underlying disciplinary basis forentrepreneurial actions in a given area. Other subjects also fall into this category.

Practitioner Classes in EntrepreneurshipMany of the new subjects that have been

developed depend entirely upon the experience ofsuccessful entrepreneurs and venture capitalists.

These expert practitioners share their real-worldinsights, built up over years of work, in aspects ofentrepreneurship that lack much academic theory.Some of the subjects taught by our extensive part-time practitioner faculty members include: “NewEnterprises,” the first course previously described thatlays the groundwork for business plan developmentfor new companies; “Technology Sales and SalesManagement;” “Early Stage Capital;” and “SocialEntrepreneurship” and “DevelopmentalEntrepreneurship,” two subjects that parallel “New Enterprises,” but with a focus, respectively, onthe firm motivated by social problem-solving or thecontext of developing countries. Other subjects alsofall into this category.

Mixed-Team Project ClassesNo doubt both the theory and practice-oriented

subjects in entrepreneurship have had great influenceon their students, as we have discussed. But,intuitively, we believe the strongest impacts havederived from a cluster of project-oriented efforts, thethird category of subjects that we have created overthe years since the MIT E-Center began. In theseclasses, the students organize in teams of four or five,preferably including participants from managementand science, and engineering, to tackle real problemsin real entrepreneurial organizations. Three subjectsconstitute the entrepreneurship program’s base in this domain, but we seem to be adding to theentrepreneurship curriculum one or more newsubjects of this type every year. Our earliest subjecthere was “Entrepreneurship Laboratory,” or E-Lab, asit is well-known. Students select from the problemspresented by companies that usually are quite youngand in the Greater Boston area, although we haveviolated the distance constraint on many occasions.The intent is to work on “a problem that keeps theCEO up late at night!” With the emerging companyCEO as the “client,” the team devotes heavy time forthe duration of a semester working on her or hisissue, with class time spent on communicatinggeneral principles of team management, projectanalysis, client relationships, some commonly used

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tools of market research, and sharing progress reportswith each other. The students learn much aboutteamwork and the issues facing early-stage,technology-based companies. Summer internshipsand, later, full-time jobs often result from the E-Labprojects. By the way, far more company projects arevolunteered than we can accommodate in a singleclass, indicating the strength of the local network.

Two innovative entrepreneurship faculty memberswho had been teaching “Entrepreneurship withoutBorders” developed an approach for globalizing E-Lab. They introduced “Global EntrepreneurshipLaboratory,” or G-Lab, in 2000, with the instructionaland preparatory parts of the class, including teamand company selection, taking place during the latterhalf of the fall term. During November andDecember, the teams work with companymanagement to define precise, deliverable objectivesand begin substantial background research while on campus. Then, during MIT’s “open” JanuaryIndependent Activities Period, the teams go off toevery part of the world (outside of the U.S.) to workwith their chosen companies in three-week “teaminternship” projects. Finishing up of the projects andevaluation by both company and class occur duringFebruary and March. This global entrepreneurialsubject rapidly has grown to be the most popularelective course in the MIT Sloan School, with half ofthe MBA class participating, providing them with anon-U.S. entrepreneurial work experience. In sevenyears, 185 host companies in eighteen countries have“employed” 810 MIT students in G-Lab projects,including 160 students during the past year. ProfessorRichard Locke, who co-created and runs G-Lab, says:“Only at MIT Sloan could we move frombrainstorming to in-the-field implementation in a few short months. The student teams have offeredexciting, imaginative, and—perhaps mostimportant—effective changes in the way startupsaround the globe conduct business.”

The third mixed-team, real-world project class is“Innovation Teams,” or I-Teams (everything musthave a short name!), a “hands-on” team projectsubject focused on developing commercialization

plans for carefully selected MIT faculty researchefforts. The idea was conceived at the time MITlaunched the Deshpande Center for TechnologicalInnovation (to be discussed later) in the School ofEngineering. Each team of business and technicalstudents deconstructs the features of the technology,learns about the intellectual property issues incooperation with the MIT Technology LicensingOffice, scans the potential markets, interviewsprospective customers and industry experts, andperforms a go-to-market analysis in which itrecommends a course of action (e.g., startup,partnership, licensing to industry, further research inthe lab). Every team is coached by a seasonedentrepreneur from the Greater Boston communityand works closely with the MIT faculty principalinvestigator of the underlying research project.

Case Example: SaafWaterDuring I-Teams’ very few years of operation,

some of the varied companies that already haveemerged following the teams’ class assistance areAvanti Titanium, Hydrophobic Nanomaterials,Myomo, SaafWater, and Vertica Systems. Myomo isdiscussed in the later section on the DeshpandeCenter. One of the other projects, SaafWater, built onthe research work of Amy Smith ’84, senior lecturerand recipient of a MacArthur Fellowship, who createdMIT’s Development Lab program for carrying forwardengineering design and devising appropriatetechnologies for developing countries. TheDeshpande Center had funded Smith’s hiring of Sarah Bird ’03 to advance the phase-changeincubator research project that would indicate thelevel of bacterial contamination in village wells. The I-Teams student group developed detailed insights topossible distribution channels worldwide and assistedthe principal researchers to enter the 2007 $100Kcompetition. The project reached the finals of thenew “development track” and attracted venturecapital investment. SaafWater was quicklyincorporated and has been operating its first pilotplant in Pakistan since June 2007.

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The I-Teams model, initiated by Ken Zolot ’95 asits instructor, has caught on with many students andfaculty across MIT. New variations of I-Teams havebeen encouraged by the MIT E-Center leadership. In collaboration with the MIT Media Lab, “DigitalInnovations” was created as a mixed-team projectscourse to develop and experiment with mobile devicesthat might impact various markets in developingcountries such as Chile. Last year, the E-Center started“Energy Ventures” as another mixed-team, real-worldprojects subject to encourage the growing studentinterest in entrepreneurship based on sustainabletechnologies, with energy ideas and new technologiescoming from MIT faculty laboratories and graduatestudents. In parallel, a coordinated academic subjectcalled “Energy Strategies” was launched to enable astudent to build a thorough understanding of energymarkets, technologies, competition, and regulatoryaspects. “Strategies” and “Ventures” have back-to-back class schedules, so students can do the theoryand the practice together. This year, the same modelhas been applied in a new subject called “The X-Prize,” to bring the excitement of competing in thenational X-Prize efforts to solve major problems into acampus-level pursuit of entrepreneurial beginnings. Allof these classes involve mixed business-technicalstudent teams in commercialization planning andimplementation for state-of-the-art technologies.These classes are also feeding grounds for teambusiness plan proposals for the MIT $100KCompetition.

A number of short-but-intense courses relating toentrepreneurship are offered during MIT’s JanuaryIndependent Activities Period. In 2008, the “Startingand Building the High Technology Firm” coursebrought about 200 students, mostly from science andengineering, into the MIT Sloan Wong Auditoriumdaily for one week. Two years ago, we started our firstentrepreneurship class restricted to undergraduates.And, this past year, Ken Morse joined with the facultyof the EECS Department to launch the first subjectaimed at entrepreneurship for just EECS students. TheNeurosciences Department has just started anotherentrepreneurship subject; another major effort, the

Biomedical Enterprise Program, ties together the MITSloan School with the Harvard-MIT Health Sciencesand Technology Program to encourage students tocombine intensive training in clinical medicine withentrepreneurial orientation and subjects. Theentrepreneurship education boom at MIT seems to becontinuing and accelerating, exposing more and morestudents to the examples and lessons underlying new-company creation and development.

Clubs

From $10K to $100K and BeyondThe premier student organization at the outset of

the MIT E-Center’s existence was the $10K BusinessPlan Competition, created in 1990 by the MITEntrepreneurs Club (largely engineers) and the MITSloan School’s New Ventures Association. Its purposewas to encourage students and researchers in the MITcommunity to act on their talents, ideas, and energy tocreate tomorrow’s leading firms. Fifty-four teamscompeted in the first competition; the winner received$10,000 and the runners-up received $3,000 and$2,000 respectively. As an illustration of the MITentrepreneurial ecosystem at work even in these earlydays, the finals that first year were conducted as oneof the monthly programs of the MIT Enterprise Forumof Cambridge! That practice continued for ten years asthe Cambridge Enterprise Forum had the only largeaudience and community linked to entrepreneurshipon the MIT campus. An early achievement of the newE-Center was to secure several years of funding of thegrand prize from a generous MIT alumnus and venturecapitalist, David Morgenthaler ’40. His gift freed up thestudents’ time and energies for building the scale andquality of the $10K competition. With rapid growthoccurring, the activity further benefited in 1996 by thememorial gift from the family of the late RobertGoldberg ’65, a successful serial entrepreneur who hadreturned to MIT to teach part-time. That gift elevatedthe competition to become the $50K, with $30,000going to the first-place winner and two $10,000 prizesto the runners-up.

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Undergraduate and graduate students from all fiveMIT Schools and twenty-seven departments and labshave successfully entered the MIT business plancompetitions over its eighteen years. Figure 17 showsthe sources of entrants to the competitions over theseyears, with MIT Engineering and MIT Sloan accountingfor the majority. Students from Harvard and other localschools, as well as non-students, participate, but eachteam must include at least one MIT student. Multi-disciplinary teams of technical and business studentshave proven to be the most successful competitors.These teams bring together the skills necessary formaking the bridge between technology and themarketplace, the same lesson taught in a variety of theclasses, clubs, and programs throughout the MITentrepreneurial ecosystem. Panels of experiencedentrepreneurs, venture capitalists, and legalprofessionals judge the business plans.

Tracking alumni companies has been one of the$100K organization’s greatest challenges, even interms of how many teams competed and who theirmembers were, but especially what happened to themfollowing the competition. We now know that morethan 1,500 plans have been submitted over the yearsby more than 7,500 individuals. Figure 18 shows thenumber of teams that entered the competition

annually, reflecting significant growth of numbers overtime, but also reflecting the cyclical effects of theInternet boom and bust.

The refinement process of the competition, itsnetwork of mentors, investors, and potential partners,and the cash prizes awarded have helped many ofthese teams to act on their dreams, and build theirown companies and fortunes. Although records areincomplete and tracking is difficult once the studentsare gone, Karina Drees ’07, lead organizer of the 2006$100K, was able to document 105 companies formedthrough the $100K process, of which 22.8 percentalready had successfully exited via IPOs or acquisitionsof the firms, 23.8 percent are still in business as privatecompanies, 20 percent are no longer in business, and34 percent have unknown status due to lack ofinformation. Even if we assume total failure of theunknowns, the 46.6 percent (or more) of thecompanies that have survived or been acquired providea remarkable success story compared with companiesformed nationwide. The $100K companies havereceived more than $700 million in venture capitalfunding. At least twenty-four firms have beenacquired, of which the seven for which we havefigures sold for more than $2.4 billion. The transactionamount was not disclosed in the other cases.

Figure 17MIT $10K-$50K-$100K Competition

Individual Entrants

26%

25%28%

7%

14%Other

MIT Engineering

Harvard

MIT Humanities

MIT Sloan

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We show in Table 13 the acquisition or IPO exitvalues of those firms formed out of MIT $100Kcompetitors for which we have reliable data.Testimony from the entrepreneurs indicates that manyof the successful companies were based ontechnologies licensed from MIT. Also, they recognizedthe importance of the support they received from thevast MIT entrepreneurial ecosystem and, in manycases, had found key people to commercialize theirtechnology through the $100K efforts.

The public data of Table 13 document a valuecapture for the nine companies of $2.4 billion. Thisamount, a dramatic underestimation of exit value ofall the $100K firms due to our lack of more completeinformation, represents more than a 550X return oninvestment on the historical MIT $100K budget and a$150 million per year average return over the life ofthe student $100K undertaking. At least 2,500 newjobs (no doubt many more) have been created as aresult of the MIT student competitions.

We also found three $100K companies thatcompleted successful public offerings, generatingmore than $350 million at the time of their IPOs. But,by itself, the one company that is still public (theother two were acquired post-IPO) is Akamai

Figure 18Teams Entered into the MIT

$10K-$50K-$100K CompetitionN

umb

er o

f Ent

ries

0

50

100

150

200

250

Years

1990

1992

1994

1996

1998

2000

2002

2004

2006

Silicon Spice 1995 1,200(acquired by Broadcom)

Direct Hit 1998 517(acquired by Ask Jeeves)

Webline (acquired by Cisco) 1996 325

Harmonix (acquired by MTV) 1995 175

Brontes Technologies 2003 95(acquired by 3M)

C-Bridge Internet Solutions 1996 64(acquired by Excelon)

NetGenesis (acquired by SPSS) 1995 44

Firefly Networks 1995 40(acquired by Microsoft)

Stylus Innovation 1991 13

Lexicus 1991 Not(acquired by Motorola) disclosed

Flash Communications 1997 Not (acquired by Microsoft) disclosed

Company$10K-$50K-$100K Date

Valuation at Exit

($ millions)

Table 13Exit Value of Select MIT $100K Competitors

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Technologies, which lost in the 1998 $100K to DirectHit. It was a $50K finalist founded by MIT faculty andstudents, based on licensed MIT technology (see laterdiscussion of the Technology Licensing Office) thathad market capitalization as of June 18, 2008, of$6.03 billion.

In 1998, the student leaders of the MITorganization created an annual MIT $100K GlobalStartup Workshop located in a different country eachyear, in which MIT students bring the lessons theyhave learned about student team-basedentrepreneurship to academic institutions from allover the world. The workshops have been held inBoston, Singapore, Spain, Australia, Italy, China, theUnited Kingdom, Abu Dhabi, Buenos Aires, andMadrid, heavily attended by campus representativesseeking to replicate the MIT experiences. Thisstudent-initiated and -run effort has helped to createcompetitions worldwide modeled after the MITactivities. Despite this, Inc. magazine said that “[theMIT $100K] is more equal than all the others!” Toillustrate, last year’s winning MIT team, SteriCoat,consisting of a 2006 MIT Sloan Fellow alumnus andhis teammates, entered various business plancompetitions as a way of raising additional funds tolaunch their business. In addition to winning the MIT$100K, the team took first place in the OxfordUniversity Competition and the HarvardBiotechnology Competition, and second place in theRice Business Plan Competition.

New MIT entrepreneurial endeavors that arelinked to the $100K continue to be born. In 2005,the Cambridge MIT Enterprise Forum chapterlaunched its Ignite Clean Energy Business PlanCompetition, founded and chaired by two MITalumni. For the first two years, nearly all of its eventswere held on the MIT campus. In 2006, an alumnuswho had volunteered for that competition took theconcept with him when he moved to the Bay Area ofCalifornia and founded the California Clean TechOpen, with the MIT Club of Northern California andthe MIT Enterprise Forum of the Bay Area as thesponsors. In 2007, a spectacular advance occurredwith an additional prize of $200,000 provided by the

U.S. Department of Energy and NSTAR for winningbusiness plans focused on “clean energy,” but nowadministered by the MIT $100K.

In spring 2006, the competition incorporated theEntrepreneurship for Development Competition (plansfor new businesses aimed at solving socio-economicproblems in developing countries) under its umbrella.This action inspired the student organizers to re-brand from the previous MIT $50K title to the MIT$100K, offering two grand-prize winners $30,000each and the four runners-up $10,000 each. A new$10,000 prize has just been established for the bestplan submitted in aero-astro, new prizes are expectedfor the life sciences competitive track, and inevitably,additional targeted entrepreneurial competitions willhappen in the future, further stimulating campus-wide initiatives. The 2008–2009 competition was runwith seven parallel tracks, with major prizes to beawarded for the winners of each track.

Lots of Clubs The array of clubs tied to entrepreneurship is

impressive, and forms a key part of the MITentrepreneurial ecosystem. Students at all levels, fromundergrad to PhD and post-doctoral, across all MITdepartments, actively participate. They contributeimmeasurably to creating the unique “passion forentrepreneurship” that now seems apparentthroughout MIT. Many of these clubs are housed insmall spaces within the MIT E-Center; others just usethe mailing lists, and get advice and help there. Theclubs often represent interest groups aroundparticular areas of technology, such as theAstropreneurs Club, BioPharma Business Club, EnergyClub, Mobile Media Club, NeuroTech Club, and theNanoTech and TinyTech Clubs. All of them havespeaker programs with venture capitalists, MITfaculty, and related entrepreneurs helping to educateand connect the members to early-stage firms and tonew ideas in their fields. Frequently they organizemajor meetings and colloquia.

Other clubs are more focused on stimulatingentrepreneurship per se, or providing connections forprospective entrepreneurs. For example, Sloan

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Entrepreneurs promotes networking events within the MIT Sloan School, with the Greater Bostoncommunity, other local MBA programs, andestablished Boston organizations. Tech Link started in 1999 as a joint venture between the MIT SloanSenate and the MIT Graduate Student Council togenerate social interaction across school anddepartmental lines for personal and professionaldevelopment. With 1,200 members, it has becomethe largest student organization at MIT. It organizesmany major events each year, including “treks” tovisit early-stage companies in different technologicalfields. The MIT Innovation Club centers its activitieson helping its members to generate new ideas andcommercialize new technologies. And there are many others.

One of the most vital and successful studentactivities is the Venture Capital/Private Equity Club.Evolving from a small interest group with localspeakers, the group now organizes and runs twomajor nationwide conferences, the MIT VentureCapital Conference in the fall and the MIT PrivateEquity Conference in the spring, wholly managed byMIT students. The hundreds of attendees from theprofessional community, as well as MIT students,make invaluable contacts for their entrepreneurialventures and for recruiting opportunities.

ConferencesIn addition to facilitating the major conferences

of the VC/PE Club, the E-Center goes outside of MIT’sboundaries to produce several key conferences thatfurther enhance the environment for new-firmformation. Its most visible Cambridge event is theannual so-called “Bio Bash,” more formally known asthe “Celebration of Biotechnology in KendallSquare.” Last year, more than 850 registered for theevent, including 150 founders, CEOs, and boardmembers. As with the many other seminars andreceptions organized by the MIT E-Center, thepurpose is to bring together students, entrepreneurs,venture capitalists, and others who will enhancenetworking and communications that might stimulate

additional entrepreneurship. With MIT in the centerof an intensive biotechnology cluster, including theMIT-related Whitehead and Broad Institutes, creatingthe Bio Bash was a natural opportunity. In recentyears, the program has started with a professionalcolloquium on some major topic of importance to thebiotech community, providing a “legitimate” excusefor some executives to travel to Cambridge fromEurope or the West Coast just for the day.

Each semester, the E-Center organizes a majornetworking reception in the MIT Faculty Club tohonor the CEOs of past and present “E-Labcompanies,” i.e., those that have hosted studentteams from the Entrepreneurship Lab classes. Thecurrent students always are given prominence at thisevent to try to promote summer internships andpermanent jobs with the heads of the high-techcompanies and their many venture capital investorswho regularly attend the reception. For the past threeyears, the spring “E-Lab Bash” has featured theaward of the Adolf Monosson ’48 Prize forEntrepreneurship Mentoring, given to recognize aperson or group who has been outstanding over theyears in nurturing and assisting young entrepreneurs.

Over several recent years, MIT had a partnershipwith the United Kingdom called the Cambridge MITInitiative. The transfer to British universities of insightsfrom the MIT E-Center and the $100K were keycomponents of the relationship. Annually in London,the E-Center organized a black-tie networking eventthat drew 500 people to build entrepreneurial ties.Attendees included the student leadership and theyear’s winning team of the MIT $100K competition.Even the Brits were surprised at their own enthusiasmfor such rousing get-togethers. Observers at any ofthese conferences/receptions/parties could see thatthe real benefits were in the numerous one-on-oneconversations that were happening between jobseekers and job providers, between enterpriseslooking for money and investors searching for goodtargets, and between those with new ideas and those with previously developed skills wanting theirnext chance.

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Impact of the MIT Entrepreneurship Centerand Network

Our 2003 MIT alumni survey sought measures ofMIT-related factors that influenced the founding ofthe new companies. In Table 14, we show severaldimensions that directly link to E-Center efforts.Clearly, MIT’s entrepreneurial network was seen as acritical influencing force even fifty years ago, but itsstrength has grown dramatically to the point that halfof the most recent entrepreneurs see the network asa key factor in the founding of their companies.Appropriately, the MIT E-Center itself and the $10K-$50K-$100K Business Plan Competition have hadessentially no perceived influence on alumnientrepreneurs until the past decade or so, whenalumni have had the opportunity to engage withthem. Prior to the founding of these two entities,only a few graduates of MIT classes had becomeconnected with the E-Center, perhaps as E-Labcompany CEOs or as $100K judges. But, during theirrelatively short lives, both the E-Center and the$100K have jumped into prominence as influences onthose students who later became company founders.Other survey results indicate that the more recentalumni entrepreneurs, in particular, see extracurricularand social activities as accounting for the teamformation of about 60 percent of the new firms, withan increase in the percentage of the startup ideasalso coming from networking. The growth of classes,clubs, conferences, and their informal spinoffs has

altered the internal environment of MIT relating tothese entrepreneurial movements.

Bob Metcalfe ’68, Ethernet inventor, founder of3Com, and now a partner in Polaris Ventures, is aconstant observer of MIT. “It’s not just that MIT’sentrepreneurial environment flourishes under itsinstitutional commitment to technology transfer,” hesaid. “It’s also that MIT includes both ‘nerds’ and‘suits.’ Divergent life forms, yes, but necessary to andworking together at MIT on entrepreneurialinnovation. And what keeps MIT’s entrepreneurialecosystem accelerating is that nobody is in charge.There are at least twenty groups at MIT competing tobe the group on entrepreneurship. All of them arewinning.” Testimony supporting this effect also ispresented by the 2003 results shown in Table 15.There we see that, over five decades, the importanceof faculty and research to new enterprise creation hasbeen vital, but more or less constant, whereas theperceived influence of other students on venturefounding has grown enormously, to the point that itis the dominant single perceived influencing factorfound in our studies. The internal network ofrelationships, especially student-to-student, hasbecome king!

Technology Licensing OfficeThe history of the MIT Technology Licensing

Office traces the evolution of the MIT entrepreneurialculture and ecosystem. In 1932, the MIT Committee

Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=73) (N=111) (N=147) (N=144) (N=145)

MIT Business Plan Competition 0% 1% 0% 3% 30%

MIT Entrepreneurship Center 3% 1% 2% 1% 12%

MIT’s Entrepreneurial Network 26% 25% 32% 40% 50%

Proportion Rating University Factors as Important in Venture Founding* (percentage)

Table 14Entrepreneurship Center Factors Important to Venture Founding (from limited sample only)

*Respondents could check all relevant categories

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on Patent Policy was formed to address issues ofownership of inventions and discoveries stemmingfrom research done at the Institute. In 1945, thePatent, Copyright and Licensing Office wasestablished as part of the MIT Division of SponsoredResearch, one of the earliest university efforts of itstype in America. It became a separate entity and wasrenamed the Technology Licensing Office in 1985. Asits formal function had been to facilitate patentapplications, and to execute copyright and patentlicenses with industry, government agencies, andother research institutions, the Patents office hadbeen dominated by lawyers. With the 1985 entry ofJohn Preston as director and Lita Nelsen ’66 asassociate director, the lawyers were ousted and theTLO dramatically reoriented toward playing a farmore active role in technology transfer. In that initialTLO year, the office put together eight to tenagreements with industry and registeredapproximately 120 invention disclosures. The latestfigures average eighty to 100 agreements and about500 disclosures per year, now under Nelsen’sdirectorship for many years. The current TLO Web sitedescribes its mission as “to benefit the public bymoving results of MIT research into societal use viatechnology licensing, through a process that isconsistent with academic principles, demonstrates aconcern for the welfare of students and faculty, andconforms to the highest ethical standards.” It assistsMIT inventors in protecting their technology and in

licensing that technology to existing companies and startups.

The TLO’s licensees fall into three categories—well-established (large) companies, small (often local)companies, and startups. Although the TLO’s licenses,in numbers, divide roughly evenly into the threecategories, the majority of the exclusive licenses—theones that fulfill TLO’s mission to encourage thedevelopment of truly innovative technologiesrequiring significant investment—go to startupcompanies.

The primary reason for the TLO’s strategicdependence on startup companies has been thereluctance of large companies to invest in “university-stage” technologies, because the risk and cost ofdevelopment is high and the time to market is long.In many fields (e.g., pharmaceuticals) the largecompanies have become dependent on startups tobring university-stage technology into proven productconcepts, after which the large companies license theproduct from the startup or acquire the youngcompany. But the TLO’s effectiveness in this strategydepends on venture investors’ willingness to invest inearly-stage technology, somewhat scarce in recentyears following the burst of the “dot-com” bubbleand very scarce in the current severe economicdownturn. The TLO strives to maintain a “levelplaying field” among many venture capital firms toattract them toward MIT startup opportunities bycommunicating fairness and openness. Fortunately,

Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=73) (N=111) (N=147) (N=144) (N=145)

Students 26% 24% 38% 50% 66%

Faculty 48% 42% 37% 28% 37%

Research 32% 32% 30% 26% 33%

Proportion Rating University Factors as Important in Venture Founding* (percentage)

Table 15MIT Factors Important to Venture Founding (from limited sample only)

*Respondents could check all relevant categories

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some venture capitalists and even more angel investorgroups still are interested in early-stage technologies,even in difficult economic times.

Beyond the real incentives to faculty of havingtheir ideas brought to fruition and use in the realworld, some faculty, graduate students, and post-docs also participate on an ongoing basis in thecompanies that are started with their technologies,the faculty usually as advisors or board members, thestudents (once they are alumni) often as co-foundersand full-time leaders of the firms.

A typical deal that TLO structures providestechnology exclusivity in a clearly specified andlimited field of use (to provide clear economicincentives to the licensee), a modest license feeranging from $25,000–$100,000, and a royalty of 3 percent to 5 percent of the sales that arise from thelicensed technology, often with a minimum annualroyalty that escalates over time. If and when royaltiesare collected from the licensee, they are distributed(after reimbursement of TLO expenses) one-third tothe inventors, one-third to the inventor’s department,and one-third to MIT’s general funds.

For startups, instead of cash up front and in lieuof some of the royalties, the TLO usually takes a smallequity ownership that is less than 5 percent of thenew firm. By its active engagement with faculty and

other entrepreneurs, as well as venture capitalists, theTLO is a vital participant in MIT’s entrepreneurialecosystem. Figure 19 shows the number of startupcompanies it has licensed with MIT technology ineach of the past ten years, 1998–2007.

United States university licensing data areavailable for many years from the Association ofUniversity Technology Managers. In AUTM’s latestsurvey, which covers 2006 (AUTM, 2007), MIT’stwenty-three licenses rate it second only to the entireUniversity of California statewide system. Table 16shows all of the U.S. universities that licensed ten ormore startups during 2006. For the 189 respondentsto that AUTM survey, the average number of licensesper institution was four. In 2005, MIT was first in thenation with twenty startups being licensed, while theUniversity of California system licensed nineteen, CalTech assisted sixteen, and the University of Floridaprovided licenses to thirteen. No other institution hadlicensed ten or more new firms during 2005.

Over many years, MIT almost always has beenfirst among U.S. universities in technology transfer tonew enterprises. We do not know how many ofthese licenses go to companies that are not MIT-alumni founded. Nor do we know how much“leakage” might occur with unlicensed MITtechnology becoming the basis for new-firm

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Figure 19Number of Startups Licensed by MIT TLO, 1998–2007

Num

ber

0

5

10

15

20

25

30

Year

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

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formation. Thus, the numbers cited here and in ouralumni figures again inevitably understate overallentrepreneurial impact of MIT technology

Sometimes the time required for such early-stagelicensed technology to have economic impact is quitelong. For example, Cubist Pharmaceuticals wasfounded by two MIT faculty members with an MITlicense in 1992. After long struggles, the companyfinally has advanced to the point that it is anticipating$500 million in 2009 revenues, a long haul tosuccessfully bring new science to the marketplace.

Beyond their formal roles, the TLO staff members,

due to their organizational location and personalexpertise, also actively contribute in their “spare” timeto MIT classes and student activities. These includeparticipation in sponsorship and judging of the $100KBusiness Plan Competition, active involvement withthe MIT Enterprise Forum, and guest lectures onpatents and licensing in a number of courses, bothundergraduate and graduate, and clubs.

Even prior to the Venture Mentoring Service (tobe discussed later), which it now also helps, the TLOprovided “open-door coaching” for any studentthinking of starting a business, whether through anMIT license or not. Several dozen students per yearparticipate. That coaching now includes having TLOstaff take on roles as project advisors and I-TeamCatalysts for the Deshpande Center. All of theseendeavors tie the knowledge and connections of theTLO to the rest of MIT’s internal efforts at stimulatingand aiding entrepreneurship. Note in Table 17 theincreasing evidence over time of visibility andperceived impact of the TLO on venture formation,despite the fact that only a very small fraction of thealumni entrepreneurs surveyed in 2003 employedMIT-licensed technology in their new enterprises.

Case Example: A123 SystemsNo doubt at least one interesting story can be

told for each startup the TLO licenses. A most recentone6 illustrates primarily the formal role of the TLO in helping new companies to be created and MITtechnology to go to market. It also again illustrates

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U. California system 39

MIT 23

U. Utah 17

Purdue 14

SUNY 12

U. Colorado 10

U. Florida 10

U. Washington 10

University Startups Licensed

Table 16 Primary Universities Doing Startup

Licensing, 2006*

* Compiled by the authors from AUTM data

Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=73) (N=111) (N=147) (N=144) (N=145)

Technology Licensing Office 1% 0% 2% 4% 11%

Proportion Rating University Factors as Important in Venture Founding* (percentage)

Table 17Technology Licensing Office Importance to Venture Founding (from limited sample only)

*Respondents could check all relevant categories

6. The A123 Story: How a Battery Company Jumpstarted its Business, www.xconomy.com/2008/01/24/ the-a123-story-how-a-battery-company-jumpstarted-its-business/.

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the power and workings of the overall MITentrepreneurial ecosystem. In spring 2001, Ric Fulop’06, a serial entrepreneur who had been involved infive startups by the time he was twenty-five years old,was looking for his next opportunity. HowardAnderson, also a serial entrepreneur who teaches the“New Enterprises” subject and several other MITentrepreneurship classes and was founder of theYankeeTek venture capital firm, had participated ininvestments in two previous Fulop ventures that hadlost $10 million. But Anderson had deep admirationfor Fulop and gave him space in his office to helpFulop think through his next undertaking. After a fewmonths of research into the energy business, andthen narrowing to battery technology, Fulop scannedthe country in search of technological alternatives,including reviewing MIT TLO’s database on MITtechnologies. As a result, Fulop approached ProfessorYet-Ming Chiang ’80 with his idea of using carbonnanotubes as a basis for setting up a new batterycompany. Chiang quickly convinced Fulop thatChiang’s lab had more interesting battery R&Dunderway and the two of them began seriousdiscussions. As they looked for a third partner to runengineering, Chiang introduced Fulop to Bart Riley,who incidentally had been an early employee ofAmerican Superconductor, an earlier MIT spinoff thatChiang had co-founded in 1987. By September 2001,Fulop, Chiang, and Riley had decided to form a newbattery company, A123 Systems, and began tonegotiate with the TLO (leaving Chiang out of thediscussions to avoid conflict of interest) for exclusiverights to Chiang’s MIT battery developments. All wentsmoothly with MIT and, by December 2002, thecompany had completed its first round of venturecapital funding from Sequoia Capital, NorthbridgeVentures, YankeeTek, and Desh Deshpande (see laterdiscussion of the Deshpande Center), who alsobecame chairman of the A123 board. The A123 storysince then has been magical, with more than $250million in venture funding by December 2008, sixmanufacturing plants in China and Korea, more than1,800 employees, and more. A123 is moving rapidlyforward with multiple products in its three target

markets, including cordless tool batteries (its firstproduct application was the launch of a new line ofprofessional tools by the DeWalt division of Black &Decker), multi-megawatt batteries for renewableintegration into the electric grid, and batteries fortransportation (with more than nineteen models ofhybrid and plug-in vehicles with major American andEuropean automakers under development). A123already has become one of the world’s leadingsuppliers of high-power lithium ion batteries.

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During the last few years, three majorinstitutional additions at MIT have contributedimmediately to the development and launching ofnew companies, and strongly to the overall MITentrepreneurial ecosystem. They are the VentureMentoring Service, the Deshpande Center forTechnological Innovation, and the MIT SloanEntrepreneurship & Innovation MBA Program, all ofwhich we discuss below.

MIT Venture Mentoring ServiceThe MIT Venture Mentoring Service was

proposed in 1997 as a joint venture of the MIT Sloanand Engineering schools, with the MIT E-Centerexpected to be its host. But, as with many new ideas,it took time, key people, and money to actually getunderway. As a result of generous donations by twoMIT alumni, Alexander Dingee ’52 and ProfessorDavid Staelin ’60, VMS finally got started in 2000, its premise being that a fledgling business is far morelikely to thrive when an idea, a good business plan,and an entrepreneur are matched with proven skillsand experience. VMS has an office in MIT’s mainbuilding complex, under the MIT Dome, and a small,full-time staff directed by Sherwin Greenblatt ’62, the first employee and later president of BoseCorporation, aided by a large number of part-timevolunteers. It provides free and, hopefully, objectiveadvice and assistance to anyone affiliated with MIT—student, staff, faculty, alumnus/a—who is consideringthe possibility of starting a new company.

As indicated in Table 18, between VMS’sfounding and mid-2007, more than 900 men andwomen participating in nearly 500 contemplatedventures have received guidance and coaching.Prospective entrepreneurs often come to VMS at veryearly stages in their idea process—usually beforethere is a business plan, a strategy and revenuemodel, a team, or any funding.

The VMS staff and volunteers don’t screen topick winners; rather, VMS’s mission is to use anyplausible idea as the focus for education on theventure creation process. The process of forming aviable company can take anywhere from a fewmonths to as much as five years. Eighty-eight newcompanies, or more than 17 percent of the venturesthat have signed up as VMS “clients,” already hadformed operating companies by mid-2007.

Ultimately, many of the prospectiveentrepreneurs find their ideas are not practical asventures, but they have learned much about beingentrepreneurs and forming ventures. Some of themreturn with another venture concept that does turninto a company. The ventures served during the firstseven years of VMS have raised total funding thatsignificantly exceeds $350 million. This includesventure capital and angel investments, grants, andother seed capital.

VMS’s mentor pool has grown from its foundinggroup of seven in 2000 to more than 100 mentorsactively engaged in the program and working withentrepreneurs. Another twenty mentors serve as adhoc specialist resources.

The Venture Mentoring Service’s majorcontributions seem to come from the “no-strings-

Recent MIT Institutional Broadening and Growth

Ventures served since 2000 469

Entrepreneurs served 932

Companies formed 88

Funding raised by companies $350M +

Current mentor pool 121

Mentoring hours more than 9,000(just in the past 12 months)

Table 18Some VMS Data (mid-2007 report)

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attached” advice and guidance of experiencedmentors. This encourages entrepreneurs to makemore educated, thoughtful, and informed decisions,thereby enhancing their chances for success. Typically,VMS builds a long-term relationship that significantlyinfluences the startup. Among the ventures that havebeen mentored by VMS along the path from idea tooperating enterprise, showing the variety of marketsand technologies being tackled, are:

Brontes Technologies, Inc. Described previously inthe section on the MIT Enterprise Forum, Brontesdeveloped and commercialized a revolutionarysingle-lens 3D imaging technology, which itapplied to the dental imaging market. Thecompany was acquired by 3M in October 2006.

Corestreet, Ltd. Infrastructure and software forsecurity and smart credentials.

Gaterocket, Inc. Advances the electronic designautomation industry’s ability to develop advancedFPGA semiconductors.

Greenfuel Technologies Corporation. Uses algaeforms to clean air by recycling carbon dioxide fromindustrial facilities and turning it into bio-fuels.

Interactive Supercomputing, Inc. Softwareplatform delivering interactive parallel processingto the desktop, dramatically speeding upsolutions to complex industrial and governmentalresearch and operational problems.

Myomo, Inc. Described later in the section on the Deshpande Center, Myomo (previously calledActive Joint Brace) is a pioneer in neuro-robotics,a new class of non-invasive medical devicetechnology combining neuroscience and robotics

to restore mobility after neurological dysfunction.The company created the first portable, wearablerobotic device to help stroke patients relearn howto move by enabling them to initiate and controlmovement of their partially paralyzed arms.

Smart Cells, Inc. Making use of a polymer-baseddosing technology developed at MIT by its co-founder, SmartCells is developing a once-a-day,self-regulating, injectable formulation for treatingdiabetes.

Vela Systems, Inc. This mobile software for fieldactivities in construction and capital projectsmanagement leverages capabilities of tablet PCsto deliver construction projects faster, withhigher quality and lower risk. Vela now is usedon more than 300 projects from Las Vegas toDubai.

Table 19 below, showing essentially no perceivedimportance of VMS to venture founding, is actuallyquite reassuring from a research reliability perspective.Given that the Venture Mentoring Service wasoperational only in 2000 and the survey wasconducted in 2003, it would have been disturbing ifmore than one or two respondents cited VMS as aninfluencing factor. But VMS, its founders, and keyleaders were recognized by being awarded the AdolfMonosson Prize for Entrepreneurship Mentoring bythe MIT E-Center in 2007.

MIT Deshpande CenterOn January 3, 2002, MIT announced the creation

of the Deshpande Center for TechnologicalInnovation, funded by a magnanimous gift of

Graduation Decade 1950s 1960s 1970s 1980s 1990s(N=73) (N=111) (N=147) (N=144) (N=145)

Venture Mentoring Service 0% 1% 0% 0% 1%

Proportion Rating University Factors as Important in Venture Founding* (percentage)

Table 19Importance of Venture Mentoring Service to Venture Founding (from limited sample only)

*Respondents could check all relevant categories

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$20 million from Jaishree Deshpande and DeshDeshpande, whose most recent entrepreneurialachievement was as co-founder and chairman ofSycamore Networks. Housed in the School ofEngineering, the Deshpande Center funds leading-edge research on novel technologies in collaborationwith the New England high-technologyentrepreneurial and venture capital communities. Via those linkages, the Center’s unique thrust is toidentify emerging MIT technologies that are especiallylikely to be able to be commercialized, and toaccelerate and improve that process of movement tomarket. It thus seeks to bridge the innovation gapbetween idea and market.

Dr. Deshpande said: “MIT has always provided afertile ground where its students and faculty canbreak through technology barriers, fuel new areas ofresearch and development, and fundamentallytransform whole industries…Our hope…is to givecreative new entrepreneurs…the ability to translatetheir ideas into innovative companies and products.”The Center supports a wide range of emerging fields,including biotechnology, biomedical devices,information technology, new materials, tiny tech, andenergy innovations. It provides Ignition Grants of upto $50,000 each to enable exploratory experimentsand proof of concept, and then provides InnovationProgram Grants of up to $250,000 each to advanceideas past the “invention stage.” Professor CharlesCooney ’67 has served as the Center’s director sinceits founding.

At the outset, the Deshpande Center wasannounced as linked to the MIT E-Center, moststrongly evidenced by the establishment two yearslater of the jointly taught “Innovation Teams” subject,with mixed-student teams across MIT departmentsfocusing on developing commercialization plans forDeshpande research projects.

The Deshpande Center engages in numerousactivities to seek out new faculty participants and toaid those funded to gain visibility and networkingassistance from the relevant community outside ofMIT. The Center has recruited experienced

entrepreneurs and venture capitalists to serve asCatalysts who work closely with each research projectto provide guidance about market andcommercialization issues. Senior staff of the MIT TLOwork closely with the Catalysts to assist the projectprincipal investigators, as well as to help the I-Teamsthat get formed around many of those projects. Oneof the largest Deshpande activities with severalhundred in attendance is the annual, one-dayIdeaStream Symposium, featuring key MIT facultypresenters, venture capital panelists discussing thecurrent “hot” fields, and display booths with chartsessions for all of the currently funded Deshpandegrants.

From its founding in 2002 through the end of2007, the Center had received about 400 researchproposals from several hundred MIT faculty. It hadprovided $8 million in grant funding to eightyprojects. Follow-on research funding of the MITprojects, from both government and corporations,amounts to more than $3.5 million. Thus far, fifteencompanies have been formed, gaining more than$100 million in outside capital investment andemploying more than 200 people.

Case Example: MyomoA few of the significant spinouts of the

Deshpande Center are Brontes Technologies(previously described in the section on the MITEnterprise Forum), Myomo, Pervasis Therapeutics, Q-D Vision, and Vertica Systems. One example ofDeshpande Center commercialization is Myomo,started with Deshpande funding in 2002 as the“Active Joint Brace” research project of ProfessorWoodie Flowers ’68. The case again reflects thestrong interrelationships among various parts of the MIT entrepreneurial ecosystem. The project’sevolution from academic research towardcommercialization may be seen in the descriptions ofthe work used at various times. The research group’sinitial self-description was: “Our research group aimsto create a wearable, affordable, unencumberingexoskeleton that augments human physical capabilityby working in parallel with existing musculature.”

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After its first pass with an I-Teams group effort, thework was described as: “Active Joint Brace is anorthopedic joint brace combined with a poweredassist mechanism modulated by a neurologicalsensor.”

By the end of the semester with their I-Teamsgroup, they were introducing their technology bypointing out: “Ten million of the twenty-one millionAmericans living with disabilities have difficulty liftinga light object such as a fork or a toothbrush.” At thatpoint in 2004, the team, consisting of MIT faculty,students, and an alumnus, plus a Harvard student,entered the $50K Business Plan Competition andwon the Robert Goldberg Grand Prize of $30,000. ByJanuary 2006, the research project was finished andMyomo Inc. (short for My Own Motion) was born. Itreceived FDA clearance to market its first product inJuly 2007. In November 2007, it received the PopularScience “Best of What’s New” Award for itsNeuroRobotic Technology Innovation.

MIT Sloan Entrepreneurship &Innovation MBA Program

Entrepreneurship & Innovation (E&I) is a newoption within the two-year MIT Sloan MBA Program,made available for the first time to selectedapplicants in the entering MBA Class of 2008. Theprogram focuses on teaching committed gradstudents how to launch and develop emergingtechnology companies. It builds a select lifetimecohort of collaborative entrepreneurial MBAclassmates and leads to an MIT Sloan Certificate inEntrepreneurship & Innovation, in addition to theMBA degree. The E&I curriculum heavily emphasizesteam practice linked to real-world entrepreneurialprojects, balances theoretical and practitionereducation, and provides a thorough exposure to themany building blocks of an entrepreneurial career.Perhaps not surprising to some, more than one-thirdof the entering MBA students applied for admissionto this new opportunity when it was announced inJune 2006, but the 125 had to be screened down tofifty first-year students to manage program

introduction. About one-quarter of the MIT SloanMBAs now enter this entrepreneurship concentration.

The E&I program begins with the standard first-semester MIT Sloan MBA core, permitting theentrepreneurship cohort to become fully integratedwith their classmates in all activities. But during thatfirst term, the E&Is also take an overview course thatintroduces them to all aspects of entrepreneurshipeducation and practice at MIT. Both academic andpractitioner faculty meet with the group, as do theheads of the MIT VMS, TLO, Deshpande Center, andseveral local entrepreneurs and venture capitalists,creating special access to the MIT entrepreneurialecosystem. The semester is followed almostimmediately by an intensive one-week group trip toSilicon Valley, arranged by the MIT E-Center. The classvisits leaders of multiple venture capital firms andmeets in small groups with a large number ofcarefully selected, early-stage high-tech firms in thelife sciences, medical technology, software,information technology, advanced materials, and newenergy fields. During the following three semesters,the E&I program requires students to participate in atleast one MIT $100K team (described above) and tochoose several additional subjects from a restrictedmenu of entrepreneurial electives (including E-Lab, G-Lab, and I-Teams, all described previously) thatprepare them to start and build companies, whileletting them enroll in other broadening MIT and MITSloan courses such as finance or marketing.

One of the students in the inaugural class, NikhilGarg, MBA ’08, described his experience: “I couldhave spent my entire two years on campus meetinglike-minded entrepreneurs here and there. Buteveryone in this class wants to start a company. It’s so much easier to facilitate ideas and businessrelationships with other MBAs and techies in this type of environment.” Will O’Brien, MBA ’08,spearheaded weekly, thirty-minute “Open Mic”sessions to encourage his classmates to practice theirpitches, preparing them for future encounters withventure capitalists. “The caliber of ideas has beenphenomenal,” says O’Brien. “They’ve ranged fromnew ventures in wind energy, developmental

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entrepreneurship, media, and even beermanufacturing.” In December 2008, O’Brienlaunched a Web 2.0 company that he began with anE&I classmate during their second year in theprogram.

Half of the inaugural group previously hadfounded their own or been part of startupcompanies. Many more company formation initiativesbegan even within the first term of the students’arrival on the MIT campus. A group of the first-yearE&I class demonstrated its entrepreneurial savvy bywinning the UC-Berkeley School of Business “MediaCase Competition,” sponsored by Yahoo!, and tookhome a check for $10,000. Another first-year E&Iparticipant became part of an African-American teamthat won the $10,000 first prize at the 2006 WhitneyM. Young New Venture Competition at the WhartonSchool, the three finalists being MIT, Stanford, andUCLA. One more classmate was a $1K winner andanother a finalist in the MIT $100K competition. InNovember 2008, with three E&I classes underway, theevidences continue to grow of MBA students’ strongdesires to create their own new firms, despite the E&Iprogram leadership’s guidance that they first gathermore real-world experience working in startupsbefore initiating such actions on their own. Twenty-five ’08 MBA graduates, the first year of E&I programcompletion, started their own companies before orupon graduation from MIT Sloan, three times thenumber of immediate startups from the Class of2007. This may be an early sign of the E&I track’simpact on its own group as well as on otherentrepreneurial classmates.

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Conclusions: Enhancing the Role ofResearch/Technology Universities in anEntrepreneurial Economy

Universities that are strong in research andtechnology are at the forefront of knowledgecreation and potential application. When theuniversity is able to couple this capability with theinclination and resources needed to connect ideasand markets, impressive possibilities exist forgenerating entrepreneurship-based economic impactat the local, as well as national and global levels.Most important in making this transformation ishaving the institution’s leadership adopt the will toaccomplish this. Numerous changes are needed inmost universities over an extended period of time inrules, regulations and, more important, attitudes andinstitutional culture. None of these will beaccomplished without strong and committeduniversity leaders.

The MIT history described in this report providesnumerous and detailed examples of how one majorinstitution achieved significant entrepreneurial impactover its first 150 years. Early examples of engagingthe academic with the real world, even includingentrepreneurial actions by senior and respectedfaculty and university officials, did much to capturethe attention of more junior faculty members, as wellas students and alumni, to the legitimacy oftechnology transfer and commercialization. Big differences between institutional histories ofentrepreneurial output no doubt are explainable to agreat extent by this distinction alone in leadershiproles and behavior. MIT’s history suggests that theappropriateness of rules and regulations needs to beassessed carefully to be sure that they do not createbarriers to faculty participation in industrial consultingand, more vitally, that they do not hinder facultyinitiatives in new companies’ formation. A shift from

barriers toward incentives will take much time tooccur in most organizations, and will be accelerated ifadvocates for entrepreneurship pay strict attention toestablishing and enforcing guidelines against conflictsof interest.

Until quite recently, MIT had followed a “hands-off” approach toward entrepreneurial engagement,in contrast with many other universities in the UnitedStates and abroad. MIT has neither created aninternal incubator for ventures nor a venture capitalfund to make life easier for prospective startups.Those facts have permitted MIT to avoid degrees ofinternal conflict and occasional embarrassments thathave plagued other academic institutions that havetried to hurry the entrepreneurship process. But MIThas had the advantage of a surrounding communitythat essentially has provided those functions, as wellas other aspects of a supportive infrastructure fornew enterprises. In less well-endowed neighboringcircumstances, a university may have to supply withgreat care the active help and at least some fundingto get entrepreneurial ventures off the ground.

Instead, MIT has relied internally on growingfaculty, student, and alumni initiatives, especiallyduring the most recent thirty years, to build a vibrantecosystem that helps foster formation and growth ofnew and young companies. All these have, over time,significantly enlarged the number of interested andinvolved participants, with corresponding increases intheir activities and outcomes. If an institution isdeliberately trying quickly to become moreentrepreneurial, the MIT approach would take anamazing degree of patience and self-restraint.

Outreach to alumni is achieved easily in the formof self-organized seminars, and faculty visits and

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lectures, facilitated by direct “distance viewing” ofclasses and conferences. Organizations such as theMIT Enterprise Forum often can be accessed in localcommunities, perhaps just by joining or partneringinstead of needing to replicate the organization.

Educational programs require investment in andacquisition of faculty to develop and teach suchprograms. Effective and well-trained academics are,unfortunately, still scarce in most entrepreneurship-related disciplines. Fortunately, successful practitionersare available everyplace and the MIT history indicatesthat they are quite willing and enthusiastic aboutsharing their time and experiences with novice andwould-be entrepreneurs. The list of MIT student clubssuggests the numerous ways by which studentsacross the university might find their own pathstoward entrepreneurial efforts. The $100K BusinessPlan Competition is the most vibrant and perhapsmost effective of these clubs on the MIT campus,leading directly to high levels of new companiesbeing formed. Students at other universities can learneasily how to undertake their own comparablecompetitions through attending the annual MIT$100K Global Business Plan Workshop. Furthermore,the MIT one-week intensive EntrepreneurialDevelopment Program, conducted annually in January by the MIT E-Center, may well be a helpfulsupplement for those institutions attempting tocreate an overall program of education and studentactivities that will encourage entrepreneurship.

The alumni activities and educational and studentendeavors provide a strong basis for building anentrepreneurial ecosystem. But formal institutionalactivities also are critical. At MIT, changing theTechnology Licensing Office into a proactive andsupportive-of-entrepreneurship program office hascontributed much to technology transfer from theresearch labs. This was done twenty years ago andhas had the time to mature in its effectiveness. Morerecently, MIT’s creation of the Venture MentoringService, its own form of volunteer lightweight butquite effective “incubation,” has generated a modelof helping that is clearly possible in many otheruniversity communities. And direct, targeted funding

of faculty research that has commercial potential, asdone in the new MIT Deshpande Center, is certainly apossibility elsewhere.

This report has documented how much dramaticeconomic impact has been generated by MIT alumni,students, staff, and faculty who have formed newenterprises over the past fifty years. Throughout wehave attempted to communicate the many elementsof what we call this university’s entrepreneurialecosystem and how each part has contributed to theventure formation process. In many examples wehave cited, multiple aspects of that ecosystem havebeen at work in making entrepreneurship happenand be successful. We have tried also to show howother universities may be able to strengthen theirown entrepreneurial achievements and, in turn, theircontributions of economic impact to theircommunities, regions, and countries.

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Appendix: Sources of Information7

Company DatabaseIn 2003, MIT initiated a rigorous and

comprehensive survey effort, in which the authorsparticipated, to identify, carefully study, and assessthe impact of new enterprises created by all livingMIT alumni.8 The survey produced detailedinformation on 4,611 companies founded by 2,111graduates. To provide still more information aboutthese companies, including current sales,employment, industry category, and location, thisnew MIT database on alumni companies was furtherupdated and upgraded from the 2006 records ofCompustat (for public companies) and Dun &Bradstreet (private companies). Our report’s findingswith respect to total employment and sales, MIT-enrolled department of company founders, industry,and age of the companies, are based on this updateddatabase. We use data only on MIT alumnicompanies that still were active in 2003, thatinformation coming from a carefully conductedsurvey process. In this way and many others, thenumbers in our report are conservative in theirestimation of the total economic impact of MIT-related entrepreneurs, ignoring the entrepreneurialoutcomes of the many non-alumni faculty, staff, andother employees, as well as other spillovers from MIT.

Alumni SurveyMIT conducts periodic surveys of all alumni to

get up-to-date demographic information. As weindicated previously in this report, in 2001 MIT sent asurvey to all 105,928 living alumni with addresses onrecord. MIT received 43,668 responses from alumni;of these, 34,846 answered the question aboutwhether or not they had been entrepreneurs. A totalof 8,179 individuals (23.5 percent of the respondents)indicated that they had founded at least onecompany. In 2003, we developed and sent a surveyinstrument focusing on the formation and operationof their firms to the 8,044 entrepreneur respondentsfor whom we had complete addresses. Of the 2,111founders who completed surveys, approximately 2.2 percent of the cases had been reported by morethan one MIT co-founder. Removing those duplicates(the average number of MIT co-founders per team is1.29) left 2,059 unique alumni entrepreneurrespondents who founded 4,611 companies. Mostteams also had non-MIT co-founders, but this factdoes not require any correction in the sample.

Because many of the founders of the largest MITalumni companies no longer are affiliated with theircompanies or have passed away, the companies

7. Information on MIT Entrepreneurial OrganizationsWe deeply appreciate the help of several others at MIT in the preparation of this report. In particular, Trish Fleming and Antoinette Muller, directors of

the MIT Enterprise Forum of Cambridge and globally, respectively, along with Joseph Hadzima, chair of the global Enterprise Forum organization, providedhuge amounts of information from which we developed much of the detailed history of that remarkable organization. Karina Drees, lead organizer during2006–2007 of the MIT $100K Business Plan Competition, assembled and presented all of the information in regard to the $100K. Lita Nelsen, director formany years of the MIT Technology Licensing Office, gave us much insight into the MIT entrepreneurship process and supplied all of the data on the TLO’shistory and operations. Sherwin Greenblatt, director, prepared the data on the MIT Venture Mentoring Service. Professor Charles Cooney, its faculty chair;Leon Sandler, executive director; and Ken Zolot, senior lecturer in entrepreneurship, provided key information about the MIT Deshpande Center and therelated Innovation Teams class. We appreciate the significant help in the survey creation and initial data analyses by our collaborator David Hsu, PhDrecipient from MIT Sloan and now faculty member at the University of Pennsylvania.

Additional Thanks: Celia Chen, Jennifer Peterson, Minnie Moy, and Yuqiao Huang made important contributions to the data analyses andpresentations in this report. We are grateful for their assistance and hard work.

Finally, we are especially appreciative of all of the editorial assistance and suggested rewrites provided by E.J. Reedy of the Ewing Marion KauffmanFoundation. His help made the entire report far more understandable. In addition, Barbara Pruitt and Lesa Mitchell, both of the Kauffman Foundation, aswell as William Bonvilian and Jose Pacheco of MIT, were invaluable in their efforts in bringing this report to the public. Of course, any errors in the finalwork are the responsibilities of the authors.

8. Ten years before, the Economics Department of BankBoston (now part of Bank of America) collaborated with MIT on an analysis of MIT-relatedcompanies. The 1997 publication by BankBoston used information on some number of then-active, MIT-related companies that it had identified as createdby MIT faculty, staff, and employees of MIT-affiliated research labs.

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represented in the survey responses are somewhatmore recent and average fewer employees than the universe of MIT alumni-founded companies. All told, these 4,611 specific surveyed firms included in the direct responses employ more than 585,000people. We estimate, however, that the entirepopulation of MIT alumni firms employs more than 3.3 million people.

The report’s findings on where and whycompanies locate where they do, what gives themtheir competitive edge, how they received initialfunding, where they sell their products, and how manypatents they have, are taken directly from theresponses to this 2003 survey, updated to reflect the2006 corporate information obtained from Compustatand Dun & Bradstreet. To estimate accurately theentrepreneurial activity and economic impact of thosein the entire MIT alumni population who did notrespond to the surveys, we multiply the direct responsenumbers by a scale factor. For further details, see theAppendix section, “Estimation Methods,” below.

The detailed questionnaire used for this survey is available at www.kauffman.org/MITstudy. Weencourage other universities to undertake and sharecomparative analyses. We also should note here that,although we correctly identify all of the alumni in theMIT database as “MIT alumni,” a substantial fractionof them are also alumni of other universities in theUnited States and other countries. So the economicimpacts cited in this report reflect the direct andindirect educational impact of many institutions ofhigher learning in science, technology, andmanagement.

Estimation MethodsAs in all surveys, a large segment of the alumni

population did not respond to the MIT alumni surveys.Therefore, estimation of the total impact of MIT alumnientrepreneurs requires extrapolation to account fornon-respondents. To estimate the numbers for theentire MIT alumni population, we multiply by a scalefactor to give an accurate estimate of theentrepreneurial activity of those who did not respond

to the surveys. Since we have aggregated data fromboth the 2001 and 2003 MIT surveys, withadjustments from the 2006 Compustat and Dun &Bradstreet databases, the appropriate scale factordepends on the particular statistic or question beinganswered.

1. For survey items where we have data on allcompanies created over the life of theentrepreneur, the base scale factor isapproximately 9.476 (i.e., 2.425 * 3.906 =~9.476). These numbers are approximate becausewe actually use more than three digits after thedecimal. We multiply by 2.425 because, asindicated above, the total population of MITalumni is 105,928 and 43,668 responded to thefirst survey. To get from 43,668 to 105,928 wehave to multiply by 2.425 (i.e., 105,928/43,668 =~2.425). Then we multiply by 3.906 because8,044 indicated that they were entrepreneurs andonly 2,059 responded to the Founder’s Survey(i.e., 8,044/2,059 = ~3.906). We multiply that by0.773 to avoid duplicate counting by correctingfor multiple MIT alumni on the same foundingteams. Because 23.4 percent of the reportedcompanies were out of business by 2003, wefinally multiply by 0.766 to count just thosecompanies likely to still be active.

2. For items where we only have data on one of thecompanies the entrepreneur founded, we thenmultiply by 1.61 because 1.61 is the number ofcompanies on average each entrepreneur hasfounded (27 percent of the entrepreneurial alumniare repeat/serial entrepreneurs). For example, if wetake 100 alumni entrepreneurs, on average theywould have created 161 companies during theircareers. If we only have data on total employeesfor one company each (100 companies), then wemust multiple by 1.61 to get an estimate of thereal total number of employees for all thecompanies founded by that entrepreneur.

3. We further adjust the scaling factor for itemswhere data are missing due to entrepreneursskipping a survey item. This process may seem

A p p e n d i x

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complicated, but it gives a much more accurateestimate than any previous efforts.9

It is important to point out that, although wecorrectly identify many MIT alumni-foundedcompanies in various discussions throughout thisreport (e.g., Tables 10 and 11), in the underlyingdatabase that gets scaled we only use those firmsformed by alumni who completed survey reports in2003. Thus, some very significant MIT alumni firmswere NOT included in the database, such as Arthur D.Little, AMP, Campbell Soup, Genentech, Hewlett-Packard, Intel, McDonnell Douglas, Raytheon,Rockwell, and Texas Instruments, because the MITfounder had died in all these cases. These omissionsillustrate the importance of the scale factor weemployed to produce a more accurate estimate thatpartially compensates for the many firms explicitlyomitted.

This scaling method rests on three assumptions.One is that the proportion of entrepreneurs amongthe respondents is the same as the proportion ofentrepreneurs among the non-respondents. Thesecond is that the respondent entrepreneurs areequally as successful as the non-respondententrepreneurs. The proportion of entrepreneursamong the non-respondents (or their success level)could just as easily be higher as it could be lowerthan the proportion among the respondents. Thethird is that, for entrepreneurs who started more thanone company, then on average the performance oftheir former or subsequent firms is similar to the firmwe observe.

Let’s consider how wrong we might be in theseestimates. The effect of cutting our scale factor bytwo (which would represent the extreme case wheretwice as many respondents as non-respondents wereentrepreneurs, or where respondent entrepreneurswere twice as successful as non-respondents),generates the results that are in the conservative

wording we chose to use in the introduction of thisreport:

…if the active companies founded by MITgraduates formed an independent nation,conservative estimates indicate that theirrevenues would make that nation at leastthe seventeenth-largest economy in theworld.

Under these circumstances, we would beestimating that 12,900 companies created by MITalumni employ 1.6 million people and have annualworld sales of $1 trillion. That is roughly equal to agross domestic product of $500 billion, a little lessthan the GDP of the Netherlands and more than theGDP of Turkey (2006 International Monetary Fund,nominal GDP—not purchasing power parity or PPP).

9. Similar extrapolation methods were used in a recent study of immigrant entrepreneurs’ role, using a scale factor to extrapolate from 2,054responses in their survey database to the estimated economic impact drawn from 28,776 companies, a scale-up factor of ~14.010 (Wadhwa et al., 2007).

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N o t e s

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Acs, Zoltan, William Parsons, and Spencer Tracy. “High-Impact Firms: Gazelles Revisited” (June 2008). WashingtonD.C.: U.S. Small Business Administration, Report No. 328.

Association of University Technology Managers. U.S. Licensing Activity Survey: FY 2006 (Privately published, 2007).

Chase Manhattan Corporation. MIT Entrepreneurship in Silicon Valley (Privately published, April 1990).

Cooper, A. C. “Entrepreneurship and High Technology,” in D. L. Sexton & R. W. Smilor (editors), The Art andScience of Entrepreneurship (Cambridge, Mass.: Ballinger Publishing, 1986), 153–167.

Dorfman, Nancy S. “Route 128: The Development of a Regional High Technology Economy,” Research Policy, 12(1983), 299–316.

Hsu, David, Edward Roberts, and Charles Eesley. “Entrepreneurs from Technology-Based Universities: Evidencefrom MIT,” Research Policy, 36 (2007), 768–788.

Putt, William D., editor. How to Start Your Own Business (Cambridge, Mass.: The MIT Press and the MIT AlumniAssociation, 1974).

Rich, Stanley. Business Plans that Win $$$: Lessons from the MIT Enterprise Forum (Cambridge, Mass.: The MITPress, 1985).

Roberts, Edward B. Entrepreneurs in High Technology: Lessons from MIT and Beyond (New York: Oxford UniversityPress, 1991).

Schumpeter, Joseph A. The Theory of Economic Development (Cambridge, Mass.: Harvard University Press, 1936),198.

Wadhwa, Vivek, AnnaLee Saxenian, Ben Rissing, and Gary Gereffi. “America’s New Immigrant Entrepreneurs: Part I” (January 4, 2007). Duke Science, Technology & Innovation Paper No. 23. Available at SSRN:http://ssrn.com/abstract=990152.

Ziegler, Charles A. Looking at Glass Houses: A Study of Fissioning in an Innovative Science-Based Firm.Unpublished PhD dissertation (Waltham, Mass.: Brandeis University, 1982).

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