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A university startup has a number of characteristics, many of which are common to any startup. Central to the startup is the business model, the mechanism by which the company will create, market, and sell products and services in exchange for money from the customer. In addition, university startups involve many discrete operations including technology development, product development, sales and marketing, and manufacturing. The university startup is set in the context of an ecosystem composed of the university, people, and money. The university provides the innovation, usually in the form of intellectual property by way of a license, around which the startup is formed. People provide the expertise, management, judgement, decision-making, advice, and connections essential for launching and growing a startup. Money is the fuel to build the startup. It comes in two basic forms: dilutive and non-dilutive. The former involving a sharing of the company ownership and the latter not.

This chapter describes the Small Business Innovation Research (SBIR) program through which government acts as entrepreneur. The SBIR program leverages, through the direct provision of financial resources, private-sector R＆D in small firms. The use of public resources to target and support private-sector R＆D in small firms lessens barriers to innovation and creates a funded environment conducive for commercializable research that would not otherwise have occurred.

This chapter examines the university’s role in economic development. The chief research officer’s responsibilities at most research institutions include economic development as a corollary to his or her authority over technology transfer. The mechanisms for establishing and financing spinoff companies based on university-owned patents are examined in depth. With a business plan in hand, the start-up company’s management raises money in three basic investment rounds: angel, venture, and mezzanine financing. The financing amount increases and the investment risk decreases with each round. Two federal grant programs boost commercialization of university-associated technological innovation, the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program, which are discussed in detail. Fledgling companies often rely on university personnel, and this can raise an ethical conflict of commitment or conflict of interest that must be resolved. Also, allowing private businesses to use university facilities such as a building through a lease or other arrangement can have significant tax consequences, especially if tax-exempt bonds were used for financing the facility. University-affiliated research parks and business incubators offer an attractive alternative for start-up company development.

This chapter explores why and how an academic becomes an entrepreneur by founding a company. The first step, establishing the company, is straightforward but thereafter a suite of decisions must be made and the researcher must adapt to a completely different environment. The founder must decide on their desired level of involvement, whether as CEO, CSO, or Board member, and those roles can change over time. A steep learning curve requires academics to acquire new skills, mindsets, and vocabulary. Business decisions predominate in the start-up environment, and timelines are accelerated. Start-ups can tap into numerous resources (collectively known as the entrepreneurial ecosystem), and special funding streams can help young companies enhance their value propositions. While the pathway to success is arduous and long, seeing your work become a product that sells in the marketplace is exhilirating.

This chapter argues that the Small Business Innovation Development Act of 1982, and more specifically the Small Business Innovation Research (SBIR) program portion of that Act, is a prime example of public sector entrepreneurship. The chapter begins with a legislative history of the SBIR program and a detailed description of its structure. The chapter then presents an economic analysis of the program using a downside risk model of the SBIR program, before turning to an analysis of the program as an example of public sector entrepreneurship using the conceptual structure in Chapter 3. Finally, an overview of the literature related to the effectiveness of the program is reviewed.