Ballot measure would free Oregon universities to take stock

A constitutional amendment up for vote in the May midterm election could help
boost Oregon’s universities and the state’s high-tech industry–not to mention
biotech, agriculture, metals and forestry–according to a number of business and
academic figures.

Aliza Earnshaw Business Journal Staff Writer

Measure 10, which was
referred to voters by the
state Legislature, would
allow public universities to
take equity–that is, receive
stock–in companies that
use intellectual property
created at the universities.

While other states do allow
public universities to hold
stock in the companies that
spin out from their research
departments, Oregon’s
constitution was written in
the middle of the 19th
century, during a time of
recurring business scandals. "It was a time much like our own," said Dave
Frohnmeyer, president of the University of Oregon. "There were worries about
stock fraud and spectacular business failures, and keeping the state or state
agencies away from that was a concern."

However, taking equity in young companies will not expose the universities to
risk, Frohnmeyer said. No university funds will be invested in the companies;
instead, the universities will receive stock in companies that license technology
developed at state universities.

Measure 10 addresses the issue of fairness–after all, universities should benefit
from what they help to create–but it also addresses an equally important issue,
that of generating a more vibrant and diverse economy, Frohnmeyer said.

"Measure 10 would help universities to
provide more seed capital for further applied
research, that in turn would result in further
enterprise," Frohnmeyer said.

Small homegrown companies that are
strapped for cash now–but could become
Oregon’s next Mentor Graphics–could
certainly license intellectual property from
universities, but doing so not only digs into
their small cash reserves, it also "hurts them
on the pro-forma," said Jim Coonan, director
of business alliance for the Oregon university
system. Speaking as an individual, rather than in his professional capacity,
Coonan pointed out that venture capitalists considering new companies for
investment would rather see that the intellectual property was gained in exchange
for future equity, rather than in exchange for future revenue.

Equity rather than license fees is also better for the universities. A young
company "usually modifies a technology substantially before bringing it to
market," said John Calhoun, an Intel alumnus and partner in Aventure Partners, a
consulting and seed capital firm. "Often the product that is actually sold doesn’t
use the original technology in a significant way, so the basis for [license]
royalties often disappears."

In fact, University of Oregon, unlike the state’s other public institutions, does
receive some benefit from equity in private companies, through the University of
Oregon Foundation, which is allowed to hold equity.

While the Foundation does channel funds to the university, the process of
negotiating equity deals that will ultimately benefit the university is quite
cumbersome under the current Oregon constitutional restriction, said Don
Gerhart, director of the technology transfer office at the University of Oregon. "We
are required to stay at arm’s length from the foundation with respect to the
management of equity and its liquidation," said Gerhart. That requirement makes
the whole process "extraordinarily burdensome," he said.

Even with current restrictions, the tech transfer office has already negotiated four
equity deals for the Foundation, and has one more in the wings, said Gerhart.
Still, the university could do more, and so could other Oregon schools, if Measure
10 passes.

Other regions have done a fine job of deliberately creating cooperation between
academic research and economic development, said Gerhart, and Oregon can do
the same.

http://pacific.bizjournals.com/industries/banking_financial_services/venture_capital/2002/03/25/portland_story3.html