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1 TERTIARY EDUCATION FUNDING IN THE 21ST CENTURY – OPPORTUNITIES FOR CREATION AND MANAGEMENT OF THE ENTREPRENEURIAL UNIVERSITY A PRESENTATION AT THE FEDERAL MINISTRY OF EDUCATION FORUM FOR VICE CHANCELLORS ON TERTIARY EDUCATION FINANCING BY PROFESSOR PETER U. NWANGWU, M.Sc., Pharm.D., Ph.D EXECUTIVE ASSISTANT TO THE VICE CHANCELLOR, AND CHIEF DEVELOPMENT OFFICER, UNIVERSITY OF NIGERIA PRESIDENT AND CHIEF EXECUTIVE OFFICER, UNIVERSITY OF NIGERIA RESEARCH AND ECONOMIC DEVELOPMENT (UNRED) FOUNDATION AT UNIVERSITY OF LAGOS APRIL 23RD & 24TH, 2007 1 A. STATEMENT OF THE PROBLEM Any major university in the 21st century must have the creative ability and initiative to acquire sizable and sufficient working capital to apply to the many and diverse needs of a typical academic campus. With increasing population, the aging of the population, and intense pressure on governments to spend more money on various social programs, universities worldwide will face severe financial crises in the 21st century, if they do not embark on proactive and creative measures to overcome the steady decline in the percentage of the university annual budget paid for by the government. The shortfall cannot be paid for by tuition increases alone, because there is a limit to the amount of tuition increase the public can bear. In the ranking of the top universities in the world, no Nigerian university came within the top 6,000. For too long, Nigerian universities have depended too much on the Nigerian government for the financial resources needed to develop and sustain Nigerian universities. Government can hardly provide 20% of the resources required to run any of the Nigerian universities adequately. The annual operating fund given by the government to a typical Nigerian university is less than the annual budget of a single department in some universities in the United States. The disparity is too glaring in a globalized economy where the universities of the world are compared and ranked. While no Nigerian university came within the top 6,000, it is interesting that 17 out of the top 20 universities in the world are United States (US) universities. What are U.S universities doing differently from Nigerian universities? Majority of the universities in the U.S receive less than 50% of their annual support from the government. The bulk of their annual budget is derived from a well organized systematic outreach by their foundation, or by the office of university development, to several stakeholders, such as alumni and friends of the university, industry and corporate bodies, and massive campaign to the community; some universities have fund raising campaign that exceed one billion dollars. However, the most current trend in funds acquisition by the eminent universities in the U.S is intellectual property development and marketing through research commercialization, economic development, new venture creation, and spinning out commercial companies based on research inventions at the university. The number one university in the world, Harvard University, does not receive one penny from any government to pay for its operating costs. If it is not funded by the government, and yet it is ranked number one in the world, then it is possible to become a robust university without government 2 support. Harvard University is a classic example of a center of research and academic excellence engineered through proper economic planning and development. Until recently, I lived in the United States for 34 years, and was a productive senior professional there; as a scientist, inventor, and entrepreneur at both the university and industry. I can therefore comment from practical experience on entrepreneurial trends and methods at U.S universities that have set them apart from other universities in the world. B. CURRENT APPROACHES TO ENTREPRENEURIAL DEVELOPMENT AND NEW VENTURE CREATION AT U.S. UNIVERSITIES In 1980, the U.S. Congress passed the Bayh-Dole Act, which gave universities title to inventions developed by government-sponsored research. The office of technology transfer is responsible for managing the intellectual property assets of the university. All new inventions from faculty, staff and students must be disclosed in writing to the office of technology transfer who will evaluate the inventions for their commercial potential, and work to license them to industry partners. Royalties received from licenses are shared with inventors, and the university uses its own portion to support its educational mission, and further develop research on campus. An increasingly important mission of the Office of Technology Transfer and Economic Development is to promote and develop business opportunities in the immediate community and surrounding regions. One means of accomplishing this goal is to identify new technologies from inventions at the university and assist the inventors in facilitating their development into companies that contribute to the local economy. By establishing strong relationships with industry, the Office of Technology Transfer and Economic Development functions as an additional outlet where the university can provide tangible benefits to the community. In the absence of adequate venture capital funds at the university, a plan to connect the university to outside entrepreneurial venture sources in the creation of economic growth opportunities is becoming a preferred national model, and is gaining momentum across the country. In this model, universities “actively facilitate” business development through outside affiliations and will, to the greatest extent possible, rely on outside resources. The university provides proactive guidance, but will leverage non-university assets whenever possible. A key goal is to actively build networks and partnership with industry, and capitalize on available resources in the community. Where those resources do not currently exist, a concerted effort 3 is made to create them. To provide necessary physical infrastructure for new venture creation, it is becoming popular for universities to develop a “business park” or a facility to incubate new companies. Increasingly across the country, universities, through the Office of Technology Transfer and Economic Development, or its equivalent, are offering options to those academic staff who prefer a more hands- on involvement in further developing their innovations. By helping academic staff, should they desire, create local business and companies to exploit their scientific endeavors, universities are able to benefit, and contribute to, the economic development of the local region; instead of merely licensing the technology to companies outside the state. The “multiplier” effect of creating synergistic companies in a business district in the community is well documented. Money stays in the area, other service-oriented businesses and vendors profit, construction and infrastructure investment follows, and desirable jobs are created. C. MODELS FOR ENTREPRENEURIAL DEVELOPMENT AND NEW VENTURE CREATION AT U.S. UNIVERSITIES Models for entrepreneurial development and new venture creation vary from university to university across the United States. To some degree, the variance depends on the local resources available in a particular region to build businesses and assist entrepreneurs. I shall illustrate the variance by comparing two universities known for their success in spinning out companies based on new technology from research at the university -- Stanford University, and University of Michigan, Ann Arbor. Stanford University is in a region that is increasingly rich in entrepreneur resources. At Stanford, the networks for entrepreneurs are well established; investment capital needed to seed new companies is available, and the region is home to numerous technology-based companies. There is already a culture of innovation and consequently, Stanford is in the unique and fortunate position not to have to create the climate itself. Nor do they have to provide “hands-on” involvement in spinning out companies since the market forces operate to do just that. When contrasted with the University of Michigan at Ann Arbor, it is clear that Ann Arbor is not the Silicon Valley. Therefore, at Michigan, they actively manage business development as the best way to advance commercialization within the State of Michigan. As a public institution, University of Michigan depends on significant funding from the state legislature and, of course, makes every effort to demonstrate it is an economic asset to its constituents. Therefore, Michigan has devoted extensive 4 university resources in furtherance of a strategy by which it will create companies from its technologies. Michigan’s approach, in contrast to Stanford’s, is much more “hands-on”. However, this requires an enormous outlay of university resources, which is not possible today in an overwhelming majority of U.S. institutions. D. BENEFITS AND CHALLENGES OF ENTREPRENEURIAL DEVELOPMENT AT U.S. UNIVERSITIES The phenomenon of creating companies around innovations from research at the university is too sweeping and too important to ignore. In addition to its enormous responsibilities to students, faculty and staff, the university also has responsibility to the community, region, and state in which it exists, through the impact of technology transfer, economic development, and new venture creation. There is a documented link between economic growth and higher education. The presence of a strong research university has a robust effect on attracting business to a community, on the quality of life, and on the overall desirability of a region. Institutions of higher education must become catalysts to engage and promote entrepreneurial developments in the communities in which they reside. Other advantages include ability to attract eminent faculty and scientists to the university. Increasingly, prime candidates for faculty positions at the nations’ most prestigious universities will factor in the type of technology development program an institution has, in the process of making career decisions. Some candidates often request interviews with the technology transfer office during the recruiting process to assess the level of assistance available at the university for inventors. Some want to understand how the technology transfer program operates, and what successes the university has had in commercialization of intellectual property, new venture creation, and economic development programs. One of the challenges in entrepreneurial development programs at the university is the potential problem of conflict of interest. As stewards of public funds, the university has to guard against conflicts of interest or even the perception thereof. Our challenge at the university will be to conduct our business openly, with full disclosure, in a manner that is beyond reproach. We must also have policies in place to address such concerns. The greatest challenge facing universities in entrepreneurial development and new venture creation is lack of venture capital funds. 5 E. OPPORTUNITIES FOR CREATION AND MANAGEMENT OF THE ENTREPRENEURIAL UNIVERSITY IN NIGERIA Universities in Nigeria are blessed with several talented and intelligent students and academic staff; but without the proper environment and infrastructure for focused and sustained research and academic development, productivity has been replaced by decadence and apathy. Without vibrant and productive creative research that is relevant for the needs of contemporary society, the development of prime intellectual property which can be commercialized and marketed becomes a major problem in Nigeria. Unfortunately, most Ph.D thesis projects, and most research projects by Nigerian scientists are not patentable because they are mostly busy works that have no commercial or entrepreneurial value, since the primary motivation is to publish for promotion. How can you motivate Nigerian scientists to invest their energy and intellect in creative relevant research problems that are likely to yield patentable intellectual property with commercial potential? In the U.S. scientists are given a significant stake in their inventions. You own about 30% of all financial proceeds of your invention, for life. In some cases it may run into hundreds of million dollars. There is no reason why we could not adopt such an invention-friendly policy in Nigerian universities. Now, in the absence of intellectual property development and commercialization, there are other opportunities for creation and management of vibrant entrepreneurial activities at the university. In a country that imports nearly everything it consumes, I cannot understand why any university in this country will complain about not having enough money for the needs of the university, when we are sitting on entrepreneurial goldmines. The university has the highest per capita of Ph.D’s in the country. Ph.D is associated with knowledge and skills, except if they are defective. About 80 to 90% of pharmaceuticals consumed in this country are imported, yet there are probably 20 schools of pharmacy with an average of 20 Ph.D’s in each school. Each of these universities can generate hundreds of million nairas each year in profits, if they can develop a pharmaceutical manufacturing plant to serve the needs of society as part of their educational, research and service mission. Similarly, our engineering schools can develop and market several products for the need of contemporary society that will generate hundreds of million nairas in profits for the university. And we have schools of agriculture that can create many products for contemporary society, including fish farming and artificial insemination of several animals which will bring hundreds of million nairas in profits each year for the university. I have been horrified at Nsukka to see students and staff who spend their own money to buy laboratory consumables for their research projects. And our academic 6 departments cannot pay for the production of handouts for students by lecturers, because the departments don’t have the money. Yet we can run an entire department from selling toothpicks, or water, if we have the will. And while our Ph.D’s sit and literally rot at our universities, our governments and parastatals import high school and college drop outs from overseas to serve as consultants on some issues and problems that are uniquely Nigerian, at costs to our governments that are staggering, while are universities suffer for lack of money. Part of the problem with consultation is that we at the university have not properly packaged and presented our skills to the government. How can we begin to organize the tremendous talents and skills at the university to enable us better manage and actualize our opportunities for creation of the Entrepreneurial university? In most American universities, there is a vice president for university development, with a large professional staff. Their job is to turn every stone and beg for money, big money, for the university. There is a vice president for research. Under the vice president for research, there would be an assistant vice president for Technology Transfer, or intellectual property development, and there would be an assistant vice president for university-industry relations, each with adequate professional staff. In Nigeria, we have a DVC academic, and DVC administration, but we do not have a DVC for university development, or a DVC for Research and Economic Development. We do not take wealth creation at the university seriously in Nigeria, so our universities are in a serious state of decay. The Vice Chancellor cannot organize or supervise these university development, and economic development / entrepreneurial activities; a senior level competent professional who reports to the Vice Chancellor must be appointed to pursue wealth creation with great passion for the university, in every shade and detail. Forget what the government gives you … that is no money. A potent wealth creation programme that is properly articulated and orchestrated will yield between 3 to 5 times what the government gives you. A newer trend at American universities is to orchestrate all their entrepreneurial and new venture creation programs under the umbrella of a foundation, or corporation, headed by a president and CEO. An obvious advantage of this is that it insulates the university from potential law suits. Where can you find the investment capital for development of the entrepreneurial university? An American friend and entrepreneur who is a multimillionaire always said, “People don’t have money problem, people have idea problem.” He is very correct. If you have a good idea, and know how to package and present it, money will flow readily to the idea. A good idea that is properly developed, 7 packaged and presented will attract significant private placement funds, or can even be sold in the stock market to raise sizable operating capital. In addition to raising funds from the traditional financial markets for a good project that is properly packaged and presented, I cannot over-emphasize the importance of cultivating strong positive relationships with Alumni and friends of the university. We must treat our students well while at the university, and help develop their talents and potential. When we give the best to our students in their professional development, they will not forget us when they become billionaires and governors.
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