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Universities and Entrepreneurial Ecosystems: Elements of the Stanford-Silicon Valley Success

Ernestine Fu, Class 17
Tim Hsia

When people discuss Silicon Valley, the next thing they typically mention is Stanford University. This is unsurprising given that a recent Stanford study estimated that the university’s entrepreneurs have generated revenues of $2.7 trillion annually and created 5.4 million jobs. The study found that if Stanford entrepreneurs comprised a country, then it would be ranked as the world’s 10th largest economy.1 In a speech on “How to be Silicon Valley,” Paul Graham, the cofounder of Y Combinator, stated that in the United States “there are no technology hubs without first rate universities…if you want to make a Silicon Valley, you not only need a university, but one of the top handful in the world.” He goes on to specifically name Stanford.2

Due to the success of both its alumni and its dropouts, Stanford has received a great amount of press, including recent coverage multiple times in The New Yorker,3 CNN,4 and The Huffington Post.5 While some of these articles discuss the potential problems of having such a startup-focused environment, they unanimously acknowledge that Stanford is unlike any other campus in the world because of its entrepreneurial culture. In this article, we analyze how Stanford became an entrepreneurial epicenter and the factors that continue to fuel the student body’s entrepreneurial zeal.

The Quest to Recreate Silicon Valley

Silicon Valley has set a global example as home to some of the world’s largest technology corporations and thousands of startups. It has the highest concentration of high-tech workers of any metropolitan area and is widely recognized as the leading entrepreneurial ecosystem in the United States.6

Many countries and campuses are looking to recreate and compete with Silicon Valley. In New York City, Cornell University and Israel’s Technion Institute of Technology have partnered to create a Silicon Valley East.7 The Chilean government has established the Start-Up Chile program “to attract world-class early stage entrepreneurs to start their businesses in Chile.”8 Meanwhile, Canada is promoting a start-up visa with the hopes that “some of Silicon Valley’s top tech prospects from around the world will consider setting up shop north of the border.”9

In all of these efforts to recreate Silicon Valley, it is important not to overlook Stanford and Silicon Valley’s synergistic relationship. Recognizing this point, countries such as Germany, Chile, and Canada have sent senior government officials to Stanford to learn how to nurture a start-up environment.

While we believe these well-intentioned efforts by campuses and countries could lead to success, any program seeking to recreate Silicon Valley and Stanford’s symbiotic relationship requires excellence in multiple areas. Focusing on just one aspect, such as startup visas or tying technology startups to a campus, is not enough to recreate a Silicon Valley.

We are both very active in the Stanford entrepreneurial ecosystem, having led a course on Entrepreneurship through the Lens of Venture Capital. In this student-initiated course started by Ernestine, select students pursuing PhDs, JDs, MBAs, and engineering and other degrees learned about the fundamentals of entrepreneurship and venture capital from practitioners such as Theresia Gouw (Accel Partners), David Hornik (August Capital), David Sze (Greylock Partners), Gary Morgenthaler (Morgenthaler Ventures), and Gilman Louie (Alsop Louie Partners). Both of us have also counseled and discussed startup opportunities with many classmates. Based on our experiences, we believe there are many reasons why Stanford has become a laboratory for so many successful companies (Cisco, Yahoo!, Google, Coursera, Snapchat, to name just a few). We use this article to explore the different pieces that come together to complete the Silicon Valley-Stanford partnership.

Factors Behind Stanford’s Entrepreneurial Ecosystem

Based on our student perspective along with a historical analysis of the roots of Stanford’s entrepreneurial ecosystem, we believe six conditions helped create Stanford and Silicon Valley’s entrepreneurship and technological innovation (see figure 1). We discuss each factor in this section: Stanford’s risk-taking culture, its student body, the culture of giving back, abundant capital, collaboration with industry, and government support.

Figure 1. Six Conditions Foster the Rise of Stanford and Silicon Valley.Figure 1. Six Conditions Foster the Rise of Stanford and Silicon Valley. Authors’ image, designed by Justin Wiguna.

A Risk-Taking Culture

William Miller, a former Stanford provost and a former computer science professor, reflected that “Stanford stands out precisely because it teaches its students that it’s okay to fail,” and that “[students] are willing to experiment, and that creates this open attitude.”10 Steve Jobs’s 2005 commencement speech at Stanford implored graduating students to “Stay hungry. Stay foolish.”11 His advice to students reinforced what faculty and alumni have been telling students for ages—not to “let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition.”12

Students have long been the agents of social change (civil rights and women’s rights movements), cultural shifts (multiple music genres), and political change (Vietnam War)—the same can now be said in both the economic and technological fields. Students in campuses around the United States have changed the world of business and technology through companies such as Yahoo!, Google, Facebook, and Box. Such students are talented enough to start a company, and realistic about the effort and time required to succeed.13 The student body at Stanford have long embraced this culture and ambition to change the world through new technology and products.

Talented, Diverse, and Imaginative Students

“T-shaped” students, which Stanford President John Hennessy wants the school to inculcate, are experts in one area but also broadly educated. T-shaped students not only have the ability to think orthogonally but are also individuals who realize that teams are necessary to build great products, and hence focus not just on individual skills but also on developing strong teamwork skills. Professors across different departments also recognize the need for T-shaped students and encourage their students to develop in that direction. The collaboration that begins in a university setting forms the basis of a lifetime of collaboration in Silicon Valley, such as industry’s relationships with government and the university.

This type of education helps reinforce the notions of a community. The very nature of startups requires students and entrepreneurs to reach out to the broader community in order to build up the expertise that every company requires: engineers, designers, and business-minded students. Additionally, startup classes on campus push for teams with a variety of backgrounds. The d.school (Hasso Plattner Institute of Design) is entirely devoted to the concept of collaboration. “At the d.school, diversity is defined by majors—by people who think different.”14 Furthermore, the close geographical proximity of the schools on campus facilitates interdisciplinary studies and collaboration.15

A Community that Gives Back

The generosity of accomplished entrepreneurs and venture capitalists who give back their time, money, and advice is an overlooked aspect of Stanford students’ success in developing their own companies. For example, in our Entrepreneurship through the Lens of Venture Capital course, speakers we have invited have been delighted to give talks, and the alumni are eager to give advice to aspiring entrepreneurs. The invited speakers often spend time after class engaging with individual students about startup ideas, business plans, or discussing recent changes in high tech. For example, Steve Loughlin, cofounder of RelateIQ, told us that he made time for Stanford students and alumni because his fellow classmates and alumni had helped him think through different aspects of building a company.

Alumni give back to the university not only with their time and mentorship (through programs like Stanford Alumni Mentoring), but also with monetary donations. Last year Stanford was the first university to receive more than $1 billion in donations to their endowment. Last year’s fundraising was the culmination of the university’s five-year capital campaign, which raised $6.23 billion—far exceeding its original goal of $4.3 billion.16

Peter Thiel is an excellent example of an entrepreneur and investor who continues to give back to the Stanford start-up community. Thiel hired and mentored Joe Lonsdale, then a Stanford student, as an intern to PayPal. Peter and Joe then went on to cofound Palantir, which today hires many of Stanford’s brightest engineers. In 2011, Palantir and LinkedIn each hired 25 Stanford interns.17 LinkedIn was cofounded by Reid Hoffman, who was in the same undergraduate philosophy class as Thiel and they continue to be close friends.18 Thiel remains active on campus, teaching a class at the law school and in 2012, a start-up class in the computer science department. Similarly, Lonsdale is also active within the Stanford start-up community. He hires many Stanford graduates at Addepar (another startup he cofounded), and is also an active member of Stanford Angels and Entrepreneurs. Lonsdale’s venture capital firm is also an investor in Steve Loughlin’s startup RelateIQ and he had Loughlin advise Palantir during its formation. Thiel, Lonsdale, and Loughlin are examples of Stanford’s risk-taking culture and the cross-pollination that occurs between Stanford and the greater Silicon Valley. They also demonstrate our next point, which is the ease of funding available for startup-minded students.

Abundant Capital

Funding is a crucial ingredient to help student ideas become reality. Stanford is fortunate to have many venture capitalists so close to campus on Sand Hill Road and on University Avenue. Additionally, venture capital’s roots also stem from Stanford. Kleiner Perkins Caulfield Byers (KPCB), one of the first funds in the Valley, was founded with Stanford faculty.19 The Mayfield Fund, which started in 1968, was also established by Stanford faculty. The Mayfield Fund is also a generous sponsor of its namesake the Mayfield Fellows Program, a nine-month work/study program that attracts the university’s top undergraduate and co-terminal student talent. The founders of Instagram (Kevin Systrom and Mike Krieger) are Mayfield Fellows alums.20

Stanford students looking to fund a startup have ample opportunities to present their idea or prototype to investors. There are numerous opportunities to meet and connect with potential investors, from start-up competitions (BASES 150K / E-Challenge), to classes (Launchpad and Creating a Startup), to meeting with instructors outside of class to discuss potential startup ideas. Students can also develop their startups in several accelerators and incubators that are close to campus, whether it be the Stanford-founded StartX or at Y Combinator or Lightspeed Ventures Summer Fellowship Program.21 Figure 2 shows just some of the instructors on campus who have ties to the venture capital industry.

Name Department Venture Firm
Tom Byers MS&E formerly at Flywheel Ventures
Steve Blank MS&E Angel investor
Michael Dearing d.school Harrison Metal
Jon Feiber MS&E Mohr Davidow Ventures
John Glynn GSB Glynn Capital Management
Theresia Gouw GSB Accel Partners
David Hornik SLS August Capital
Clint Korver MS&E Ulu Ventures
John Lilly d.school Greylock Partners
Trevor Loy MS&E Flywheel Partners
Michael G. Lyons MS&E formerly at Paladin Capital Group
Audrey MacLean MS&E Angel investor
Ann Miura-Ko MS&E Floodgate Fund
Joel Peterson GSB senior advisor at Maveron
Andy Rachleff GSB formerly at Benchmark
Heidi Roizen MS&E DFJ
Eric Schmidt GSB Innovation Endeavors
Robert Siegel GSB XSeed Capital
Russel Siegelman GSB formerly at KPCB
Peter Wendell GSB Sierra Ventures

Figure 2: Stanford Instructors with ties to the venture capital industry (partial list). Authors’ image.

Alumni can be another source of funding. There are 13 venture capitalists on the Forbes 2013 Midas List who were Stanford undergrads, and 31 who received a graduate degree at Stanford.22 Stanford Angels & Entrepreneurs consists of alumni who are angel investors. The President’s Venture Fund directly invests in early-stage companies that have licensed Stanford technology.23

Stanford, Stanford Hospital & Clinics, and StartX announced a three-year partnership in 2013 to fund companies emerging from the StartX accelerator.24 Through this partnership, Stanford has already committed to fund six StartX accelerator companies, including Knotch and Cytobank.25

All of the above factors help to explain why Stanford is the “top university in terms of its alumni receiving venture capital.”26 A recent study found that between 2007 and 2011, Stanford startups raised $4.1 billion across 203 financings.27

Collaboration with Industry

Recent articles have criticized Stanford for perhaps being too cozy with industry.28 However, a deeper examination of Stanford’s entrepreneurial historical roots reveals that Frederick Terman, Stanford’s Dean of the School of Engineering from 1945–1953 and Provost from 1955–1965, deliberately intended the school to have close connections with industry. His emphasis on close collaboration between industry and the university has continued to this day, and has ensured that students not only work on pure research but also tackle real-world challenges.

Often referred to as “the Father of Silicon Valley,” Terman was responsible for transforming Silicon Valley from fruit orchards into the high tech area it is today.29 Terman convinced William Hewlett and David Packard to work out of a Palo Alto garage, and also established critical links with industry through programs that enabled engineers at nearby companies to take the same classes that on-campus students were receiving. Terman was a visionary who wanted to make Stanford and Silicon Valley an innovative and entrepreneurial location that could rival any East Coast campus.30 Terman not only persuaded his best students to build their businesses locally but also established the Stanford Research Park, which provided real estate for companies like Hewlett-Packard, General Electric, Lockheed, and Facebook.31 Additionally, Terman fostered the Industrial Affiliates Program, in which firms received access to research results and could participate in conferences and workshops of special interest in exchange for an annual financial contribution to the research lab or sponsoring department.32

Stanford continues to follow Terman’s example, and today with the university and its Affiliates program of “over 60 programs spread throughout the university provide avenues for industry to access research, get to know participating faculty and have opportunities to recruit talented students.”33

Industry also assists with educating and preparing students for the workforce through programs like the Accel Innovation Scholars (AIS) program, which is funded by Accel Partners. The goal of AIS is to prepare 12 Stanford Engineering PhD students to be entrepreneurial leaders by educating them via “guest speakers, projects, field trips, and workshops. Participating students will have industry mentors related to their field of study.”34

Stanford’s Office of Technology Licensing (OTL), established in 1969, has further aided in helping commercialize faculty and student research into profitable companies.35 OTL’s goal is to “plant many seeds” by transferring technology to as many companies as possible, with the hope that some of these technologies will flourish.36 Since its founding, over 200 companies (including Google) have started around technology licensed through OTL.37 Today there have been more than 18,000 invention disclosures, more than 10,000 patents filed, and more than 5,000 licenses granted (see figure 3).38

Stanford OTL strives to be a partner to students and professors, rather than a threat to their start-ups. For example, the OTL hosts a semi-annual innovation farm team where Stanford students, affiliates, alumni, and inventors meet to discuss the “potential uses of Stanford University technologies as applied in a variety of industries.”39 The benefits to participating in this program range from the “potential for founding a new company”40 to “actively learn[ing] about commercialization, start-ups, and technology development outside of a classroom.”41

Figure 3. 1939 to 2012: Stanford’s History, Tech Cycles, and Company IPOs.Figure 3. 1939 to 2012: Stanford’s History, Tech Cycles, and Company IPOs. Authors’ image, designed by Justin Wiguna.

Government Support

A frequently overlooked aspect of Stanford’s success in research and innovation is the huge role government support has played in funding cutting-edge research (see figure 4). “Stanford is fundamentally a research university. The primary, almost exclusive source of its research budget is the federal government, particularly the NIH, the NSF, the Defense Departments and various other federal agencies.”42 When Fredrick Terman was Dean of Engineering, he sought government funding because it was “less restrictive and [a] substantially larger source of funding for building academic research programs,” as opposed to industry sponsors that “only wanted to fund work directly related to their own interests.”43

Figure 4. The Silicon Valley Triad of Universities, Industry, and Government.Figure 4. The Silicon Valley Triad of Universities, Industry, and Government. Authors’ image, designed by Justin Wiguna.

Conclusion: Culture, Community, Capital, University, Industry, and Government

The technological revolution in Silicon Valley has been compared by Mike Maples of Floodgate Fund to the Renaissance era.44 Similarly, Stanford professor Tom Byers suggested that today’s engineers and entrepreneurs are equivalent to the Renaissance’s artists.45 He notes that major innovations started in Silicon Valley have impacted broader society in a way that the Renaissance artists also influenced the general populace. Whether or not Stanford and Silicon Valley deserve to be compared to the Renaissance will be left to historians, but what everyone can agree upon is the close ties between Stanford and Silicon Valley, and that Stanford’s entrepreneurial ecosystem is globally unrivaled.

Many countries and campuses are seeking to build an equivalent Silicon Valley. It would be wise to review Silicon Valley’s roots and Stanford’s integral part in the success of the region prior to launching such an endeavor. Stanford is a unique campus, but it should be viewed not just as a campus but as a community—one built on a successful relationship between the university, government, and industry.

As this discussion reflects, merely appropriating physical space and designating a research institute will not be enough. To build a community such as Stanford’s requires prescient leadership; government funding; top students engaged in cutting-edge research; private sources of capital for entrepreneurs; collaboration between industry and academia; the development of multidisciplinary, T-shaped students; a community that seeks to help the next generation of entrepreneurs; and a risk-taking culture, to name just a few of the features of the Stanford–Silicon Valley community.

There are many countries that seek to build their own version of Silicon Valley, and the factors identified above should help provide a roadmap for how to create such an entrepreneurial ecosystem. Every region will have its strengths—and regional leaders should focus on them. These leaders and institutions can better help their locale become a strong entrepreneurial and high tech area by learning from the Silicon Valley and Stanford experience.

Ernestine FuErnestine Fu

Ernestine (Class 17) is a senior associate at Alsop Louie Partners. The firm focuses on early-stage investments in cybersecurity, enterprise, cloud infrastructure, new media, and mobile. She is passionate about commercializing university research and oversees the firm’s campus outreach program. She completed her bachelor’s and master’s degrees in engineering at Stanford University.

Tim HsiaTim Hsia

Tim is pursuing a JD/MBA at Stanford University and served six years on active duty in the U.S. military as an infantry officer. He has worked at two venture capital firms, Morgenthaler and Ignition ventures. He is currently an Army reserve ROTC instructor and mentors cadets at Stanford and Santa Clara University. While on active duty he blogged for The New York Times and also contributed essays to the Los Angeles Times, Army Magazine, and Small Wars Journal.

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1 Charles E. Eesley and William F. Miller, “Impact: Stanford University’s Economic Impact Via Innovation and Entrepreneurship” (October 2012), p. 6, available from http://engineering.stanford.edu/sites/default/files/Stanford_Alumni_Innovation_Survey_Report_102412_1.pdf.

2 Paul Graham, “How to Be Silicon Valley,” essay derived from a keynote at Xtech (May 2006), see “Universities,” para. 2.

3 Nicholas Thompson, “The End of Stanford?The New Yorker, 8 April 2013. Ken Auletta, “Get Rich U: There are no walls between Stanford and Silicon Valley. Should there be?The New Yorker, 30 April 2012.

4 Amir Efrati, “Startup’s Deep Roots: Stanford, Ex-Students, Professors —Even the President—Are Aiding E-Wallet Firm,” The Wall Street Journal, 3 April 2013.

5 Catherine New, “Clinkle Drives Exodus from Stanford University as Students Flock to Next Big Startup,” The Huffington Post, 4 April 2013.

6 TechAmerica Foundation, “Cybercities: The Definitive Analysis of the High-Technology Industry in the Nation’s Top 60 Cities,” available from http://www.techamericafoundation.org/cybercities.

7 Richard Perez-Pena, “Building a Better Tech School,” The New York Times, 12 April 2013.

8 Chilean Economic Development Organization, “Start-Up Chile” (2012), para. 1.

9 Tobi Cohen, “Canada Looks to Poach Silicon Valley Entrepreneurs Struggling with U.S. Immigration Woes,” Financial Post, 17 May 2013.

10 Alexandra Wolfe, “Silicon Valley’s Stanford Connection,” Departures (September 2012).

11 Stanford University, “Steve Jobs’ 2005 Stanford Commencement Address” (video), 7 March 2008.

12 Ibid.

13 Stanford’s Graduate School of Business motto is “Change Lives. Change Organizations. Change the World.”

14 Auletta, sec. 6, para. 6.

15Interdisciplinary Linkages,” Interaction (Spring 2007).

16 Tamar Lewin, “Report Says Stanford is First University to Raise $1 Billion in a Single Year,” The New York Times, 20 February 2013.

17 Eesley and Miller, 9.

18 Ryan Mac, “Reid Hoffman And Peter Thiel Share The Secrets of Breaking Into Tech’s Most Exclusive Network,” Forbes, 2 May 2012.

19 Jon Sandelin, “Co-Evolution of Stanford University & the Silicon Valley: 1950 to Today,” available from http://www.wipo.int/edocs/mdocs/arab/en/wipo_idb_ip_ryd_07/wipo_idb_ip_ryd_07_1.pdf.

20 “Mayfield Fellows Program (MFP),” available from the Stanford Technology Ventures Program website, http://stvp.stanford.edu/teaching/mfp/.

21 Vrionis, John, “Applications for Our 2013 Summer Fellowship Program Now Open,” 24 January 2013.

22 TrueBridge Capital, “The Education of Venture Capitalists: Midas List 2013 Edition,” Forbes, 9 May 2013.

23 Eesley and Miller, 83.

24StartX, Stanford University and Stanford Hospital & Clinics Announce $3.6M Grant and Venture Fund,” Stanford Report, 5 September 2013.

25 Ibid. For more information on the companies named, see https://www.knotch.it/#knotch and http://www.cytobankinc.com/.

26 Colleen Taylor, “Study: Startups Led by Stanford, Harvard Grads Lead the Way in Scoring Venture Capital Funding,” TechCrunch, 29 October 2012.

27The University Entrepreneurship Report – Alumni of Top Universities Rake in $12.6 Billion Across 559 Deals,” CB Insights website, 29 October 2012.

28 e.g., Thompson, “The End of Stanford?”

29 Carolyn E. Tajnai, “Fred Terman, the Father of Silicon Valley” (May 1985).

30 Ibid.

31 Matt Bowling, “The Stanford Research Park: The Engine of Silicon Valley,” n.d.

32 Timothy Lenoir, “Myths About Stanford’s Interactions with Industry,” 6 September 2004, p. 44.

33 Eesley and Miller, 93.

34 “Accel Innovation Scholars,” available from the Stanford Technology Ventures Program website, http://stvp.stanford.edu/teaching/ais.html.

35 Stanford University Office of Technology Licensing website.

36 Eesley and Miller, 83.

37 Stanford University Office of Technology Licensing, Start-up Guide (December 2012), p. 37.

38 Sandelin, 23–25.

39 Stanford University Office of Technology Licensing, “Stanford Innovation Farm Teams” (2013), para. 5.

40 Stanford University Office of Technology Licensing, “Innovation Farm Teams: Benefits and Incentives” (2013), para. 4.

41 Ibid., para. 1. See also Stanford University, “Innovation Farm Teams: The Program” (2013).

42 Lenoir, 2.

43 Eesley and Miller, 8.

44 The Dish Daily, “Mike Maples on Investing in ‘Thunder Lizards’: The Five Things Micro VC Fund Floodgate Looks for in a Team,” Author, 31 January 2013.

45 Gus Ellis, “Stanford Professor Tom Byers on Humanity As the Core of Entrepreneurial Success,” The Dish Daily, 5 March 2013.

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