The billboards read “Go Businessmakers,” but the yellow flag is up. Purdue University is reorganizing its primary program to assist high-tech startups and has fired the director.
Part of Purdue’s nationally recognized effort to transform raw university research into viable businesses, the Gateways Program had been managed since October 1998 by Sam Florance, a former investment banker and management consultant. Purdue closed Gateways and eliminated Florance’s position on March 14, IBJ has learned.
On March 18, Joseph B. Hornett, senior vice president and treasurer of the Purdue Research Foundation, which oversees Gateways, informed Purdue’s leadership about his organizational changes in a memo obtained by IBJ. It detailed a lengthy review of Gateways, the termination of Florance and the transfer of Gateways’ staff to other Research Foundation departments.
“After considerable observation, I concluded that program focus needed to be sharpened based on the evolution of business startup activity experienced at the Purdue Research Park,” Hornett wrote in the memo.
Hornett has hired Robert Meeder, president of the Pittsburgh Gateways Corp., to develop further reorganization recommendations for an undisclosed amount. According to the Dec. 4, 1998, press release that announced the formation of the Purdue Gateways Program, it was modeled after Meeder’s Pittsburgh program.
Maintaining Gateways’ new-businessmentoring function in some form will be crucial for Purdue. While often brilliant in their own fields, university scientists and engineers rarely have experience in high finance, organizational development or business law. Through Gateways, they received help writing business plans, conducting market research and negotiating with venture capitalists.
Reached at his home, Florance declined to comment. But just last week, Purdue was celebrating its inclusion in an economic development study by Reston, Va.-based Innovation Associates Inc. The report listed Purdue among the country’s top universities for new business and job growth. Its Purdue case study quoted Florance:
“We have found that those firms [in the Research Park’s incubators] that don’t receive support in the early stages face a long, hard road,” Florance said. “For those firms that do receive management, resource and technical support, they have about a 90-percent chance of a five-year survival.”
Sarah R. Byrn, president of West Lafayette-based pharmaceutical research firm SSCI Inc., hired Florance years ago as a paid consultant while he finished his Ph.D. at the Krannert Graduate School of Management at Purdue. Florance and his Purdue associates were extremely helpful, she said, and facilitated her company’s growth.
“I consider Sam instrumental in our success and have said so at every opportunity,” she said.
Gateways was one part of Purdue’s much larger structure for new-business formation and incubation. The process begins with Purdue’s massive pure research and development efforts in the laboratory. In 2003, Purdue R&D expenditures totaled $347 million, according to Innovation Associates. That resulted in 154 patent applications and 92 patents in 2004.
Forming new businesses from that research is the responsibility of Purdue’s not-for-profit Research Foundation, which is managed by Hornett. Purdue’s Office of Technology Commercialization, which assesses the value of Purdue intellectual property for the sale of licenses, reports to Hornett, as does Purdue’s Technical Assistance Program. Most startups physically take root in the sprawling Purdue Research Park, home of 130 companies that employ 2,500 people.
But Gateways was a vital link in the business-development chain, said Diane Palmintera, president of Innovation Associates. Her report noted that Gateways assisted 30 to 40 firms per year, working intensively with five or six.
“A lot of research parks at universities are just real estate investments,” she said. “Through the Gateways Program, there is an attempt to provide direct business services to budding entrepreneurs. That’s a very good indication that there’s real entrepreneurial development going on there. Entrepreneurs who are scientists and engineers, specialists in their field, make very poor business people.
“Scientists and engineers can have the best technology in the world,” Palmintera added, “but it will never go anywhere or be able to form a business for a simple lack of business acumen.”
In a prepared statement, Hornett responded to IBJ’s questions about Gateways and Florance. He said Gateways’ services will now be provided through the Office of Technology Commercialization. According to a comprehensive audit, Hornett wrote, the Gateways process was taking too long, risking that new technology would become outdated. Hornett also wrote that faculty-entrepreneurs were underutilized.
“The foundation concluded that having the same department take the technology from the laboratory to the marketplace makes for a more cohesive and competitive recipe for commercialization,” Hornett wrote in his statement. “Under the foundation’s new-business-development model, the Office of Technology Commercialization will have responsibility for that service. Duties will not stop once the technology has been patented and licensed, but continue as these same experienced technology transfer specialists work hand-in-glove with the startups to round up initial capitalization and recruit a qualified management team.”
But the Purdue Research Foundation’s finances may also have something to do with the reorganization. According to its Internal Revenue Service statements, Purdue Research Foundation has dramatically reduced its spending in the last two years. In 2001, it lost $2.3 million on revenue of $145 million. In 2003, it lost $4.4 million on revenue of just $44.2 million.
Over the same time period, Purdue Research Foundation’s total value remained about the same, with net assets of $448.5 million in 2001 and $444.2 million in 2003.
Dinah Adkins, president and CEO of the Athens, Ohio-based National Business Incubation Association, said she was “shocked” to hear about Florance’s termination, particularly so soon after the leaders of the Terre Haute business incubator Rose-Hulman Ventures resigned in controversy.
“I just don’t understand what’s happening to business incubation in Indiana. I’m mystified and very concerned that two programs like these have lost their leadership,” she said. “Here you’ve got two real engines, not just of education and research, but economic development and technology commercialization. Indiana has only got so much of that. I think they shouldn’t squander it.”
Venture capitalist Teri F. Willey, managing partner with Chicago-based ARCH Development Partners LLC and a longtime member of Indiana’s 21st Century Research and Technology Fund board of directors, saw the effort to align business mentoring more closely with patents and licensing as a positive evolution toward changes that were due for Purdue.
“I think they’ve had a chance to look at their program to date, to say this is where we’ve been effectively providing support for companies, and here’s some areas where we could increase our support to provide more effect on the region. I see it as an expansion,” she said. “That’s how I’m reading it. And I’m wishing Sam well.”