Market opportunities, timing, and strong entrepreneurial foundations are key to building successful “university innovation entrepreneurial ecosystems” (UIEEs) like Silicon Valley, according to research from the Keck Graduate Institute.

The researchers examined four thriving UIEEs in the electronics and biotechnology sectors in San Francisco and San Diego, comparing them with less successful efforts in Los Angeles. By focusing on ecosystems in California, they could compare outcomes in similar legal and cultural contexts. Their data included university and regional government documents, company information, previous studies, and their own research.

Building the ecosystem

“An entrepreneurial ecosystem is a network of organizations and relationships that drives the growth of startups. In a university innovation entrepreneurial ecosystem, the university plays a central role,” the researchers explain. “We’re particularly interested in ecosystems that are industry-specific because you get stronger positive reinforcement when you have a cluster of companies in the same field—like semiconductors, biotech, material science, or AI—all in one region.”

The idea of universities as hubs of entrepreneurial activity dates back to MIT’s role in Boston’s tech startups, Stanford’s influence on the creation of Silicon Valley in the 1950s and 1960s, and universities’ role in the biotechnology industry in the 1970s and 1980s. The 1981 Bayh–Dole Act further formalized the role of universities in technology transfer and commercialization, allowing them to own intellectual property developed with federal funding. Universities then set up technology transfer offices to manage patenting and commercialization, dividing licensing revenues between faculty inventors and the university.

“With scientific knowledge widely distributed, many research universities have the potential to anchor successful UIEEs,” the authors note. “But only a few have managed to replicate the success of places like Boston both in Boston and Silicon Valley. We wanted to understand why more haven’t succeeded.”

Entrepreneurial lifecycle

The researchers identified three stages in the life cycle of a UIEE:

1. Birth: The entrepreneurial spark. “An ecosystem starts with the creation of one or more successful entrepreneurial companies, often linked to the local university,” the authors write. “Early entrepreneurs played a key role in the birth of every cluster studied.”
2. Growth: Seeding the UIEE. This stage involves “a network of entrepreneurs and venture capitalists working with an increasing flow of knowledge from university faculty and other entrepreneurs moving into the region to participate in new industries,” they write.
3. Maturity: Institutionalizing the UIEE. “This is when the ecosystem is up and running and self-sustaining,” the researchers explain. This stage involves creating organizations, educational programs, and policies to formalize the university’s role in promoting entrepreneurship. It usually includes a large pool of local firms, venture capitalists, and strong social networks that connect the university with the ecosystem and provide experienced managers to develop new startups.

Based on their study, the authors concluded that successful UIEEs depend on:

• Identifying and serving a large market opportunity
• Entrepreneurs founding ecosystems with university support later, rather than the other way around
• Universities launching science-based rather than engineering-based ecosystems (among technology-based industries)

The researchers also compared the success of UIEEs in San Francisco and San Diego with the challenges faced by Los Angeles. Despite being the largest metropolitan area in California and having top research universities like UCLA, Caltech, and USC, Los Angeles has struggled to develop an electronics or biotech UIEE comparable to those in San Francisco and San Diego. While L.A. has a strong entertainment cluster with human capital and infrastructure, it lacks the university ties that have been crucial to high-tech UIEEs.

The researchers emphasized the importance of a major market opportunity for dramatic ecosystem growth. They noted that Silicon Valley’s rise coincided with the world’s shift from vacuum tubes to transistors and integrated circuits. Without such a significant opportunity, the region wouldn’t have seen the same growth.

“The key is having a commercial opportunity that technology can solve. If companies don’t align with that and don’t understand how to get the industry off the ground, the rest doesn’t matter,” the researchers say.

The findings have important implications for:

• Entrepreneurs: In the early stages of a new ecosystem, universities play a supplemental role. Successful companies that solve real problems and generate revenue are needed to get the ecosystem off the ground. These companies can collaborate with universities, but it’s up to the entrepreneurs to build a team that can drive the ecosystem forward.
• Investors: Investors in cities like Denver, Chicago, or Houston can monitor emerging ecosystems nearby until they gain traction. Developing relationships and identifying promising companies early is worthwhile, but there’s no need to open a branch office until the ecosystem takes off. However, being ready to act when it does take off is crucial.