Knew It Before They Did

 NIELS REIMERS

In 1983, Stanford earned more than any other university from technology licensing: $2.5 million ($6.1 million in 2016 dollars).¹ The recombinant DNA patent generated almost 60 percent of this amount. Niels Reimers, with his inspirational messages to himself and his dogged persistence, was among the first people to recognize how to make a fortune from academic innovation. He was also the very first to see the financial potential of recombinant DNA. He figured it out before the inventors. He knew it before the entrepreneurs and venture capitalists. The fortune did not go into his own pockets; he says that he did not receive a bonus, a promotion, or even a particularly large raise for his daring decision to patent the recombinant DNA process. But he nonetheless knew that he had helped launch the $270 billion biotech industry and redefine the nature of invention in universities around the world.²

After the excitement of the recombinant DNA license, Reimers returned to his day-to-day work at the Office of Technology Licensing. From this perch, he observed the rise of a new generation of technology companies with roots in Stanford innovations, including the workstation giant Sun Microsystems and Cisco Systems, a pioneering telecommunications firm. The birth of fast-growing companies like these, with innovations developed at Stanford at their core, motivated Reimers to engage in yet another battle with the top leadership of the university. Again millions of dollars hung in the balance.

Reimers wanted Stanford to be able to accept stock in lieu of cash payments for university innovations patented by the Office of Technology Licensing. Accepting equity would enable young startup companies, so often short on cash, to acquire licenses. The move would also benefit Stanford. Because the pace of change in the young tech firms was so rapid, Reimers feared that licensed technology might be designed out of a product even before it reached the market. (Stanford’s licensing income, often a percentage of sales of products using the technology, would thus decline.) It would be better, he reasoned, for Stanford to hold an ongoing equity stake in startup companies. By the mid-1980s, he was estimating that by not taking equity, the Office of Technology Licensing had “left over $50 million on the table.”³

Stanford president Don Kennedy had a different perspective. He worried that by accepting equity, and thus ownership, in private companies, Stanford could inadvertently become a competitor against corporations whose gifts accounted for 18 percent of the funds the university raised each year. In defense of his concerns, he quoted a high-tech CEO who said that he would welcome universities into his trade association, “but I’m not likely to contribute to their efforts.”⁴

Companies founded by faculty, staff, and students who remained affiliated with Stanford presented an even thornier problem. “It is difficult for me to see how a university can be an equity participant in the work of one faculty member or a few, and yet be seen at the same time by all of its faculty as an even-handed supporter of scholarship and allocator of institutional resources,” Kennedy said.⁵

Stanford had supported the surrounding entrepreneurial community for decades through open lectures, distance-learning initiatives, and a generous consulting policy for faculty. Moreover, the university had been an early limited partner in several venture capital funds, and in 1983 alone, invested $64 million with venture capitalists.⁶ But Reimers was proposing something new. As a limited partner in a venture capital fund, Stanford neither selected the individual companies for investment nor held a significant portion of their stock. Reimers wanted Stanford to do both for companies built around Stanford innovations.

Reimers claimed not to be worried about the problems Kennedy foresaw. Asked if researchers might be inclined—or pushed by the university—to focus on work that could yield marketable products (and by extension, money for Stanford), Reimers called the situation unlikely. Scientists, he said, were motivated not by money but by “being first scientifically.”⁷ Kennedy, a biologist, was less convinced.

After years of debate within the university, Reimers’s perspective prevailed. The Office of Technology Licensing began accepting equity in young companies in 1989.⁸ Over the next two decades, the university took equity in 136 companies in exchange for licenses.⁹ Among the companies were VMware, which had among the most successful public offerings of 2007, and Google, which granted Stanford 1.8 million shares of stock in exchange for a license to the search algorithm developed by Sergey Brin and Larry Page while they were graduate students working under National Science Foundation funding. Google equity alone brought $336 million to Stanford.¹⁰ As of 2015, Stanford held equity in 121 companies as a result of licensing agreements.¹¹

Reimers played an important role in helping Stanford define its relationship to the entrepreneurial landscape around it. Today Stanford sponsors so many efforts to support entrepreneurship that The New Yorker nicknamed it, rather unfairly, “Get Rich U.”¹²

Reimers remained at the helm of the Office of Technology Licensing until 1991, when he resigned. The battle over equity ownership, plus an organizational change that meant Reimers no longer reported directly to a dean of research or the president, led him to take an early retirement offer. Although Reimers “strongly recommended” a specific person to replace him, the university made a different choice.¹³

Even as he was leaving, the Office of Technology Licensing was proving the success of Reimers’s leadership and vision. Three inventions—recombinant DNA, FM sound synthesis, and a patent fundamental to developing the magnetic resonance imaging (MRI) machine—were bringing in more than $1 million each in royalties to Stanford every year.¹⁴ By the time of his resignation, the little office that Reimers had launched as a pilot project twenty-one years earlier had brought in more than $87 million ($177 million in 2016 dollars).¹⁵ The value of the licensing office as a tool for attracting and retaining faculty, students, and staff with entrepreneurial tendencies has been incalculably higher.