03/08/2012 02:11 pm ET Updated May 08, 2012

As Facebook IPO Nears, Universities Take Aim at Student Startups

Facebook's recent filing has many commentators likening the social networking site, started in a Harvard dorm, to the search giant Google, founded by two Stanford PhDs less than a decade earlier. But for all their similarities - visionary student founders, explosive marketshare, tremendous valuations - there is at least one difference that their respective alma matters are likely to take note of as the Facebook IPO grows near. While Stanford netted a $336 Million dollar pay-day from Google's 2004 IPO, Facebook's looming IPO will leave the trustees of Harvard with little more than a cameo in last year's Oscar-nominated film.

As an outgrowth of Stanford's Digital Library Project, where founders Sergey Brin and Larry Page were researchers, Google's underlying "PageRank" algorithm was property of the university. When Brin and Page left Stanford to spin-off off what would become Google, they had to license the technology from the university in a deal for 1.8 Million shares of their new company which today would be worth $1.1 Billion.

While Stanford's gain from Google is unusual, technology-transfer agreements have long been the primary means by which universities support and profit from startups. However, as Facebook illustrates, more student-founded companies are bootstrapping without university technology, leaving schools without any profit -- though that may be changing.

"The university has always been a supplier of both technology and talent," says Frank Rimalovski Managing Director of the NYU Innovation Venture Fund "and its our job to foster and support that." Rimalovski's fund, which was created by the university in 2010, makes seed and series A investments in startups with ties to NYU. To date the $20 Million fund has made three investments two of which -- Fondu and numberFire -- were started by current students with no ties to university technology. "There's definitely been a groundswell of entrepreneurial interest from students," says Rimalovski "and if there's another Zuckerberg walking around our hallways, we want to be as supportive as we would of a faculty member working on a new cancer therapy."

"Young people have always wanted to change the world," says Hugo Van Vuuren, a founding partner at the Experiment Fund (xFund), a new seed-stage investor housed at Harvard's Graduate School of Engineering. What's new, says Van Vuuren, is that their turning to startups as vehicles to do so. Van Vuuren's fund, which was announced in January, has already made a number of small investments in high-profile startups like RockHealth, led by Halle Tecco (MBA 11') and Omada, co-founded by Sean Duffy, currently on leave from Harvard's MD/ MBA program.

"The culture on campus is definitely changing," says David J. Miller, a researcher at George Mason University's School of Public Policy who studies student entrepreneurship, "universities are under tremendous budgetary pressure in terms of outside funding and also from students paying tuition." Rimalovski agrees saying "to be a real player as a university today, you have to engage students and faculty who are increasingly interested in starting companies."

While university investment in startups outside of technology-transfer is fairly new, college campuses have long been a breeding ground for new businesses. Years before Brin and Page, Michael Dell was selling PC kits out of his dorm at University of Texas-Austin and Bill Gates was writing computer applications in his Harvard dorm. "The emphasis on tech-transfer is definitely misguided," says Miller "when you look at the most successful entrepreneurs, technology is rarely a decisive factor -- Bill Gates was definitely not the best coder around."

But if equity and exits are not enough to entice administrators into supporting their student's startups, there may be another incentive for school's to take note. Alumni are a major source of income for universities, notes Rimalovski, and historically its been entrepreneurs who have been the biggest contributors to higher education. From Ezra Cornell to Leland Stanford, many of the countries foremost universities bear the names of famous entrepreneurs. "It's a virtuous circle," says Miller, and it pays for universities to engage their most entrepreneurial students, even after they leave. "Michael Dell dropped out of UT after less than a year and has since given them over $65 Million."

Though it's not just about money," says Miller "successful entrepreneurs offer a kind of cultural return." At University of Maryland, College Park, where Miller is compiling a case study, the story of Under Armour CEO Kevin Plank 96', who played football for UM before founding the $4.6 Billion apparel company, has had noticeable effects on the students. "Once a school has a success story like that, there's no going back," says Miller.

While initiatives like those underway at Harvard and NYU are still few and far between, there are likely to be a lot of people watching. "If they turn out to be successful," says Miller "it won't be long until the rest of the school's catch on."