The Incubation Period: Why Stanford's Startup Culture is Only the Beginning

This week in a provocative New Yorker post, Nicholas Thompson suggests that Stanford should be relabeled as a startup incubator, rather than a university. He cites the case of Crinkle, a young Silicon Valley startup with strong ties to Stanford undergraduates and faculty, and argues, “The leadership of [Stanford] has encouraged an endeavor in which students drop out in order to do something that will enrich the faculty.”
When faculty personally invest in students’ startups, a serious conflict of interest could certainly evolve. However, Thompson’s point is broader; he proposes that Stanford is wrongfully encouraging students to drop out and start companies. This proposition begs two questions: first, what reasons would Stanford have to force their brightest entrepreneurs out without a degree? Second, are these motivations unique to Stanford? Considering the policies of other top universities, I conclude Stanford’s startup atmosphere is no different in its aims; it is simply ahead of the curve.
While Stanford may not be pushing their students to leave for Silicon Valley, the university is hardly persuading them to stay. Last spring, hedge fund manager Peter Thiel was invited to teach a computer class as a guest lecturer at his alma mater. Thiel is famous for his sponsorship of the Thiel Fellowship, a program that offers select young entrepreneurs $100,000 to forgo obtaining a college degree. His class was titled “Startups.” As an outspoken advocate of higher education reform, Thiel’s presence at Stanford was curious; it suggested either that Stanford is not of the traditional university type that Thiel criticizes, or that he was looking for more students to persuade to leave. Both possibilities seem to support Thompson’s critique of Stanford as a startup incubator first, university second.
Why would inviting a dropout investor be in Stanford’s best interest? From a fiscal perspective, encouraging students to stop paying tuition and take a risk in Silicon Valley is actually a clever strategy. Many students apply their brief Stanford studies to their startups, returning royalties to the university. From campus-inspired inventions alone, Stanford has acquired $1.3 billion in royalties. Stanford also shrewdly invests its endowment in tech-based startups; in 2005, it sold its shares of Google stock for $336 million. This close relationship with Silicon Valley is increasingly lucrative for the university. Why would it cut ties now?
From the perspective of its prestige, Stanford has no qualms with student entrepreneurs leaving early. With companies like Yahoo, Cisco Systems, eBay, Netflix, LinkedIn, E*Trade, and dozens of others “trac[ing] their origins to Stanford ideas or to Stanford faculty and students,” a lenient dropout atmosphere seems to only bolster the university’s reputation. After all, when an entrepreneur rises to fame with the launch of a billion dollar company, the distinction between attending and graduating becomes immediately irrelevant.
Thus, two of Stanford’s motivations to encourage promising entrepreneurs to drop out are clear: wealth and prestige. These driving forces are hardly foreign to elite universities.
For much of the twentieth century, Wall Street was the most direct road to fame and fortune for attendees of elite institutions. Success in finance was often predicated upon obtaining a degree with honors. Recognizing this trend, top universities began to inflate grades. The challenge was to graduate as many A-students as possible without completely devaluing the grade. Grade inflation became obvious; the percent of Harvard undergraduates earning A’s rose from 22 percent in 1966 to 46 percent thirty years later. From the perspective of the Ivy League endowment manager, an increase in the number of high GPAs meant an increase in the number of high-income alumni.
While many universities are still operating in this mindset, Stanford recognizes that the landscape of wealth and prestige has changed. In many ways, Silicon Valley is becoming the new Wall Street. Mark Zuckerberg, Jack Dorsey, Kevin Systrom, and countless others have redefined the road to success, and their generation has taken notice. Some established tech companies continue to value college degrees, but Silicon Valley often prizes demonstrable skills over resumes. Given the history of successful dropouts that became entrepreneurs – Zuckerberg, Gates, Dell, and many others – dropping out of a prestigious institution is rarely discouraged in startup culture.
Thus, when Stanford encourages its young entrepreneurs to take risks, it is really pointing out a path to success that other elite universities are still struggling to find. Some have started to take notice. In 2008, Harvard founded an Innovation Lab to offer space and resources to budding startups for its undergraduate and graduate students. Last February, Brown founded Venture Labs, an incubator with a similar purpose. Of course, no one is accusing Harvard or Brown of abandoning their purposes through these programs; they have not yet caught up to Stanford in promoting startup culture. Thus, when Thompson labels Stanford as an incubator rather than an university, he identifies an important trend. But as wealth and prestige move from Wall Street to Silicon Valley, Stanford is not redefining itself; it is redefining what it means to be an elite university.