P2B not a high-tech utopia

Last month, the University launched PenNetWorks, an incubator for new technology businesses. A joint venture with RedLeaf Ventures, a Pittsburgh venture-capital firm, it offers startups office space, access to in-house advisors, accounting and computer services and a networking platform for financing and partnerships. PenNetWorks is actually one component of a larger initiative called P2B, a University-owned non-profit that will ultimately include four incubators, each focused on a different industry. I applaud the University for creating forums for entrepreneurs. However, looking beyond the noise and the star-struck eyes of aspiring New Economists, P2B doesn't make a lot of sense. Penn is already rich in entrepreneurial resources; and incubators, as a model, are under increasing scrutiny. And Penn is a little late to the game. The world outside of West Philadelphia is long on advice, particularly incubators. A key to entrepreneurship is seeing reality as it really is; so why is the University building P2B? In theory, incubators are dreamy. Imagine a shiny building buzzing with new, hot companies engaged in knowledge sharing and resource pooling; like shepherds, senior strategists caress their flocks through the muddy waters of startup life. They make introductions to financiers who throw money at their coveted companies. Whenever problems arise, advisors and entrepreneurs huddle together and hash out intricate plans. One product later, when the company is ready to graduate from the protected shell of its environment, it releases its brilliance on a technology-starved world waiting to gobble up its new fare. After the successful IPO, everybody cashes in, and the virtuous spiral continues its ascent toward technology heaven. Hold on -- the reality can be drastically different. While there are some genuinely effective and well-run incubators, usually they are startups themselves, lacking execution ability, sufficient expertise and focus -- the same problems their clients face. Most offer their portfolio companies nothing more than desks, a little seed funding, phone lines and boilerplate advice. Their model demands that they maximize the number of companies in their portfolio, so they can never provide too much attention to any one. Incubators became so popular because they were relatively easy to build. A qualified opportunist didn't even need an idea -- he could just start an incubator. At one point, there were so many startup incubators, the incubators needed an incubator. Now they're either bankrupt, struggling to survive or out of favor with Wall Street. So why didn't Penn pursue a different game plan? Why is Penn building a set of resources that are a piece of yesterday's news? Here's the answer: The current system will enable the University to cash in on the technology boom with little downside. With some encouragement from the school and P2B organizations like PenNetWorks, the entrepreneur assumes all the real risk. If his company succeeds, Penn will see a financial windfall on its indirect investment. If it fails, the entrepreneur is out of luck, but the University doesn't really lose anything. P2B marks an evolution: educational institutions taking equity stakes using non-profit corporations such as P2B as the investment vehicle, their Trojan horse. Non-traditional revenue streams such as indirect private investment are a potential gold mine. Traditional channels such as donations, tuition and grants are not nearly as exciting, potentially lucrative or scalable. Make no mistake, P2B is about the bottom line. However, you should also understand, an opportunistic Penn is not necessarily a bad Penn; but it's not a traditional college. I am not condemning P2B. I am simply recognizing what Penn is trying to do, and the motivation behind P2B's design. By creating P2B, the University crossed the divide between academia and business. Therefore, entrepreneurs should examine P2B's services in a competitive landscape, and divorce any loyalties to Penn while evaluating them. Building a business is a difficult process. Do not be fooled that P2B will automatically prove to be valuable in creating a successful outcome; or on the flip side, that it will attract any value at all. Enough said. Individual entrepreneurs will be the judge and jury on this one.

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