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Stanford Earns $336 Million Off Google Stock

December 1, 2005

By Lisa M. Krieger, San Jose Mercury News, Calif.

Dec. 1–Stanford University and Google have always had a close relationship — and now there is a clearer value on it: $336 million, the amount the university made from selling its Google stock.

“In the history of returns on technology, it is one of the big hits,” said Gary Matkin, a dean at the University of California-Irvine and an expert on the relationship between universities and technology companies.

Stanford received the stock — 1.8 million shares — in exchange for giving the Mountain View company the right to use its key Internet search technology, which company founders Sergey Brin and Larry Page developed while graduate students at Stanford. The university holds a patent on the technology, which it licenses to Google under a multi-year deal.

Stanford sold 184,207 of the shares — about 10 percent of its stake — for $15.7 million in Google’s initial public offering in August 2004.

The big windfall came from a second sale early this year. Stanford won’t say exactly when it sold the stock or for what price.

But the total gain of $336 million on Stanford’s Google stock, confirmed by Katherine Ku, director of Stanford’s Office of Technology Licensing, works out to an average price of $187 a share.

That’s a little more than twice Google’s initial trading price of $85 a share. But Stanford could have profited more richly: Google’s stock has skyrocketed, closing Wednesday at $404.91.

Had Stanford waited until this week to sell its Google shares, it could have brought in more than $700 million.

The money from the stock sale is currently being treated as a type of endowment — invested for the long-term, like other funds in the university’s substantial $12.2 billion endowment. But university spokeswoman Kate Chesley said that at some point the board of trustees will decide on a strategic use for the Google revenue, such as a graduate fellowship program.

The stock gains amount to a payoff for Stanford’s investment in Google’s founders. “To get that kind of return in less than 10 years — that’s hard to beat,” said Doug Schaedler of UTEK Corp. of Tampa, Fla, a technology transfer company.

Although Stanford could have earned even more if it had held the stock, universities typically sell early to avoid conflicts of interest. For instance, if a university stands to profit from a company’s stock, researchers there might be less inclined to develop technology that competes with that company.

“The $336 million is a lot of money — but it is not worth compromising your principles,” Matkin said. And investing in developing companies in no way guarantees consistently big returns for universities. “You need to have a lot in the pipeline to get one hit,” he said.

Separate from the stock sale, Stanford earned $48 million in revenue from royalties from 428 technologies spread among many companies in its most recent fiscal year, Ku said. Forty-three of the investments generated $100,000 or more in royalties.

It was once almost unknown for a university to receive stock in a company it helped to develop — but that’s changing. Academic institutions received an equity interest in 51.9 percent of their start-up companies in fiscal year 2004.

Traditionally, most of a university’s earnings from tech companies it helps to spawn come from royalties. A university might get from 3 percent to 25 percent of a company’s annual revenues each year.

Google reported $3.2 billion in sales in 2004. A spokeswoman declined to comment on Stanford’s stock proceeds.

Stanford president John Hennessy sits on Google’s board of directors, though he would not vote on issues concerning the university.

While universities have made big bucks off of other products in the past, their greatest monetary success has come from their life sciences departments, not the computer science.

So far, the nation’s highest-grossing invention was DNA cloning technology, which spawned the biotech industry and made $255 million in royalties — split between Stanford and the University of California — before the patent expired in 1997.

According to the Association of University Technology Managers, 462 new companies based on academic discovery were formed in fiscal year 2004 by 191 institutions. That’s a 23.5 increase from the previous year, in which 190 institutions formed 374 start-up companies.

Since 1980, 4,543 new companies have been formed based on a license from an academic institution.

But the amount Stanford reaped from its Google shares is historic, experts agreed.

“This transaction would be one of the largest single academic licensing transactions,” said Ashley J. Stevens, director of the Office of Technology Transfer at Boston University.

Stanford’s returns pale by comparison to the money made by Google’s founders. In October, Brin became the first company insider to sell a total of more than $1 billion in Google stock.

By that point, Page had collected $978.4 million in proceeds from insider transactions since the company went public in August of last year.

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