V. Annex AStanford and Silicon Valley

Many, if not most, state and regional initiatives to develop innovation clusters use California’s Silicon Valley as an important point of reference. While it is generally recognized that it would be impossible to fully replicate the unique mix of individual genius, fortunate happenstance, and regional advantage that gave rise to today’s Silicon Valley, individual factors underlying the Valley’s successful innovation dynamic are considered worthy of study and emulation. One of the most important of these is the historic role played by Stanford University in the origins of Silicon Valley and in sustaining the survival and flourishing of high technology industries in the surrounding region.

Many narratives exist regarding the origins of Silicon Valley, some of which diverge or even conflict with each other.1 However, in virtually every account, Stanford University occupies a central role. Even Gordon Moore, who argues the role of Stanford in the creation of Silicon Valley can be overstated, credits it with creating firms that accounted for half the revenues generated in the Valley between 1988 and 1996 and with an “exemplary” contribution to “local labor market needs.”2 “In a region in which most successful firms began as start-ups, Stanford is known for its “startup culture…[I]t’s almost an unwritten rule that you have to start a company to be a successful professor at Stanford.”3 As of 2011 nearly 5,000 companies existed which could trace their roots to Stanford, including Hewlett-Packard, Cisco Systems, Sun Microsystems, Yahoo, and Google.4 Electronics pioneer William Hewlett wrote in 1991 of the role of Stanford Professor and its former Provost, Frederick Terman

The presence of Stanford University was a key factor in the development of the technology enterprise now known as Silicon Valley. More than anything, it was Terman, his students, and the encouragements and opportunities that he gave them that enabled this great enterprise to flourish.5

Stanford University was founded by Leland Stanford, a former governor of California and U.S. Senator who had made his fortune in the railroad industry. From its inception in 1891, Stanford’s leaders saw its mission as service to the Western United States, to serve as a counterpoise to the region’s exploitation by Eastern economic interests.6 Stanford looked to MIT as a model, reflecting the fact that MIT functioned as an incubator of new firms. “Stanford and MIT were both committed to an endogenous strategy of encouraging firm formation from academic knowledge.” The university’s founders believed that it could achieve greatness only if it were surrounded by technology-intensive industries, which, because they did not exist in California at the time, would need to be created.7 Executing this task was the responsibility of Stanford’s Engineering School, which was a “repository of trained people and existing technical knowledge that could be utilized for firm formation, even before the development of advanced research as a spin-off source.” In 1900, California depended on the East for electrical equipment, so Stanford’s first president and a number of faculty members invested in start-ups launched by recent Stanford graduates in the electrical business.8


Frederick Terman grew up at Stanford, where his father was a faculty member, and earned an undergraduate degree in chemistry and a master’s degree in electrical engineering from the university. He earned a ScD at MIT in 1924, where his advisor was Vannevar Bush. He became a member of Stanford’s engineering faculty in 1925, designed a curriculum in electronics featuring circuits, vacuum tubes, and instruments, and authored a book, Radio Engineering, which went through numerous editions. In the early 1940s, Terman answered a call from Vannevar Bush to lead a major research project at Harvard to develop radar countermeasures.9 This effort was so successful that he concluded that the government would continue to fund comparable research after the war and that the government should fund basic research at universities.10 At war’s end, he returned to Stanford and became Dean of the School Engineering in 1951 and Provost of the University in 1955.11

In the 1930s, as a young member of Stanford’s engineering faculty, Terman encouraged his students to consider the commercial possibilities of electronic devices and to engage in multidisciplinary research with theoretical and practical potential. He took his students on visits to local technology-oriented firms, a number of which had been founded by Stanford graduates, “and Stanford [has] had people go from the universities to companies ever since.”12 He urged two students, William Hewlett and David Packard, to found a company to commercialize an audio-oscillator that Hewlett had developed through his academic work, giving rise to one of the most famous founding legends of Silicon Valley. Terman—a veritable one-man incubator—helped Hewlett and Packard with the technical development of their product, helped arrange financing, rented property containing the now-famous garage where they began work, and helped them secure patent rights.13 Terman provided financial and technical support to other start-ups during the 1930s, most of them launched by Stanford graduates and some of these, such as Varian Associates and Litton Industries, grew into major electronics firms. Speaking of the western United States, Terman believed that “if Western industry and Western industrialists are to serve their own enlightened long-range interests effectively, they must cooperate with Western universities wherever possible and strengthen them by financial and other assistance.”14

Stanford Industrial Park

Frederick Terman was instrumental in the establishment of Stanford Industrial Park, the first University-owned industrial park in the world. At the end of World War II, Stanford faced financial difficulty and sought ways to raise additional revenue. The University owned vast tracts of land but Leland Stanford’s will precluded its sale. However, the will did not bar leasing the land and, the university drew up plans to establish a light industrial park on land that it owned. Terman characterized the park as “our secret weapon” and sought to encourage technology-oriented companies to locate there.15

Varian Associates became the first tenant in the Park in 1951, followed by Hewlett Packard, GE, Eastman Kodak, Lockheed, and Shockley Semiconductor Laboratory, which spun off Fairchild Semiconductor—“a corporate seedbed spawning over 38 new companies which were started by former employees,” including Intel.16 Terman used his former student, David Packard, to promote the park; Terman later recalled that “people would come to me to see about locating a business in the park and I would suggest they also talk to Packard to find out want it meant to be close to a cooperative university. When people came to him first, he would reciprocate. Our goal was to create a center of high technology.” By 1977, the Park was the site of 75 companies with 19,000 employees.17

By 1958, the Palo Alto Chamber of Commerce found 123 electronics and electronics-related firms were operating on the Peninsula, including 56 firms in Palo Alto and at Stanford. A 1958 account of the electronics community around Stanford commented that the “creative center of this great scientific activity is Stanford University…The name of Dr. Frederick E. Terman…is the magnet that continues drawing renewed scientists to the faculty and nationally known electronics research firms to the Palo Alto area.”18

Honors Cooperative Program

In the 1950s, Terman oversaw the establishment of the Honors Cooperative Program at Stanford, which enabled engineers at electronics companies to enroll in graduate courses in order to enable them to remain current technologically. Through the Honors Cooperative Program—that has no counterpart at MIT—“Stanford offered an important advantage to small companies that sought to attract top talent but were unable to provide the continuing education and training needed in a fast-changing technological environment.”19 Terman also launched an industrial liaison program pursuant to which company affiliates that pledged $5000 a year for five years received access to Stanford’s research projects, research results, and graduate students through vehicles such as seminars, guest lectures, and periodic reports.20 Participants in this program were invited by Stanford “to drop in on the labs casually, bring technical problems of a nonproprietary nature to faculty and to help shape the direction of future research.21


Terman played an instrumental role in persuading William Shockley, the co-inventor of the transistor, to found his own transistor company, the Shockley Semiconductor Laboratory, in the Bay Area where it became a tenant in the Stanford Industrial Park in 1956.22 Shockley gathered a team of brilliant engineers, but in 1957, chafing under his management style, a group of them, the so-called Traitorous Eight—which included Robert Noyce and Gordon Moore—departed to form Fairchild Semiconductor, which became a subsidiary of Syosset, New York-based Fairchild Camera and Instrument Corp.23 In 1959, a team led by Noyce developed the first commercially viable integrated circuit, a single chip incorporating multiple transistors and other devices.24 In the decade that followed, hundreds of companies introduced electronic products based on integrated circuit technology, many of them founded in the Bay Area by Fairchild alumni. Noyce and Moore left Fairchild to form Intel Corporation in 1968. Other Fairchild veterans who founded semiconductor companies included Charles Sporck (National Semiconductor Company), Wilf Corrigan (LSI Logic), and Jerry Sanders (Advanced Micro Devices).25

Stanford’s curriculum kept abreast with the rapid pace of the IC technology development. Each improvement in IC products and processes was closely followed by the introduction of courses to prepare future engineers to work in the new technology. Stanford’s Department of Electrical Engineering introduced a course in the design and fabrication of integrated circuits soon after these devices became available in 1961. Stanford’s abiding commitment to offer a contemporarily-relevant curriculum in integrated circuitry led it eventually to establish its Center for Integrated Systems in 1983. Terman sought out the most talented and informed engineers at Silicon Valley companies and appointed them as “adjunct professors” at Stanford to teach both students and faculty about the most recent developments in the field.26


The trustees of Stanford established the Stanford Research Institute (SRI, now known as SRI International) in 1946 to foster innovation that would ultimately spur the economic development of the region.27 In 1968, an SRI scientist, Doug Engelbart, gave a 90-minute demonstration to an audience of about a thousand people in San Francisco which was one of the first public demonstrations of the computer mouse, developed by Engelbart and his colleague Bill English in 1963, as well as a demonstration of teleconferencing over a computer screen, online collaboration, real-time text editing, and the first use of hypertext links. Thirty years later a member of the audience recalled that the demo was “unlike anything else I’ve ever seen…just mind-boggling.” The audience responded to the demo with a standing ovation “that went on and on.”28

When federal funding for Engelbart’s computer research ended in 1977, he and nearly half of his SRI research team moved to join Xerox’s Palo Alto Research Center (Xerox PARC).29 PARC was established in 1970 by Xerox then-CEO C. Peter McColough to develop “the architecture of information,” and it quickly earned a reputation as “the smartest think tank on the planet.”30 Xerox chose the Stanford Research Park as the site for PARC on the recommendation of its first director, George Pake, who “had been a professor at Stanford and knew the area well and liked it.”31 PARC’s location in the Stanford Research Park allowed Stanford graduate students and faculty to participate in PARC research projects and PARC staff to collaborate on academic projects. The relationship between PARC and Stanford was so close that the boundaries were decidedly indistinct.32

In 1979, Xerox acquired 100,000 shares of Apple Computer stock and opened PARC’s doors to Apple’s Vice President for Research and Development, Steve Jobs. In a now legendary visit, Jobs witnessed a demo of the prototype mouse, as well as features such as “windows” that opened on a computer screen and visual images…”icons”…that could be clicked upon rather than commands to be memorized. Jobs “flipped” at the demo.33 Apple subsequently hired a number of PARC employees and went on to introduce its Lisa (in 1983) and its McIntosh personal computers (in 1984) that incorporated PARC’s graphics interface innovations. Robert Spinrad, who served as PARC’s director between 1978 and 1982, recalled later that

At PARC, we developed the underlying technologies for what is now the modern personal computer: windows, word processors, graphic displays, icons, drop-down menus, image processing, laser printer, the Ethernet…you name it.34


Stanford’s Office of Technology Licensing opened in 1970, and in four subsequent decades disclosed roughly 8300 cumulative inventions and executed over 3500 licenses. Notable inventions licensed by the office include FM sound synthesis (created by a small Yamaha music chip developed by the music department), recombinant DNA technology, functional antibodies, and digital subscriber line (DSL) technology commercialized by Texas Instruments.35 The University’s very well-known licensee is Google, which was created by two Stanford graduate students over a four-year period under the mentorship of the late Stanford computer science professor Rajeev Motwani.36 Katherine Ku of Stanford’s Office of Technology Licensing, recalls that the two students, Larry Page and Sergey Brin,

Worked on a project for the library for about four years. They used Stanford resources to develop a search engine that we tried to market to the big four search engine companies, but nobody was interested. The two guys were frustrated, and decided to start their own company. We gave them an exclusive license, but we didn’t know if they knew how to do business. We took a little bit of equity, and eventually that 2 percent share brought in about $337 million in equity. We’re happy that we were able to give them that start that they needed.37

Stanford initially took 1.8 million shares in Google in return for the right to use Internet search technology developed by Page and Brin at Stanford. The University retained the patent and licensed it to Google pursuant to a multi-year deal. Stanford President John Hennessy sits on Google’s board of directors, although not voting on issues related to the University. Stanford sold 10 percent of its stake for $15.7 million in 2004 and the remainder for $336 million in 2005.38 Katherine Ku of Stanford’s Office of Technology Licensing indicates that the Google experience was atypical—only a handful of inventions have generated large returns for the university. Only about ten percent of the University’s licensing deals are with start-ups or about 10–12 per year. Over half of the University’s licensees are non-exclusive “because we believe that universities should get a fair share when we contribute our technology to a product in the marketplace.”39

While Stanford’s role in the fostering of Silicon Valley unfolded over several generations, it continues to serve as a model for other institutions and regions seeking to foster local innovation.40 Georgia Tech recruited a former Stanford Dean of Engineering as its President, established innovation institutions patterned on the Stanford Industrial Park and Research Institute, and, like Stanford, have pursued an innovation model based on local start-ups rather than recruitment of established companies to the region.41 “The examples of Massachusetts Institute of Technology and Stanford University…in stimulating regional high-technology development are often highlighted for emulation.”42 In the symposia convened for this study, Stanford’s experience was shared “as an example of what a University can do to make technology transfer effective.”43 But as the work of Annalee Saxenian and others has indicated, differences in regional innovation culture will limit the extent to which the Silicon Valley model can be replicated elsewhere.44



On this point, see Sturgeon Timothy J. How Silicon Valley Came to Be. In: Kenney Martin., editor. Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region. Stanford: Stanford University Press; 2000. .


Gordon Moore and Kevin Davis. SIEPR Discussion Paper No. 00-45. Stanford Institute for Economic Policy Research; Jul 15, 2001. Learning the Silicon Valley Way; p. 11.


Upstarts and Rabble Rousers…Stanford Fetes 4 Decades of Computer Science. San Francisco Chronicle. Mar 20, 2006.


Sowing the Seeds of a Startup: StartX Seeks to Propel Young Entrepreneurs to Forefront of their Field. San Jose Mercury News. Dec 29, 2011.


Stewart Gillmore C. Fred Terman at Stanford: Building a discipline, a University, and Silicon Valley. Stanford: Stanford University Press; 2004. p. 230.


“A sense of solidarity permeated the eleven western states in the first half of the Twentieth Century. Westerners complained about having a ‘colonial’ relationship with the East; their raw material base—with corresponding jobs, profits, and economic growth—was ‘plundered’ by distant forces. The region’s perceived exploitation at the hands of eastern interests fueled booster like attempts to build indigenous and self-sufficient local industry” Adams Steven B. Regionalism in Stanford’s Contribution to the Rise of Silicon Valley. Enterprise & Society. 2003;4(3):522–23..


Etzkowitz Henry. Silicon Valley: The Sustainability of an Innovation Region. 2012. p. 2.p. 5.


Ibid. p. 5. Perhaps the most important spin-off was Poulsen Wireless Telephone and Telegraph, later renamed Federal Telegraph, established in 1909 by Stanford graduate Cyril Elwell with the substantial backing of David Starr Jordan, the president of Stanford’s Engineering Department. Federal Telegraph made major contributions to the early development of radio communications. Sturgeon, “How Silicon Valley Came to Be,” op. cit. p. 19.


Terman brought roughly thirty Stanford students and colleagues to the Harvard project over time, where they received practical experience in microwave engineering. Terman was responsible for developing new radar jamming devices and for teaching government contractors such as GE and Bell Labs how to manufacture them. Stuart W. Leslie, “The Biggest Angel of them All: The Military and the Making of Silicon Valley,” 2000.


In Science, The Endless Frontier, his 1945 report to the President of the United States, Vannevar Bush called for an expansion of government support for science, and he pressed for the creation of the National Science Foundation.


Terman’s tenure at the Radar Countermeasures Lab at Harvard put him in a position to observe innovation activities in Cambridge. In a letter to Stanford’s treasurer, he warned that if Stanford did not follow the MIT model of aggregating federal research dollars after the war, it would be reduced to the status of a teaching university, “a Dartmouth College.” Etzkowitz, op. cit., p. 9. In fact, after the War, Stanford reaped huge benefits from federal support; “Without massive federal investments (mostly for defense) in Stanford’s academic programs and in the surrounding industrial community, neither the university nor the region could have grown as strong as quickly.” I the year 2000, Stanford remained near the top of the list of university recipients of defense contracts, as did Stanford Research Institute. Leslie Stuart W. The Biggest Angel of the All: The Military and the Making of Silicon Valley. In: Kenney Martin., editor. Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region. Stanford: Stanford University Press; 2000. pp. 66–67..


Computer History Museum. Lewis Terman: Reminisces of Fred Terman. Apr 15, 2010. p. 4.


Annalee Saxenian, “Creating a Twentieth Century Technical Community: Frederick Terman’s Silicon Valley,” 1995, Paper prepared for the inaugural symposium on the Inventor and the Innovative Society, the Lemelson center for the Study of Invention and Innovation, National Museum of American History, Smithsonian Institution. Carolyn Tajnai, “Fred Terman, the Father of Silicon Valley” Stanford Computer Forum: Stanford University, May 1985.


Saxenian, “Twentieth Century Technical Community,” op. cit.


Terman advocated limiting leases to the park to high technology companies that might benefit Stanford. Tajnai, “Father of Silicon Valley,” op. cit.


Tajnai Carolyn. Computer Forum. Stanford University; 1996. From the Valley of Heart’s Delight to the Silicon Valley: A Study of Stanford University’s Role in the Transformation; p. 6.


Saxenian, “Twentieth Century Technical Community.” op. cit.


Enochs Hugh. Electronics Research Community Develops Around Stanford Laboratories. The Tall Tree. May, 1958. , cited in Gillmore, Fred Terman at Stanford, 2004, op. cit., p. 328.


Saxenian Annalee. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge, MA and London: Harvard University Press; 1996. p. 41.


Enochs, Hugh. “Electronics Research Community” Op Cit.


Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, op. cit., p. 67.


Gillmore, Fred Terman at Stanford, op. cit., p. 311


Tales of Silicon Valley Past: Legendary founders Talk About Early Days at Fairchild. San Jose Mercury News. May 13, 1995.


Jack S. Kilby of Texas Instruments produced an integrated circuit in 1958, and Kilby and Noyce generally are regarded as co-inventors of the IC. Growth of a Silicon Empire: Bay Area’s Fertile Intellectual Ground Helped Sprout High Technology Industry. The San Francisco Chronicle. Dec 27, 1999. .


Tales of Silicon Valley Past: Legendary founders Talk About Early Days at Fairchild. San Jose Mercury News. May 13, 1995.


Rosenberg Nathan. America’s Entrepreneurial Universities. In: Hart David M., editor. The Emergence of Entrepreneurship Policy: Governance, start-Ups, and Growth in the U.S. Knowledge Economy. Cambridge: Cambridge University Press;


SRI had a dual mission of conducting defense-related R&D and providing research support for companies operating on the West Coast. SRI was charged with pursuing science for practical purposes that “might not be fully compatible internally with the traditional roles of the University.” Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, op. cit., p. 23.


Gathering Recalls the Unveiling of Innovations That Led to the Personal Computer. Pleasanton Tri-Valley Herald. Dec 10, 2008. . Silicon Valley Celebrates Birth of the Mouse That Roared. The San Francisco Chronicle. Dec 4, 1998. .


Of a Mouse and the Man…30 Years: Inventor Saw it as a Tool to Expand the Community of Computing. San Jose Mercury News. Dec 8, 1998.


CEO Set Gears in Motion for Valley’s Tech Revolution…Xerox Chief Remembered for Research Center. San Jose Mercury News. Dec 29, 2006.


The Genius of Location…Siting Search for Xerox PARC Picks Palo Alto. San Jose Mercury News. Dec 29, 2006.


In a 1991 interview a Xerox executive recalled a seminar he had presented at PARC: “The seminar at PARC was held in a large hall, and I noticed that about a third of the audience were not wearing Xerox employee badges, although they participated actively in the discussion. I learned afterwards that they were Stanford faculty, who have an open invitation to all PARC seminars.” Saxenian Annalee. Regional Advantage: Culture and Competition in Silicon Valley and Route. p. 67..


“Apple Transplanted Xerox Seed,” San Jose Mercury News December 18, 1989. Larry Tesler, who conducted the demo, later recalled that “Jobs was pacing around the room, acting up the whole time. He was very excited. Then, when he began seeing the things I could do onscreen, he watched for about a minute and started jumping around the room, shouting “Why aren’t you doing anything with this? This is revolutionary!” Creation Myth: Xerox PARC, Apple and the Truth About Innovation. The New Yorker. May 16, 2011. .


CEO Set Gears in Motion for Valley’s Tech Revolution…Xerox Chief Remembered for Research Center. San Jose Mercury News. Dec 29, 2006.


Ku Katherine.Office of Technology Licensing, Stanford University. 40 Years of Experience With Technology Licensing; Building Hawaii’s Innovation Economy: Summary of a Symposium; January 13–14, 2011.National Research Council;


Professor Who Mentored Founders of Google Found Dead in Home Pool. The Bulletin. Jun 8, 2009. Bend, OR.


Ku, “40 Years of Experience with Technology Licensing,” 2011, op. cit.


Stanford Earns $336 Million Off Google Stock. San Jose Mercury News. Dec 1, 2005.


Katherine Ku, “40 Years of Experience with Technology Licensing,” National Research Council, “Building Hawaii’s Innovation Economy: Summary of a Symposium,” January 13–14, 2011. Grant of a non-exclusive license does not actually ensure that the university will realize licensing income from future licensees, a prospect which is speculative. However, for policy reasons, the university may wish to avoid unduly restricting the universe of entities benefiting from its inventions.


See generally, Leslie Stuart W, Kargon Robert H. Selling Silicon Valley: Frederick Terman’s Model for Regional Advantage. The Business History Review. Winter. 1996. .


Youtie Jan, Shapira Philip. Building an Innovation Hub: A Case Study of the Transformation of University Roles in Regional Technology Development. Research Policy. 2008;37:1194.


Ibid, p. 1190.


Ku Katherine. 40 Years of Experience with Technology Licensing; Building Hawaii’s Innovation Economy: Summary of a Symposium; January 13–14, 2011.National Research Council;


Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, op. cit.