Tom Duening: [00:00:00] Campus-born ventures represent one of today's most underappreciated asset classes.

There's opportunities everywhere, of course, but not every one of 'em is a fit with who you are and where you are in life.

One time I had this really nice, uh, lady come to see me, and she had the most beautiful business plan I've ever seen.

 why can't we treat our campus entrepreneurs the same way we treat our campus athletes?

It's gotta be competitive. It's gotta be that mature word again. Use real investors making real decisions about real capital.

What we've been trying to do is make sure that, people get in the flow of entrepreneurship because it winks in and out of your life at different times. 

Andrew Kazlow: Welcome to the Diligent Observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

My guest today is Dr. Thomas Duening, founder of the International Collegiate Angels Network, and a pioneer in entrepreneurship education with over 30 years [00:01:00] of experience building university innovation ecosystems. In this episode, Tom shares his thesis that campus-born ventures represent one of today's most underappreciated asset classes, reveals why the University of Cincinnati not Stanford produces the most unicorns and shares how small amounts of early capital can create massive leverage for founders, including the story of one student who turned a $50,000 non-equity grant into a million dollar funding round.

I hope you enjoy learning from Tom as much as I did.

Tom, thanks for being with me today.

Tom Duening: Hey, great to be here. Thank you.

Andrew Kazlow: So my classic first question, what are you excited about right now? 

Tom Duening: Well, we started a new organization called the International Collegiate Angels Network. And you know, in retirement you think, boy, maybe you just want to go out to pasture and stop, uh, working so hard, but, Uh, being an entrepreneur, it's time to push the rock again. And I thought, uh, I wanted to really, Andrew, to be honest with you, I wanted to validate [00:02:00] all of the effort that I've put in and all of my colleagues have put in over the last 40 years of teaching entrepreneurship.

I always say trying to teach entrepreneurship, because it's kind of a work in progress. And I started my first entrepreneurship center and teaching entrepreneurship back in 1992. Uh, I had come outta my first successful venture that I started at the University of Minnesota in 1984. And, uh, I came to the University of Houston uh, as the assistant dean of the business school and ran into a gentleman named Bill Cheryl, who was starting an entrepreneurship center at the University of Houston. he and I and several other faculty got together and, began teaching entrepreneurship. But we're the, one of the first ones in the state of Texas back in 1992.

Andrew Kazlow: What was that conversation like? You guys were like, okay, let's build an entrepreneurship program, 30 years ago at this point. Now it's sexy and everybody feels like has an entrepreneurship training course.

But that was fairly new at the time. So

upack for me, like what did that conversation look like? How did you guys 

start? 

Tom Duening: Yeah. So I mean, if you wanna know how the sausage got made, it wasn't [00:03:00] pretty, uh, there was a lot of politics involved, a lot of turf battles. So where should it be housed? Should it be in the management department, in the marketing department? Those kinds of issues that I wasn't participating in at all.

I was more interested. To be honest with you, I hadn't even studied business. I became the dean, assistant dean of the business school merely because I had been a successful entrepreneur. And back in those days, you could still kind of crack into higher levels of, of being in a business school because you've had the experience, not so much the academic training.

So I've actually never taken a, a higher education business course in my life. But, for the last 30 some years, I've been trying to teach entrepreneurship at various different universities. But, there was Bill Sherrill, interesting background kind of a guy. One of the Fed reserve chairs, at some point in his career, kind of a tail end of his career and wanted to really begin giving back. And so he came up with this idea for an entrepreneurship program and teaching entrepreneurship to students, undergraduate students primarily.

Was such a popular guy that he got some groundswell of support within the college and the dean was [00:04:00] behind it and several other faculty. And you know, within about a year we started a curriculum and it's still going on to this day. It's the Wolf Center for Entrepreneurship at UH, is the number one program in the country.

Now like seven, eight years running. And as you said, Andrew, you know, everybody's got a program now. Everybody's got a center for entrepreneurship on the campus, so to be number one, seven, eight years in a row is really a testimony to the foundation that Bill led many, many years ago.

Andrew Kazlow: Okay, well, I love it. So you you, you founded this organization 30 years ago. Now you're launching something new, which you're pretty excited about. So catch me up on what's exciting there.

Tom Duening: Part of what we did you know, with the Center for Entrepreneurship is you do scholarship. You do research, you try to understand what am I doing in the classroom that's gonna actually have an effect and help somebody become an entrepreneur. And not only locally with me and my colleagues, but all over the world now that's going on and they have big conferences, and scholars are getting together and what are you doing in the classroom?

What kind of interventions are you using? What kind of business plan competitions and so on are you [00:05:00] doing? And fast forward to 2025 and here I am starting the International Collegiate Angels Network. And the reason I'm doing that in many ways is because I truly believe Andrew, and this is really the motivation for everything that I'm doing right now is that my colleagues and I have been relatively successful over the last 40 years and we've developed campus ecosystems now that are really creating investor ready ventures on the campus and via the campus ecosystem. And not only the student ventures, undergrad and grad student ventures, but also faculty and the spin outs coming out of laboratories and other kinds of things. The ecosystems on campuses are really in many ways, kind of like accelerators in their own right.

And I want to capture these ventures as they're spinning out of the campus, as they're coming off the campus before they reach the traditional capital markets. And so the ICAN thesis is that campus-born ventures, and I can define that for you if you'd like, but campus-born ventures represent one of today's [00:06:00] most underappreciated asset classes.

Andrew Kazlow: So help me understand that and well, actually before that, something you said before we started our recording is that you are aiming to validate your entire 33 year career in academic entrepreneurship through ICAN. Can you, Can you explain more about what you mean by that? And then I wanna come back to this thesis that you guys have developed.

Tom Duening: So like I said, in the classroom, I'm trying to teach entrepreneurship, but it's like what are you teaching? And oftentimes, you know, when you run into practicing entrepreneurs, they say, well, you can't teach entrepreneurship. You're either born as an entrepreneur or you're not.

But obviously I've been trying to do it for 30 some years, so I want to validate that by indicating to the world that in fact we've made progress and we have been able to now understand some of the nuts and bolts of the entrepreneurial lifestyle, if you will, and how to begin positioning yourself as a human, as an undergrad, 20 to 24-year-old student, maybe 18 to 24-year-old student.

Position yourself so that you're more [00:07:00] likely to stumble upon some type of an opportunity that is a fit with who you are and what you've always been in your life, and the kinds of skills and abilities that you've been developing that make you a match for that opportunity, right? And so there's opportunities everywhere, of course, but not every one of 'em is a fit with who you are and where you are in life.

So what we try to, you know, What we've been trying to do is make sure that, people get in the flow of entrepreneurship because it winks in and out of your life at different times. Sometimes you're starting a venture and it ramping it up and then, you know, and then you're winding it down or selling it or whatever, and then you're kind of between.

And it's like, what do I do when I'm kind of between ventures? Are you no longer an entrepreneur? Of course you are. And what you're doing then is you're trying to find the next fit, the next problem that you've identified in some market space that you are uniquely positioned to, to tackle, right?

And to pro provide a solution towards. And with all that said, the validation piece is I just want [00:08:00] to test, I guess, or prove out the thesis that in fact, we've had an impact that the campus ecosystem that we've been working on for 40 some years, all my colleagues all over the world have been working on, in fact, is beginning to churn out investor ready ventures at a higher and higher rate.

Andrew Kazlow: So get a little bit more tactical for me. Like, Cause I, I hear that that thread in startup media and. Investor circles, right? Is, you you can't teach this stuff , you just have to, you have to see it. You have to, You have to figure it out. Get out there and do it. Like Go get a job, go work for a startup.

That's gonna accelerate your entrepreneurial journey more than going school just like tactically, what, what are some of the things that you feel like you can teach in the classroom and that. Maybe are often misunderstood by, you know, outsiders who haven't been in the weeds like you have.

Versus the things that you do actually need to go get some experience to understand. 'Cause I would imagine you have, these categories in your mind of like, here's the things you [00:09:00] can teach and these are the things that you need to go learn practically. 'Cause both are are needed obviously for someone to be a full fledged entrepreneur over time.

But like, walk me through your, mental map for that.

Tom Duening: How would you teach bicycle riding? Right? If you brought, if nobody had seen a two wheel bicycle before and you bring it into the classroom and say, oh, okay, here's a bicycle, and oh, by the way, you can ride this thing and people look at it and go, there's no way you that's gonna stay up.

I mean, it's got two wheels gonna, you're gonna fall over one way or the other, and you go, no, no. Well, here are the pedals and here's the handlebar and here's the tires and here's the spokes, right? And everything. And I swear to God, if you move fast enough in a forward direction, it, by some kinda weird laws of physics, you're not gonna fall tip over on one way or the other.

And everybody's like, yeah, right, right. So clearly you can't teach bicycle riding without actually getting on the bike and riding it. And I think we've discovered the same thing about entrepreneurship is you can't just sit in the classroom and learn a bunch of ideas about how to write a business plan or how to do a financial forecast, or maybe how to do some market research or [00:10:00] something.

You actually gotta get out there and talk to customers. You've got to understand how to create structure where doesn't currently exist. So the entrepreneur is gonna have a completely different life path once they leave college. As opposed to somebody who's been studying accounting or HR or IT or something like that, they're gonna plug into a preexisting structure and they're gonna go into a corporation and they're gonna solve problems that they've been trained to solve in that particular structure.

The entrepreneur has to create structure from nothing. And so what we've discovered and what clearly you've seen on campuses now worldwide is that there's far more extracurricular kinds of things that are going on beyond the classroom where students are pitching and they're in business plan competitions and they are literally going out and doing customer validation work, right?

On ideas that they've come up with or on somebody else's idea that they're providing some internship support for, but they're literally now getting out into the world and talking to [00:11:00] customers and understanding how it is that you go through what we call the problem space, if you will, and understanding a problem from the customer's perspective, and then building products and services that address the problem from that perspective rather than from some kind of internal light bulb that might have gone off. So far more of this now is extracurricular and beyond the classroom.

Andrew Kazlow: So you're, you're saying that kind of this combination of head knowledge through the classroom. Yes, the traditional business stuff is useful, is important for a founder, perhaps with a different flavor, a different swing, right? This isn't an MBA thing, typically, it's more of here's what it means to be an entrepreneur.

You're not training to go work in corporate. You're training to run a small company that's gonna rapidly grow. This combination of head stuff with practical opportunities to work that out through pitch competitions, networking events, customer discovery exercises, things like that.[00:12:00] 

Tom Duening: Yep. And, uh, and that just continues. And if you look around the world today, I mean, it's so robust. There's so many opportunities for students to engage. And so what we've done when I was at Arizona State University after University of Houston, I moved over to Arizona State and I was in the engineering school there teaching technology entrepreneurship.

And I realized pretty rapidly that we had a lot of really great, ventures that were being created by the students and the faculty at Arizona State University, but there was no capital. So we would have these wonderful ventures that were ready and ready to go. But there was no serious kind of an angel group situated in the Phoenix, Tempe Metroplex.

There was one in Tucson, the Desert Angels, and there was one up in Flagstaff, but there was nothing at Arizona State. So I started the Arizona Technology Investor Forum. Based it right there in the Fulton School of Engineering at Arizona State University. And because the alums were so loyal to the campus and to the Fulton School. They joined this thing.

I mean, we had 60 members within like less than a [00:13:00] year's time. And we started to move capital very, very rapidly. And, so the deal flow coming off the campus was really the beginning of The Arizona Tech Investor Forum, it's now called Arizona Tech Investors. But we started that right on the campus in 2005, and that gave students an opportunity to be involved in due diligence exercises because we would engage them in, in looking behind the scenes and helping us understand some of the nuances of the technologies that we're exploring to invest in.

And so having things like that on the campus that engage students and they actually get to see how serious investors are actually looking at deals and making decisions to literally deploy some of their capital. It's completely invaluable and can't be done simply by simulation. You literally have to feel the emotion and see the emotion that's involved in making these kinds of decisions.

And so those are the kinds of examples of things that are happening on campuses today that are really enriching the environment and [00:14:00] making the entire educational process. As I've said, the deals that are coming off of campuses today are far more investor ready than they were 32 years ago when I started, you know, my journey on this pathway.

Andrew Kazlow: So it's interesting that you talk about the lack of a capital source being one of the key pain points at this university 20 years ago. I was just talking to a student here in College. I live in College Station, Texas, attached to Texas A&M University. Ton of connection to the university here. Two time Aggie proud of it.

So if you get to know me, you know, you'll hear that a lot. And one of the things that a current student was talking with me about not even a week ago, was how important, just getting a little bit of capital in some of these ventures, it is. Because they've got the energy, they've got the vision, they've got, some light training and mentorship in place.

But the access to capital is one of the key resources that they don't have oftentimes. 'Cause these are, like you said, 20 year olds that are just in school. Talk more about where you see that gap, kind of at a [00:15:00] ecosystem level. Obviously, ICAN, you've started as a way of addressing that gap.

But like any good pitch starts with the problem. So help me understand what that gap looks like in your eyes, at the ecosystem level.

Tom Duening: It's, uh, it's worldwide. There's no question. But you've also seen, Andrew quite a number of campus-based angel groups popping up all over the world. Mostly right now they're affiliated primarily with major campuses, tier one type institutions and so on. But it's starting to, uh, appear, more and more on smaller campuses as well.

So one of the things that ICAN is trying to do is recognize that top tier campuses, of course they have their affiliated angel groups and venture capital funds and all this kind of thing. But it's the tier twos and tier threes, so we wanna democratize the access to capital. And you're right, it is a small amount of capital oftentimes that can make a huge difference. And I'll just give you another example. After I was at Arizona State, I was recruited to come to the University of Colorado and Colorado Springs, and there we established a program that we [00:16:00] called the, uh, Torch Grants. And we have a little training program that, we call it the scale 2 million Boot Up camp, right?

And you have to go through this four-month program of how to build a scalable venture and all the ventures that come through that. They're typically student-led ventures, are eligible for a $50,000 non-equity, what we call a Torch Grant, right? The Olympic torches. Colorado Springs has the Olympic headquarters.

And so we've given away many, many Torch grants since we started this thing in 20, I think we started giving away Torch grants in 21. And that $50,000 non-equity grant. If you talk to the companies that have received them, they will tell you that was massively important in their ability to establish a foundation for scaling.

And so even a tiny little 50 thou, which to some in the investment world, that's not a lot of, that's not a lot of capital. But to these small ventures that are just getting started, it can make a huge difference in their ability to build a platform for [00:17:00] scaling.

Andrew Kazlow: A hundred percent. I mean, I personally could speak to that. I received a grant from the Texas Business Hall of Fame. Coming out of my MBA and that was what gave me the fuel to, or the confidence, right? To go to my wife and say, Hey, like let's start this thing. I've got this capital, 15 grand I think was the amount and 15, that's tiny to your point.

But it was enough to be like, Hey, this could pay for a couple of thing. 

Tom Duening: It's validating. 

Andrew Kazlow: Give us some kind of a starting point, right? And it really does make a huge difference. Talk about the difference then maybe between the grant funding sources and equity sources because I think those are different.

And angel groups often are looking for founders at a different level. So ICAN, I'm hearing it's potentially going to be coming into ventures a bit earlier. A lot of angel groups are looking for some preliminary traction. Many only look at post revenue opportunities. Talk about kind of the equity funding opportunity, maybe pre-revenue or earlier on.

'Cause I think that's harder to build out and structure around.

Tom Duening: I'll be honest with you. When we started ICAN, and this is just, you [00:18:00] know, a fairly new venture. I say, the launch date, you know, when, when we really had all our pieces in place was, let's just call it March 1st, 2025. We put a shingle out and said, okay, we're open for business.

We haven't done any marketing. We haven't done any kind of any kinda real serious social media or anything like that. So just, in that context, over 200 applications came in to ICAN for our first investor day, which is gonna be on August 15th. It's a hundred percent free event, and we've selected five ventures out of the 200 applications.

Every one of these applications represents what we call a campus-born venture. And we define campus-born as you're either a current student, with at least 20% ownership in the company. You're current faculty member with at least 20% ownership. You are a recent alum within three years of a campus program.

And have at least 20% equity. Or you are a graduate of a campus-based accelerator program. So many campuses, uh, entertain ventures from outside of their [00:19:00] sphere in accelerator programs that they engage students in terms of internships and different types of research projects and so on.

So they have this rich ecosystem now that is just churning up all kinds of ventures at all the different levels. And because they have a selection process, every single one of 'em is vetted, pre-vetted for us, right? So ICAN, in a very interesting position to capture these ventures as they are coming off the campuses.

And of course, many of 'em already have, like I said, non-equity grant funding. Some of them have SBIRs. And other kinds of things. So they have some capital behind them. Many of 'em already have some type of customer traction, and they're able to demonstrate that they're generating revenue. And we're coming in on the equity side.

So we, will take, equity positions and of the five companies that we've got teed up for our August 15th event. Every one of 'em is seeking, at least $200,000 of [00:20:00] capital. And we're gonna use a special purpose vehicle to syndicate and be a part of these deals. So literally angel investors that are interested in this asset class.

If you want to get involved and diversify yourself as an angel investor, you can come in with checks as small as $10,000 and spread 'em around these various campus ventures, any one of which, might become the next unicorn. And by the way, I just read an article the other day. There's been 36 unicorns already identified in 2025.

Andrew Kazlow: No kidding. 

It's interesting because when we talk about campus-born ventures, I feel like the general, thought from the average angel is, oh, we're talking about MBAs that go to Stanford or business students that go to Stanford to find their co-founder, to find their idea and then they drop out and go start the thing.

Right. That like that path as well established. I think a lot of us, if we're listening to this, are from other great universities, but that maybe aren't as well known for entrepreneurship or [00:21:00] don't have that Stanford story, if you're listening to this and you went to Stanford, amazing. We love you guys.

But I think we're to your point, Tom, talking about kind of these tier two, tier three university ecosystems that produce great working professionals but don't have this reputation for entrepreneurship. What are like, in your mind, what are the key ingredients for a university ecosystem to actually produce 

these students because it doesn't just happen, right?

They don't just naturally overflow. There is some structure, some intentionality that is required. And, you know, you and I are in, in the room somewhat regularly with folks thinking about how do we invest in creating this ecosystem? What would you describe as the maybe the 20% of the stuff that creates 80% of the value in building and developing these ecosystems. Is it the pitch events and then the courses? Is it the people? Like what are the things that you would point to as kinda the key drivers for these ecosystems actually being [00:22:00] effective in producing camp? You know, investment ready ventures.

Tom Duening: I'll use a word that could be easily misinterpreted, but let me use it anyway. And the word is maturity. And what that means is that campuses need to migrate away from every idea is a potential good idea. Well, that, just simply not the case, right?

And so what we have to drive towards is the reality of what I call investor readiness. And if you are a serious campus and you are developing a serious program and you're helping students understand, sometimes you come up with an idea that just has no marketplace and it just not gonna go anywhere.

And the sooner you find that out, the better off you're going to be. So to have that kind of maturity and reality seeping into your campus ecosystem, into your campus culture of how it is that you are nurturing the entrepreneurs, I think the better off you're all gonna be, right? So campuses have become less and less isolated from the real world, let's call it the real world of entrepreneurship and angel investing.

And as that isolation [00:23:00] disappears by diffusion or whatever, whatever else that you're seeing. Then I think, we're not misleading students into a path that is that's just gonna lead to disappointment for them. They're being led into entrepreneurship with their eyes wide open.

Then in fact, it's a very difficult thing that you have to learn to validate your idea with real customers, which means that you might get rejected. I always do pro bono work in the community that I'm involved in.

I let the world know that I'm, you can come to my office and I'll chat with you, help you with your ideas and so on. One time I had this really nice, uh, lady come to see me, and she had the most beautiful business plan I've ever seen. I swear to God, Andrew, this was an amazing business plan.

It had fold out financials, it had color, and just beautiful, nice binding everything, right? And I said, wow, this business plan is fantastic. How long you been working on it? She said, seven years. She's been going to different pitch competitions and so on, getting all this great feedback. And I said, well, has anybody ever told you to go out and win a customer?[00:24:00] 

No, nobody's ever said that. okay. I said, well now you're, talking to, to me and I'm happy to continue working with you, but here's what you need to do. Between now and our next visit, which you can schedule whenever you want. I want you to go. And her business was to forward mail to folks that are driving around in their RVs, right?

So wherever their destination is, she would forward them their mail to that new destination. I said, Colorado Springs is full of RV parks. Just make a little flyer, put it on the doors, get 15 people signed up on your service, just get 15. I don't care whether they're paying or not.

And make a long story short, I never saw her again. I mean, sometimes the whole idea is. It becomes sort of enmeshed in this performance art, this pitching and getting feedback people patting you on the back for your beautiful business plan.

I mean, entrepreneurship but rolling up your sleeves, right? And going out and winning a customer. That's a big first step in getting students comfortable with getting out of the [00:25:00] classroom and going out and meeting with potential customers and, maybe facing that rejection and then coping with that, is a big transition point.

Because most of the kids that we see as undergrads anyway. Their entire focus has been trained. I call it the K-16 education system now. You got the K-12 and then you got four more years of college, K-16. And it's all about this quarterly grading system, you know, and gimme an A, you know, and all that.

When you're an entrepreneur, and nobody's ever asked me what my GPA was, right? It was, can I win a customer? Can I create value for other people? And so we try to teach it from that very practical perspective, and I think that's the maturity that you're seeing on campuses more and more, is that they are exposed.

They're not performance art anymore when it comes to training, teaching entrepreneurship. They're literally now involved in training people to become, to follow the entrepreneurial life path, which of course, you know, over the course of a [00:26:00] lifetime, I've started eight or nine ventures in my life and there's been times where, it's very painful 'cause it's not working.

And then all of a sudden you go back to the drawing board, you think about things, and then you stumble upon another venture. So if they understand the life path is going to be less linear than a typical, traditional corporate path, they're more prepared to deal with some of the challenges that come in.

By the way, Andrew, there is some very interesting research on entrepreneurial failure and persistence. And the research is incredibly clear that those who persist beyond their first failure are far more likely to succeed in the future than those who give up after the first failure.

Andrew Kazlow: Tom, I think it's such an important point, and I love that you this idea of maturity. I feel like it's as much for the university leadership as it is for the students right to design around.

Tom Duening: It is.

Andrew Kazlow: This focus is so different from the yeah, come [00:27:00] in and like, we'll help validate your ideas and you know, teach you some stuff, but like actually putting them into the fire and forcing students to examine the validity of their ideas.

How have you seen university ecosystems navigate or fail to navigate in this evolution because it's so easy to just give them another grade and yep, this is a good, this is a good business plan and keep it conceptual and not actually get into the weeds and not, because we, we don't wanna upset anybody, right? We're very, by nature we wanna be very soft, I think sometimes on our students and it's hard to give hard feedback. How have you seen university ecosystems successfully make this transition or fail to?

Tom Duening: Yeah. I think in part it, it's because of the Silicon Valley effect, you know, and the Stanford effect, as you mentioned before. And, you know, you go to these entrepreneurship conferences and you hear what they're doing, you hear, you know, all the different ventures that they're spinning out and you go back to your campus and you take a look at how [00:28:00] things are and you say, we've gotta make changes.

So I think the university, I mean, let's just call it an industry if you will. You know, the industry of teaching entrepreneurship on campus has ratcheted itself into the future. And, scholars, uh, don't want to be left behind. They don't want to be the ones that are not providing their students with the kinds of experiences.

That they could get elsewhere. you know, in some ways it's a competitive space and students, I think, have a way of demanding, uh, more return on their investment in their education. and certainly they're aware of, uh, some of the hotspots, if you will, where, where entrepreneurship is in full bloom.

And, kids, students, young people are getting funded and so on. And the other thing that's happened, Andrew, is communities have recognized that universities can be centers of economic development as well. And so, having a campus ecosystem that is churning out entrepreneurs and then having a, community ecosystem that is [00:29:00] able to support them with the capital that they need and the mentorship that they need and other kinds of things is an economic development play.

And I think that is a serious, serious part of, the future of higher education because of the funding changes under the current administration where your indirect cost recovery from the research dollars that you're bringing in has been drastically reduced. And so their business model is gonna have to include finding ways to benefit from the entrepreneurial ventures that are spinning off of their campuses.

Andrew Kazlow: So, I'm so glad you brought that up. I wanted to ask today about your thoughts on what this kind of funding transition, we'll call it, means for the average angel. Because we see so many companies, particularly in the deep tech healthcare, space that are reliant on these non-dilutive grant funding sources.

Uh, many of which are questionable, this point. So talk to me about your take, like what does this all [00:30:00] mean for angel investors and how should we be thinking about kind of the funding source transitions that are happening right now in the current administration?

Tom Duening: I started ICAN without, knowing that that was coming down the pike, but, that's clearly gonna change campuses. I mean, Arizona State University, for example, is a campus that is very entrepreneurial, but it also under the leadership of Michael Crow is a campus that has quite a bit of ongoing research activity and of course then benefits.

From what we call the indirect cost recovery. So any campus, and this is not, revealing something here that is not well known, but campuses, typically, if you get a big, let's say NIH grant, national Institutes of Health grant for $50 million, about 20 million of that goes to cover the overhead immediately, right?

So that's what we call indirect cost recovery. So it's anywhere from 40 to 50% of the grant goes back to the university coffers for them to use to maintain their buildings and everything else. And only half of the funding [00:31:00] goes to the research person, right? Now that's been truncated.

So under the Trump administration, what they're saying is you can't do more than, let's say 15% indirect cost recovery. So suddenly campuses, don't have that revenue anymore, that goes into their general operating fund, and they've got all this infrastructure in place that they have to continue to maintain.

So they have to find new ways of, new creative ways of generating revenue, right? So tuition increases and other kinds of things, which of course, politically not very popular. And my belief is that they're gonna discover more and more. That the kinds of innovative activity that they've been supporting and nurturing on their campuses has the potential for them to, in a creative way, enjoy long-term returns, right?

So they, of course, angel investors hate it when a university's involved with all these burdens of royalty payments and all these other kinds of things that they put in place. They own the IP or whatever it might be. They're gonna have to find more [00:32:00] creative ways to loosen that up a little bit and to be regular shareholders with everybody else.

And of course, their nonprofit status makes that a very difficult pathway. But there are other things that can be done to ensure that they are part of the stream of, let's say, some kind of stream of payments at some future date when an exit occurs or when an acquisition occurs, whatever.

And they get returns that are either contractually or in fact just direct equity, kinds of interest that they have.

Andrew Kazlow: Can you give some examples of what some of those creative ideas might be that you get excited about or that you like? Right? There's the tech commercialization teams and you know, the IP ownership piece that I think is, is relevant and real. Can you give some more examples of creative avenues that you get excited about or that you've seen effectively deployed?

Tom Duening: Yeah, you know, it's pretty interesting. Some campuses will have a separate kind of, let's say a nonprofit arm, and this nonprofit arm is [00:33:00] 100% dedicated to providing capital back to the campus. And this independent nonprofit literally is able to take equity stakes in the companies and so on that are flowing out of the university.

So that's one kind of a way to get around some of the laws that prohibit, uh, nonprofit organizations from taking direct equity. I think, another way is these campus-based angel groups, right? So one of the things that ICAN is working on is what we call a pledge-based investing model, right?

So if you get funds, from an angel group associated with the university, when an angel makes an investment in that company, they pledge a portion of their capital gains, eventual capital gains, they pledge that back to the university, right? So university advancement offices can begin to get creative and work with these angel groups and say, okay, why don't you know if you are, we're spinning out the ventures, we're nurturing them, we're providing you with the deal flow.

Why don't you pledge at some, there's no [00:34:00] commitment now, but there's some potential future capital gains that you will get. Let's say I put in $10,000 and I make a $100,000 capital gain on an investment, right? 10x my money, and I've pledged 5% of that back to the university, right?

So now I write a check for $5,000 to the university. I enjoy my $95,000 returns. That 5,000 is off. So I don't pay taxes on that. And there's other ways that can be done. So universities have to tap into these networks of interested investors and even, you know, it's not just angel investors that are, have discovered, the value of campus-born ventures.

I was just reading yesterday. That India has a fund. Now, this is our third fund. It's a hundred million dollar fund. And, this fund is dedicated entirely to investing in campus-born ventures. So there are VC firms in India now that very serious capital that is dedicated to promoting and to being involved in these very, very early [00:35:00] stage deals.

And so campuses need to recognize. That in fact, through the efforts of my colleagues all over the world, trying to ramp up these entrepreneurship ecosystems. That in fact, they have now gotten to a point where they are creating investor ready opportunities and campuses need to capture some of that value that they've helped create.

Andrew Kazlow: So let's do a thought exercise, Tom 'cause I'm curious what you had, where you would start. Let's say that I have a, let's call it a generic tier two university that has some natural entrepreneurial elements that are happening. We've got a business school perhaps, but it's nothing.

It's extraordinary. And we bring you in to help us think about, okay, we want to accelerate entrepreneurship in our community over the first six months or maybe 12 months. What are the key. Maybe one to three things that you would have that university ecosystem focus on. Thinking about developing, like where would you invest the time, energy to help make some of this happen?

Tom Duening: Yeah. That's a tough [00:36:00] one because I don't fashion myself as being that good at this game. Uh, I've been at it for 33 years and I teach it my way. You know, the students appreciate it. So curricular wise, I'd say, most campuses are fairly homogenous.

We do have a fairly standard curriculum that is being offered. It's not that remarkable. But I think it's the extracurricular stuff that I would focus on more. And that would be, certainly, I mean of the things that I've done is make access to capital in some way, part of your overall ecosystem.

But of course it's gotta be intelligent capital. It can't just be, Hey, let's just throw some money around and everybody gets a chance. It's gotta be competitive. It's gotta be that mature word again. Use real investors making real decisions about real capital.

That then I think, introduces people to the world in a way that it doesn't sugarcoat it or doesn't make it performance art. And then, why not try to put together a small angel group that the deal flow doesn't have to just be campus-based deal flow.

I mean, it's one of the things that we learned with A TIF. [00:37:00] When I was at Arizona State Universities, the deal flow wasn't quite enough, and then we expanded into the valley region there of, the Phoenix, Tempe Metro, and then to Arizona as a whole and even beyond that. Just so that we had adequate deal flow to keep the angels active and help them get enough opportunities to generate returns for themselves.

But, at the same time, if you have a pledge-based system, because I mean, we literally were based right on the campus when I started at ATIF. We literally, I used some of the resources of the Fulton School of Engineering. The event planning people and everything would help with the event, uh, when we ran our quarterly investor days, and you know, leverage the alumni group and everything.

But they're so loyal. There's something about, having had that intense experience as a young person that makes you loyal to that campus. I don't have any empirical data to back this up. I don't think any campus would have a problem if they also had some kind of a side letter that said, oh, by the way, if you get any capital gains from your participation in our campus-based angel group, please pledge some [00:38:00] of that back to the campus.

We'll invest that at back into the ecosystem or in some way use it in this virtuous cycle of innovation and entrepreneurship. When I started ICAN, I was noodling around with the names of it, you know, and I thought of the National Collegiate Athletic Association, the NCAA, right?

And so I was thinking. Because there's so much, there's so much money that flows towards athletics, right? And all of, and boosters and alums, they just throw money at stadiums and everything else. And I'm thinking, why can't we treat our campus entrepreneurs the same way we treat our campus athletes?

And raise the visibility of what they're doing and the kinds of things that they're doing to change the world, right? Because literally the world is changing now in so many ways, so many nuanced ways. Little tiny opportunities to build a new app that's gonna connect people in ways that they hadn't been able to connect before or be able to finance something that they hadn't been able to finance before.

And it's the young people that are finding these opportunities, these niches and these little tiny [00:39:00] cracks in the overall framework of problems that humans experience. And my whole goal was to capture that alumni enthusiasm And focus it on the campus entrepreneurial ecosystem,

as much as it's focused on athletics today. You just look at the ungodly amounts of money that are spent to promote athletics, right? And, it doesn't change the world, right? But the entrepreneurs do and we're certainly not gonna get the same level of interest. But we could get a small focus of that through something like ICAN. 

Andrew Kazlow: So, let's say that, let's say that every university ecosystem hears what you just said and they go, yes, five years from now. What's 

different in the world? Like how is the world different if everybody adopts this mindset, we start to invest much more aggressively in our university entrepreneurs.

Perhaps not on the same level as our athletics departments, but like, let's say we really double down on this as a [00:40:00] country or as a global unit. Like what are the key things that that look different in five years?

Tom Duening: I just think there'd be more awareness, where the pockets, uh, of entrepreneurial energy are emerging, right. Where the real innovation is translating into changing the world. So, let me, I'll just test you. What campus in this country do you think produces the most unicorns over the last five years?

Andrew Kazlow: I would guess Stanford.

Tom Duening: Yeah. You would guess Stanford, or you'd guess Harvard, or you'd guess. It's actually, it's the University of Cincinnati. Right. And that is a little known fact, and it shouldn't be a little known, it should be as well known as who won last year's, you know, NCAA football championship, right? Ohio State University.

Everybody knows that. But nobody knows that the University of Cincinnati has cranked out more, of course they're making a big deal about it, but it's like, why wouldn't that be something that is in the league tables in the same way that we keep tables and, and statistical data on how campus are performing with their athletics.

Andrew Kazlow: So we've got a marketing problem. We've got a huge marketing problem.

Tom Duening: Well, I think [00:41:00] that, and I think it's just been the case and, you know, I'll go back to the validation comment, Andrew. People still don't believe that campuses are creating serious investor ready deals. And, you know, you look at the average student business plan, you know, oh, I'm gonna have a little coffee shop. Oh, I'm gonna have art in there. Or I'm gonna have a little bar, you know, and

it'll be beer and peanuts. It's beyond that now. It's not like that anymore. We are seeing innovate. Let me tell you about this young guy that came to see me. And this is a young guy that I'd known for a couple of years, and of course, COVID hit and everybody kind of drifted away.

Anyway, let's say around March of 2020, I'm sitting in my office, on the campus and here comes this young man again. He had seen me a couple years before and he's got a mask on and everything, right? And he sits down in my office and he said, I've given up on that idea based on your advice a couple years ago, but I got into this new thing I've been working on, he said.

The problem I identified, I'm a big soccer fan and I play a lot of soccer. [00:42:00] And when I'm done playing soccer, I throw my cleats in the back of my car and I drive around. I pick up my girlfriend and the cleats are stinking up my car. They stink. It's terrible.

They're sweaty and full of dirt, and they're stinky, he said. So I created this product. By doing some research, I created a product that will de-stink your cleats. You put 'em into this cleat bag and because I've invented this really great interior lining that goes into this cleat bag and you seal it, it takes the stink outta your cleats.

And so I, I said to him, and this company by the way, is called Salt Athletic. You may wanna look this one up, Salt Athletic. And he had invented this and he had this beautiful bag that he showed me. I don't know what to do, what do I do? Where do I go? I don't know where to turn, everywhere I go you know, I've been to the capital factory in, Austin, Texas and other, I don't know what to do.

I said, well, we've got this thing called, the Venture Attractor. We give these $50,000 Torch grants. I'd like you to enter the scale to a million boot up camp and be [00:43:00] eligible for a Torch grant. He goes, oh man, that'd be great. So he was one of our first recipients of a Torch grant, and he just recently closed on a million dollar round of funding from various angel groups around the country.

And this is the kind of example of the latent hidden innovation that is going on on campuses by young people who believe that their lives are gonna be different than the lives that they've seen their parents lead perhaps in the corporate world, and they know that they have an opportunity to make a big difference and to be their own bosses, more so than any generation that has come before.

And they're doing it, and we just need to be there when they're ready to launch their ventures.

Andrew Kazlow: Well, Tom, final words of wisdom or advice for our, uh, listeners as we consider talent and opportunity coming out of these university ecosystems, even in the midst of a transitionary period with the university model coming into question. Like, what are your final [00:44:00] words of wisdom for our angels?

Tom Duening: I think it's just gonna get better. I just think this asset class is gonna get better and better and better. Uh, my colleagues continue to work hard on coming up with ways to make sure that they're uh, maturing their programs in building investor ready ventures on their campuses.

And I just think this asset class, we are positioned in ICAN to bring this asset class to angel investors all over the world. Of the five ventures that are gonna be presenting on August 15th, four of 'em are domestic. Yes, that's true. But, one of 'em is from Greece, right? So we literally are a worldwide enterprise.

We're looking at deals all over the world, and we will bring them to angel investors and give 'em an opportunity to really get in, at a very, very early stage, and you know, help change the world.

Andrew Kazlow: Well, Tom, thank you for your service to the entrepreneurial ecosystem over the last several decades. I love so much that, uh, you've retired. I'm doing air quotes for those of you listening and, uh, then unretired promptly to keep yourself engaged. I love that [00:45:00] and I'm grateful for the time today.

So thanks again and I look forward to our next

Tom Duening: Thanks Andrew. Thank you, Andrew.

Andrew Kazlow: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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