Universities in the U.S. have a significant impact on business through the transfer of technology. This paper describes goals and philosophy of the Technology Licensing Office at the Massachusetts Institute of Technology. This paper also relates the critical factors for susscessful technology transfer, particularly relating to new business formation. These critical factors include the quality of the technology, the quality of the management, the quality of the investor, the passion for success, and the image of the company. Descriptions of three different levels of investment are also given and the most successful level of investment for starting a new company is reviewed. Licensing to large companies is also briefly reviewed, as this type of licensing requires some different strategies than that of licensing to start‐up companies. High quality critical factors and intelligent investment create rewards for the parties and successful ventures. © 1995American Institute of Physics