Abstract Founded in 1995, the mission of the Learning Factory at the Pennsylvania State University has been to integrate realworld, hands-on design/build experience into the engineering classroom through industry-sponsored capstone design projects. While the Learning Factory began like many other capstone design programs, a new college-wide capstone model emerged over the past five years to enable interdisciplinary design teams across multiple departments. First 3, then 4, 5, 8, and now 12 engineering majors regularly collaborate in what has become the largest industry-supported and college-wide capstone design program in the nation. Now more than 70% of the capstone design teams involve students from two or more disciplines, with some teams consisting of 4-5 different engineering majors. At the same time that we improved our ability to work across disciplinary boundaries, many entrepreneurs and start-up firms became aware of our capstone design program, and we found ourselves working with more and more of them on projects involving concept development and prototyping. In fact, the more interdisciplinary the program became, the better we could meet their needs, which often required input from 3 or more engineering disciplines as well as non-engineering disciplines. As a result, the number of capstone design projects sponsored by "real" entrepreneurs and start-ups has increased eight-fold over the past five years: from 5 projects in 2007/08 to over 40 projects in 2011/12. We discuss the factors that contributed to this growth, including industry-friendly intellectual property and non-disclosure agreements, a low-cost sponsorship model, a multidisciplinary capstone design section that satisfied the ABET requirements among all participating departments, and student interest in making a significant and immediate impact on their industry-sponsored project. The risks and challenges of working with start-ups and entrepreneurs is also discussed, namely, managing sponsor's expectations, working with nontechnical sponsors, clarifying project scope, avoiding project creep, and emphasizing the educational experience over project outcomes. Recent start-up successes are discussed along with a student entrepreneurial team's capstone project prototype that lead to a successful fund-raising campaign on Kickstarter.