1

"THE A, B, C'S OF TECHNOLOGY START-

UPS."

 UNIVERSITY VIEW by

 MELVIN J. DEGEETER, PH.D.

www.tclearningcenter.com

2

OVERVIEW

UNIVERSITY TECHNOLOGY

STARTUP

YES NO

3

OVERVIEW

GETTING TO YES:

FEDERAL, STATE, INSTITUTIONAL POLICIES/STATUTES

TECHNOLOGY ASSESSMENT

STARTUP QUALIFICATIONS

4

OVERVIEW

IF YES THEN: 

CANDIDATE SELECTION

OPTION OR LICENSE?

EQUITY OR NO EQUITY?

5

FEDERAL STATUTES, LEGISLATION, ASSISTANCE

BAYH DOLE

GRANT TERMS

COLLABORATION RIGHTS

IMPORT/EXPORT REQUIREMENTS

SMALL BUSINESS PROGRAMSAGENCIES (SBIR, STTR, CRADA,

ETC.)SBANATIONAL LABORATORIES

6

STATE STATUTES OR PROGRAMS

EQUITY ALLOWED OR NOTLIMITATIONS ON SECURITIES

GRANT TERMSSTATE ORGANIZATIONSFOUNDATIONS/TRADE ASSOCIATIONS

ASSISTANCEBUSINESS PLANS, CAPITALIZATION

(“BRIDGE” FUNDS), INFORMATION BASE (GRANTS, CoC, INCUBATORS, ETC.)

7

INSTITUTION POLICY(IES) OR PROCEDURES

EQUITY (SEPARATE OR PART OF CONFLICT OR IP POLICY(IES), DIRECTIVE OR MANAGED)

TYPE (MEMBERSHIP SHARES VS. STOCK)

QUANTITY (HOW MUCH IS TOO MUCH?)

SELL OR BUY - PRE IPO, AT IPO OR AFTER IPO? (AVOID INFLUENCE; REAL OR PERCEIVED)

DISTRIBUTION (UPON RECEIPT, WHEN CASHED OR ??)

TAX AND/OR UBIT CONSEQUENCES

8

INSTITUTION POLICY(IES) OR PROCEDURES

EQUITY

WAIVE ROYALTY IN LIEU OF EQUITY?

(IS IT COMPANY OR UNIVERSITY CREATOR WORKS FOR? MAY WANT TO REQUIRE FACULTY TO WAIVE ROYALTY RIGHTS IF EQUITY PROVIDED TO THEM BY COMPANY.)

9

INSTITUTION POLICY(IES) OR PROCEDURES

BOARD OF DIRECTORS 

IF NO PAY TO UNIV. OR INDIVIDUAL CONFLICT MAY NOT BE AN ISSUE

MEMBER HAS FIDUCIARY DUTY TO COMPANY

VOTING OR NON VOTING SEAT

10

INSTITUTION POLICY(IES) OR PROCEDURES

CONFLICTS  UNFAIR COMPETITION

"SHOP" ASSET

"PREFERRED" RELATIONSHIP

FACILITY USE BY CO. (RESEARCH & TEACHING INTERFERENCE, CO. “RENT”, RIVAL FIRM COLLABORATION)

EXTENT OF DISCLOSURE ABOUT EQUITY DEAL? (DETAIL OR NAME, TOPIC & CO. NAME)

11

INSTITUTION POLICY(IES) OR PROCEDURES

CONFLICTSINTEREST

OUTSIDE FIRM TO MANAGE EQUITY POOL?

CONTINUE RESEARCH AT UNIV. OR ?

COMMITMENT TO SOCIETY VS. $$$ GAIN

EQUITY IN CO. MAY INFLUENCE DECISIONS ON CHOICE OF PRODUCTS OR TESTS (AVOID LATE STAGE R&D PARTICIPATION?)

12

INSTITUTION POLICY(IES) OR PROCEDURES

CONFLICTSCOMMITMENT

STUDENT EXPLOITATION

FACULTY TIME/CONSULTING TERMS

FACULTY OWNED COMPANY CONCERNS (I.E., EMPLOYEE AGREEMENT USUALLY REQUIRES ASSIGNMENT OF IP TO CO.)

13

INSTITUTION POLICY(IES) OR PROCEDURES

CONFLICT MANAGEMENT IS KEY

BOARD SEATS, VOTING RIGHTS, ANTI-DILUTION RIGHTS, OWNERSHIP RETENTION, WARRANTS OR OPTIONS, ETC.

PROTECT INTERNAL ACTIVITIES & DESIRES E.G. PROMOTION & TENURE, RESEARCH AGENDAS

 

PROTECT FROM EXTERNAL ISSUES; E.G. LAW SUITS, PUBLIC RELATIONS & FINANCIAL LOSS

14

INSTITUTION POLICY(IES) OR PROCEDURES

OTHER CONSIDERATIONS   MANY LICENSES GO TO SMALL COMPANIES  

INVENTIONS MAY NOT APPEAL TO LARGE CO.  

SMALL BIZ CANNOT AFFORD DESIRED PRICE 

LOCAL ECONOMIC DEVELOPMENT SUCCESS  

ALLOWS ASSET TRANSFER THAT: 1. MAY NOT BE TRANSFERRED

OTHERWISE2. WILL RESULT IN VERY LOW “ROI” 3. OPENS DOOR FOR EQUITY ACCEPTANCE

15

INSTITUTION POLICY(IES) OR PROCEDURES

OTHER CONSIDERATIONS

EQUITY DIVERTS DEPENDENCE ON SUCCESS OF TECHNOLOGY TO SUCCESS OF COMPANY

FACULTY SATISFACTION – ATTRACT & RETAIN

 FINANCIAL RETURN POTENTIAL

 ENHANCED TT ("FULL SERVICE TT”)

16

INSTITUTION POLICY(IES) OR PROCEDURES

“BUFFER” ORGANIZATION

ADDRESSES INFRINGEMENT, LIABILITY, PATENT LITIGATION, CONTRACT DISPUTE & MONITORING, PUBLIC RELATIONS, IMAGE PERCEPTIONS, & MGNT PROCUREMENT

REDUCE CONTROL & INVOLVEMENT BY UNIV.

SECURITIES MANAGED BY EXTERNAL PRO

SECURITIES DISTRIBUTED TO CREATOR(S)

MANAGES EXPENSE RECOVERY

COST = ?

17

INSTITUTION POLICY(IES) OR PROCEDURES

CONCLUSION 

NO SET OF POLICIES CAN ADEQUATELY ADDRESS EVERYTHING - SO MANAGE, COMMUNICATE & REPORT

 OWNERSHIP ROLE REQUIRES CAREFUL REVIEW OF START UP’S BUSINESS PLAN

CULTURE & OBJECTIVES DIFFER BETWEEN UNIVERISTY & INVESTORS SO AVOID MISUNDERSTANDINGS

18

TECHNOLOGY/ASSET EVALUATION/VALUATION

NUMEROUS EVAL./VALUATION PROCEDURES AVAILABLE (RISK ADJUSTED NPV)

SOME KEY TERMS:INTELLECTUAL PROPERTYDEFINITIONSGRANTCOMPENSATIONREPORTS/REPORTINGTERM AND TERMINATIONRISK/BENEFIT ANALYSIS

19

START-UP CONSIDERATIONSBROKER, RESEARCH, DEVELOP, MARKET, R&D, D&M OR RD&M ROLE?

OPTION OR NOT?

MARKET SIZE - >$100M (>$400M IF PHARMA)

PROPRIETARY POSITION 

CORE OR PERIPHERAL TO BUSINESS

20

START-UP CONSIDERATIONS

KNOWLEDGEABLE & COMPATIBLE MGNT 

CAPITALIZATION STATUS & PLAN  

COMPETITION – NOW & FUTURE  

MARKETING STRENTHS (B2B, HOME MARKET)

21

COMPANY DUE DILIGENCE

SEE HANDOUT FOR CHECKLIST

DUE DILIGENCE (MORE THAN JUST ASSET)

QUALIFICATIONSTECHNICALPHYSICAL FACILITIES

SUBCONTRACT?

22

COMPANY DUE DILIGENCE

EVALUATE BUSINESS PLAN R&D PLAN (VISITING SCIENTIST, SABATICAL, MATERIAL EXCHANGE, ??)REGULATORY STRATEGY & PLANMARKET PLAN

ENTRY DATEMARKET STRATEGIES PROJECTED MARGINS ESTIMATED SALES

CAPITALIZATION PLAN

23

COMPANY DUE DILIGENCE

SECURTIES

TYPE, QUANTITY, WHEN (STOCK/SHARES)

DISTRIBUTION - CURRENT, PLANNEDCO. EMPLOYEES, INVESTORS,

PARTNERSSECURITIES REGISTRATION

EXAMINE CO. AGREEMENTS

DILUTION OR NOT (X INVESTMENT ROUND)

RESPONSIBLE PARTY(IES) - WHO

24

COMPANY DUE DILIGENCESECURTIES (CONTINUED)

AUDIT RIGHTS

EXIT PLANINITIAL PUBLIC OFFERINGBUYOUT

BUY-OUTPROVISIONS & CONSIDERATIONWHAT HAPPENS TO LICENSE?SUBLICENSE TERMS?

25

BOTTOM LINE

IF EQUITY DESIRED THEN IT IS NECESSARY TO:

“THINK & DO AS INVESTOR DOES”

26

THANK YOU