Entrepreneurship 101: Ontario Research Institution Commercialization

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Speaker Tom Corr, Associate VP Commercialization, University of Waterloo Office of Research covers topics such as: …

Speaker Tom Corr, Associate VP Commercialization, University of Waterloo Office of Research covers topics such as:
* Which is best - licensing or start-up?
* Who owns my invention?
* How do I work with my Tech Transfer Office?
For more information:
http://www.marsdd.com/magnoliaPublic/mars/Events/Event-Calendar/Ent101/2007/introcommercializing-20071107.html

More in: Business , Technology
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  • 1.  
  • 2. ` ONTARIO RESEARCH INSTITUTION COMMERCIALIZATION Presented by: Dr. Tom Corr CEO – Waterloo Research and Technology Park Accelerator Centre & Associate Vice President, Commercialization – University of Waterloo [email_address] November 7, 2007
  • 3. TOPICS
    • Research Funding
    • Who Owns the Intellectual Property?
    • Commercialization Options
    • Dealing with VCs
    • Outcomes of Commercialization Efforts
  • 4. Research Funding
    • Where does the funding come from (OCE, NSERC, CIHR, etc.).
    • Governments spread around the $ (federal and provincial) usually based upon competitive applications.
    • Range from $10K POP grants to multi-year, multi-million long term funding.
    • Most researchers spend a lot of time applying for grant $ to fund their research (i.e. pay for equipment, students, and conferences).
  • 5.
    • At research institutions in Canada - typically the researchers own the IP, or the institution owns the IP, or some combination of the two.
    • Institution owned: McMaster (researcher can negotiate with the university for ownership and commercialization rights)
    • Researcher owned: Waterloo
    • Joint Ownership: UHN (1/3 to researchers, 1/3 to UHN, and 1/3 to researchers department)
    • Joint Ownership: UofT (50/50 - Researchers/UofT) until Disclosed, and then Researcher has the option to own.
    IP Ownership Policies
  • 6.
    • IP Commercialization if University Involved in Commercialization
    • Waterloo: 25% to University and 75% to Researchers
    • UofT: 60% to University and 40% to Researchers
    • IP Commercialization if University NOT Involved in Commercialization
    • (i.e. researchers commercialize on their own IP)
    • Waterloo: 0% to University and 100% to Researchers
    • UofT: 25% to University and 75% to Researchers
    • These are just 2 examples – all universities have their own ownership and commercialization policies.
    • .
  • 7. IP Ownership is a HUGE issue when it comes to commercialization….
    • Who owns what…future development
    • Researchers are typically obligated to DISCLOSE their research to the institution with the institution keeping rights for further research and teaching only .
    • Many times disagreements between researchers as to who invented what, and the % of any proceeds from commercialization that should go to each– especially difficult to deal with when researchers include profs and their students.
    • Clear ownership is needed before investors will fund or they will walk away from the deal.
    • Future development of same IP is also a big issue as some researchers (students) may come and go, which may result in issues about assigning interest in new but related IP at a future date.
  • 8. What are a lot of professors focused on?
    • Younger profs concerned about getting tenure.
    • How do they get it:
      • Publishing papers
      • Doing more research
      • Teaching
    • Commercialization of IP is not always high on their list – has implications for businesses who want to license/buy the IP and move the IP forward in conjunction with the researchers.
  • 9. What’s in it for the researchers?
    • Royalties (At UofT 60%-75% of royalties go to the researchers, at UW 75%-100%)
    • Equity in start-up
    • More $ to do research
    • Peer recognition
    • Does little to get tenure other than as a result of the papers that may be published on the on-going research, and sometimes publishing in itself is a huge problem in commercialization.
  • 10. What do Technology Transfer operations at Universities do in the commercialization process?
    • Pay to Protect IP – patents, trademarks, copyrights.
    • Assist in the developing of Business Plans and commercialization strategy.
    • Assist in getting additional grant funding to further develop IP (sometimes mandatory that the technology transfer office is involved NSERC –i2i).
    • Create start-up company when appropriate vehicle for commercialization.
    • Assist in raising financing for company.
    • Negotiate agreements with licensees.
  • 11. Why do some research institutions only commercialize ~10% of the researchers inventions?
    • Intellectual Property (IP or Invention) is pure research with no market potential.
    • Market is too small to bother going after.
    • Existing patents may not allow for the IP to be practiced.
    • Researchers have unrealistic expectations that the institution cannot meet (e.g value of IP)
    • However, researchers can take ownership of their IP and commercialize it themselves should they choose.
  • 12. Commercialization Options: Spin-Off’s versus Licensing Pros and Cons
  • 13. Licensing
    • Typical Agreement Terms and Conditions:
    • Licensing (to start-ups or large corporations):
    • - royalty paid to researchers (and university if they are involved in the commercialization) based upon sales attributable to IP – typically around 5% of sales.
    • Milestones – if license is exclusive then minimum royalties typically apply as well as development milestones (especially in drug development).
  • 14. Spin-Off Company
    • New Company Created to:
    • License researchers technology and build a company around it.
    • Fund further research at institution with the aim of developing/improving technologies for license by the company.
  • 15. SPIN-OFF’s
    • Company formed in which researchers may be a shareholder.
    • Typically key researcher will be acting head of R&D (most researchers don’t want to leave the university except temporarily on paid sabbatical).
    • Given priorities of researchers it is sometimes problematic to get them on the critical path to commercialization – they sometimes get in the way and slow the commercialization process.
  • 16. Spin-Off’s
    • Until mid-1990s most research institutions IP was licensed to large companies (i.e. not spin-offs) that were in business related to the IP.
    • Some research institutions still have policy not to license IP to spin-offs (risk involved in licensing IP to under-funded start-up).
  • 17. Industry Need
    • Some large established companies not well suited to generating new lines of business and divisions.
    • Large companies look to M&A (Mergers and Acquisitions) as an alternative.
    • Companies will pay premium for small companies that are synergistic with their business mission.
  • 18. What to consider when looking at the Spin-Off alternative to licensing?
    • Lack of suitable receptor capacity (licensee) for IP.
    • Is IP a solid foundation for a new company and potential platform for additional synergistic IP?
    • Potential to be a $50 million+ public company?
    • Can funding and management be attracted to spin-off.
    • Potential return to inventors, research institution, and investors.
  • 19. Other Factors
    • Spin-offs may create more value quicker, as the potential value of shares may have more upside than licensing.
    • Royalties may flow sooner on licensing deals.
    • Licensing will have lot of up-front work but less than spin-off once agreements negotiated.
    • Bottom Line – Spin-offs take more effort than licensing, but have the potential for bigger upside in the long term.
  • 20. Research Institutions Potential Role in Spin-Offs
    • Impetus may come from the research institution, inventors, or investors to create spin-off.
    • If formed by research institution, there is the need for a “champion” to be identified to look after everyone’s interest. Must have the skills to deal with start-up companies.
    • Provide patent and legal financing.
    • Research Institutions role may range from very little, to creation and on-going management of company - especially until funding and management in place.
  • 21. Research Institutions Potential Role in Spin-Offs
    • Determine financing alternatives and pursue them (government, angels, VCs).
    • Promote the spin-off and potentially look for other IP.
    • Continuously consider the value of its shareholding, the impact of decisions on its share value, and look to maximize value and for exit strategy (IPO or company sale).
  • 22. Cross Cultural Issues
    • Investors need to understand:
    • IP requires time and investment before ready to market.
    • Likely a requirement to fund on-going commercially relevant IP research and development.
    • Researchers want freedom of research and control over their IP.
    • Researchers need to publish results.
  • 23. Cross Cultural Issues
    • Researchers need to understand:
    • Focus on marketing and market related issues is essential.
    • Market considerations require attention when R&D is underway.
    • Significant funds need to be raised and invested to develop products and to market them.
    • Companies need to operate at an accelerated time scale compared to academia.
  • 24. Spin-Offs vs. Licensing - Summary
    • Spin-Off’s are time consuming, risky, and take up a lot of time that may or may not, be better spent on licensing the IP if that option available.
    • Have potential for big upside under right circumstances.
    • Decision to do spin-off needs careful consideration and commitment from all parties involved.
  • 25.
    • It takes 10 times more time to manage a spin-off than it does a licensing transaction
  • 26. Investors – what do they think?
    • Attitude is everything…unless the company is paramount in mind of entrepreneurs and researchers - don’t invest.
    • Getting customers and learning from them is the best way to guide commercialization – not just doing more research without industry input.
  • 27. Investors – What do they think?
    • Close governance is extremely important to force focus.
    • Dilution is forgotten if successful and irrelevant if a failure.
    • While plans change (and so they should), having one is helpful.
  • 28. Recurring pitfalls and themes
    • Overestimating the science/technology and one’s capabilities
      • Lack of realism regarding the actual stage of development of the science/technology
    • Poor understanding of the customer and his/her value chain
      • Proactive ignorance of challenges involved in developing and realizing value
    • Disconnect between business and the science
      • Underweighting of importance of demonstrating progressive commercial achievement
  • 29.
    • Late stage grants (OCE, NSERC).
    • Some granting agencies getting wiser and some of them fund the companies licensing the IP – not funding the researchers as they want to see commercialization of the IP nor more research done.
    • Angel Investors – typically invest in start-ups where they have had prior experience with their marketplace ( www.tvg.org ). Valuation issues – convertible debt.
    • Funding also comes from start-ups and large corporations.
    • Spin-offs – funding from shareholders/early stage investors
    Where does the money come from at this EARLY stage?
  • 30.
    • typically look to make minimum investment of $1 - $5 million (over time) and want to do later stage deals (revenues, customers)
    • Looking to get 10 times their money back in 5 years
    • Fund based upon milestones and future valuations based upon milestones ( beware the ratchet)
    Later Stage VC Funding
  • 31. Later Stage VC Funding
    • Initial valuations based upon all the classic models (e.g. sales multiples, DCFs. earnings multiples, etc) don’t work. However forget all that as most start-ups are worth $1.5 - $2 million to VCs – very rarely do you see exceptions.
    • Important that expectations are agreed to by both sides – you have both got a new partner in your life.
  • 32. Deal and Negotiation - steps/process/documentation
    • Business plan development
    • Who to take to
    • Negotiations
    • Term Sheet
    • More Negotiations
    • Close
    • REMEMBER – 1 deal in 100 – 200 that looks for VC funding actually gets funding.
    • The majority should forget about VC funding and try bootstrapping – read ART OF THE START by GUY KAWSAKI.
  • 33. Why deals fall apart
    • Investors don’t have comfort in IP ownership
    • Investors don’t realize that they are dealing with research – as opposed to detailed business plans and products that are ready to go.
    • Long time to market which equates to lots of investment – especially for life sciences deals – regulatory issues.
  • 34. Why deals fall apart
    • Researchers don’t invest time that is required.
    • Researchers lose interest in the research and move on to other areas of research interest or move to other institutions.
    • Patents get rejected (more important in institutional research than in typical IT deals).
    • Expectations that grant $ will fund operations which it seldom does
  • 35. SUMMARY
    • Most Canadian research institutions have a researcher friendly policy which allows the researcher to gain most of the financial upside from their inventions.
    • There is a lot of commercialization assistance available for researchers who are coachable (MARS, Accelerator Centre in Waterloo, OCE, technology transfer offices, etc).
    • The investment community is always looking for good IP to invest in but don’t just focus on VCs for funding.
  • 36. SUMMARY
    • Successful research typically leads to more funding for on-going research – huge focus on commercialization outcomes by granting agencies.
    • More funding is being put into Canadian research and commercialization than ever before.
    • There has never been a better time for commercialization in terms of the support and funding available.
  • 37. QUESTIONS