37

Entrepreneurship 101: Ontario Research Institution Commercialization

Embed Size (px)

DESCRIPTION

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

Citation preview

Page 1: Entrepreneurship 101: Ontario Research Institution Commercialization
Page 2: Entrepreneurship 101: Ontario Research Institution Commercialization

`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 protected]

November 7, 2007

Page 3: Entrepreneurship 101: Ontario Research Institution Commercialization

TOPICS

• Research Funding

• Who Owns the Intellectual Property?

• Commercialization Options

• Dealing with VCs

• Outcomes of Commercialization Efforts

Page 4: Entrepreneurship 101: Ontario Research Institution Commercialization

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).

Page 5: Entrepreneurship 101: Ontario Research Institution Commercialization

• 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

Page 6: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

.

Page 7: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 8: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 9: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 10: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 11: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 12: Entrepreneurship 101: Ontario Research Institution Commercialization

Commercialization Options:Spin-Off’s versus Licensing

Pros and Cons

Page 13: Entrepreneurship 101: Ontario Research Institution Commercialization

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).

Page 14: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 15: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 16: Entrepreneurship 101: Ontario Research Institution Commercialization

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).

Page 17: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 18: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 19: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 20: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 21: Entrepreneurship 101: Ontario Research Institution Commercialization

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).

Page 22: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 23: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 24: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 25: Entrepreneurship 101: Ontario Research Institution Commercialization

It takes 10 times more time to manage a spin-off than it does a licensing transaction

Page 26: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 27: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 28: Entrepreneurship 101: Ontario Research Institution Commercialization

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

Page 29: Entrepreneurship 101: Ontario Research Institution Commercialization

• 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?

Page 30: Entrepreneurship 101: Ontario Research Institution Commercialization

- 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

Page 31: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 32: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 33: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 34: Entrepreneurship 101: Ontario Research Institution Commercialization

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

Page 35: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 36: Entrepreneurship 101: Ontario Research Institution Commercialization

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.

Page 37: Entrepreneurship 101: Ontario Research Institution Commercialization

QUESTIONS