There are two models in the field of technology transfer, says one veteran angel investor.
Innovations from research labs are either transferred to established corporations or startup ventures. The goal is to transform innovative technologies into marketable products and applications to promote economic growth and/or create money-making opportunities.
About 80 percent of lab technologies are suitable for established companies and 20 percent for startups, the angel continues.
In the past, university technology transfer managers predominantly used traditional licensing model as a technology transfer mechanism to generate revenues. Exclusive, rather than non-exclusive licenses, with upfront initiation fees, milestone payments and running royalties were pretty much the only way things were done, Garold Breit, executive director at the University of Manitoba Technology Transfer Office tells Venture Hype.
Universities were reluctant to license their technologies to cash-strapped startups because most can’t cough up the cash required by the traditional licensing model. In occasions where lab technologies were licensed to startups, equity was accepted only as a last resort method of payment.
Today, forward-thinking technology transfer managers recognize that startups are a powerful launching vehicle for new discoveries. And they realize the force young companies can bring to fortify local economic development initiatives, says Breit.
It’s startup firms, rather than their bigger corporate counterparts, that are the most effective when it comes to translating university inventions into commercial products or processes.
A licensed startup would focus entirely on commercializing the technology. A mainstream company, however, would be distracted by other undertakings. Commercializing technologies that are licensed to established corporations is “fragile at best due to competing projects, possible loss of the champion, change of management, change of company direction, etc.” Caltech opines opines on its website.
Enterprising technology transfer managers who favor startups aren’t afraid of experimenting different structures to achieve flexibility. They’re receptive in granting co-exclusive and limited-time exclusive licenses. And they’re much more open to taking equity deals and reducing or waiving royalty rates.
Caltech comments: “This is very important to VCs or angels because high royalty rates together with the perennial problem of royalty stacking results in a lower valuation for a company at the time when an acquisition or IPO is being considered.”
These managers aren’t just accepting plain-vanilla equity. They’re making deals with creative configurations of equity, royalties, royalty holidays, and success fees (either in cash or equity), shares Breit.
For example, to prevent dilution, university technology transfer managers are structuring deals in which the university’s final equity stake may increase or decrease, depending on the company’s financial realities; commercialization efforts; technology development progress; and the technology’s attribution to the company’s success and ability to raise risk capital, according to Breit.
But if you think the technology being transferred is the key to successful commercialization, think again.
Next, we’ll reveal what really make or break a commercialization effort; why it’s difficult to commercialize public sector technologies; and the requirements for successful commercialization.
* Special thanks to Didier Leconte of MSBiV for recommending Garold.
* For series, references are published in the last installment of the series.