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

"THE A, B, C'S OF TECHNOLOGY START-UPS." UNIVERSITY VIEW by MELVIN J. DEGEETER, PH.D. www.tclearningcenter.com

OVERVIEW UNIVERSITY TECHNOLOGY STARTUP YES NO

OVERVIEW GETTING TO YES: FEDERAL, STATE, INSTITUTIONAL POLICIES/STATUTES TECHNOLOGY ASSESSMENT STARTUP QUALIFICATIONS

OVERVIEW IF YES THEN: CANDIDATE SELECTION OPTION OR LICENSE? EQUITY OR NO EQUITY?

FEDERAL STATUTES, LEGISLATION, ASSISTANCE BAYH DOLE GRANT TERMS COLLABORATION RIGHTS IMPORT/EXPORT REQUIREMENTS SMALL BUSINESS PROGRAMS AGENCIES (SBIR, STTR, CRADA, ETC.) SBA NATIONAL LABORATORIES

STATE STATUTES OR PROGRAMS EQUITY ALLOWED OR NOT LIMITATIONS ON SECURITIES GRANT TERMS STATE ORGANIZATIONS FOUNDATIONS/TRADE ASSOCIATIONS ASSISTANCE BUSINESS PLANS, CAPITALIZATION (“BRIDGE” FUNDS), INFORMATION BASE (GRANTS, CoC, INCUBATORS, ETC.)

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

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.)

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

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 OFDISCLOSURE ABOUT EQUITY DEAL? (DETAIL OR NAME, TOPIC & CO. NAME)

INSTITUTION POLICY(IES) OR PROCEDURES CONFLICTS INTEREST 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?)

INSTITUTION POLICY(IES) OR PROCEDURES CONFLICTS COMMITMENT STUDENT EXPLOITATION FACULTY TIME/CONSULTING TERMS FACULTY OWNED COMPANY CONCERNS (I.E., EMPLOYEE AGREEMENT USUALLY REQUIRES ASSIGNMENT OF IP TO CO.)

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

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 OTHERWISE 2. WILL RESULT IN VERY LOW “ROI” 3. OPENS DOOR FOR EQUITY ACCEPTANCE

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”)

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 = ?

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

TECHNOLOGY/ASSET EVALUATION/VALUATION NUMEROUS EVAL./VALUATION PROCEDURES AVAILABLE (RISK ADJUSTED NPV) SOME KEY TERMS: INTELLECTUAL PROPERTY DEFINITIONS GRANT COMPENSATION REPORTS/REPORTING TERM AND TERMINATION RISK/BENEFIT ANALYSIS

START-UP CONSIDERATIONS BROKER, 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

START-UP CONSIDERATIONS KNOWLEDGEABLE & COMPATIBLE MGNT CAPITALIZATION STATUS & PLAN COMPETITION – NOW & FUTURE MARKETING STRENTHS (B2B, HOME MARKET)

COMPANY DUE DILIGENCE SEE HANDOUT FOR CHECKLIST DUE DILIGENCE (MORE THAN JUST ASSET) QUALIFICATIONS TECHNICAL PHYSICAL FACILITIES SUBCONTRACT?

COMPANY DUE DILIGENCE EVALUATE BUSINESS PLAN R&D PLAN (VISITING SCIENTIST, SABATICAL, MATERIAL EXCHANGE, ??) REGULATORY STRATEGY & PLAN MARKET PLAN ENTRY DATE MARKET STRATEGIES PROJECTED MARGINS ESTIMATED SALES CAPITALIZATION PLAN

COMPANY DUE DILIGENCE SECURTIES TYPE, QUANTITY, WHEN (STOCK/SHARES) DISTRIBUTION - CURRENT, PLANNED CO. EMPLOYEES, INVESTORS, PARTNERS SECURITIES REGISTRATION EXAMINE CO. AGREEMENTS DILUTION OR NOT (X INVESTMENT ROUND) RESPONSIBLE PARTY(IES) - WHO

COMPANY DUE DILIGENCE SECURTIES (CONTINUED) AUDIT RIGHTS EXIT PLAN INITIAL PUBLIC OFFERING BUYOUT BUY-OUT PROVISIONS & CONSIDERATION WHAT HAPPENS TO LICENSE? SUBLICENSE TERMS?

BOTTOM LINE IF EQUITY DESIRED THEN IT IS NECESSARY TO: “THINK & DO AS INVESTOR DOES”

THANK YOU

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