The IP cycle of a university startup:

negotiating with the university,

investors,
business partners,

and planning for liquidity.

Startup Village
Skolkovo Innovation Center, Moscow
June 2-3, 2015

Christopher R. Noble
Technology Licensing Office
Massachusetts Institute of Technology
Getting that exclusive license for
your unproven startup company:

You dont get the license from the university

without funding from investors

and
you dont get funding from investors without
the license.

Solution:
A License Option

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 License Option

Typically 6 months
Often extendable
Gives both parties an opportunity to evaluate
the deal
Especially important for an exclusive license

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 License negotiation:

Wait until your lead investors are on-board

They may want to renegotiate anyway

An exclusive license to an unfunded licensee
is not a good situation for the university
The entrepreneurs may also be inventors &
thus beneficiaries on both sides of the license
Another reason to option the license first

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 The first step in negotiating a license:
Dont!

Discuss your business plan with the university;

Then ask the university to propose license terms.
The license terms should support your business plan:
Raising money on reasonable terms;
Achieving financing milestones;
Obtaining and maintaining competitive advantage;
Achieving profitability;
A fair share of the value that is created returned to the
university.
This process encourages a partnership relationship
between the university and the licensee.

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 What is in the license?

Your rights as licensee: Exclusivity, Field Of Use,

Territory, Term, sublicense rights.

Your obligations (Diligence): Raising money, product

development schedule, sales plan.

Cost of the license: License and Maintenance fees,

Royalty, Sublicense fees, Equity.

The fine print: Reps and warranties, who deals with

infringers, assignability.

What else?

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What else is important?

Improvement rights; if offered:

From the inventors lab
Limited time
Subject to 3rd-party rights
Payment of patent expenses
Who prosecutes patents?
Cooperation on pursuing infringers

Finally, the exit & liquidity: License

assignment and buyout

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 License assignment & buyout

Assignment rights: transferring the license to an acquirer

Can be very important for a startup to achieve liquidity for
its investors and management
If included in license agreement, usually conditional on:
Change in control excluding IPO
Valuation threshold to avoid fire-sale
Minimum delay to avoid flipping the license
License buyout: one-time payment of future royalty
obligations
Capitalizes the entire future cost of the acquisition and reduces
uncertainty; can be a big, immediate payout to the university.
Usually left out of the license because of the uncertainty about
future value at the time the license is signed, but universities
often are willing to negotiate this when the licensee is acquired.

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 Dealing with partners

Be careful who you offer a sublicense to!

Typical licenses include have made rights that
dont require a sublicense.
Sublicensees can be difficult to manage.
Important sublicense terms:
Do you have to collect royalties from sublicensees
for your licensor?
What happens if your sublicensee challenges the
patent?
License termination rights
What are the rights of sublicensees?

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 Raising money: A real example
(actual slides from a startups pitch)

Optimistic?

Useful

Proposed funding:

1st round
2nd round

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 What is the problem?

Same problem.
2nd Important milestone.
$750K Seed;
OK.
Important milestone.
Hard to raise
money before
completing a What about
milestone. the B-round?

$5M
Series-A
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 How much to raise? When?

1. Always plan to raise money after your next risk-

reducing milestone.
2. First understand what your milestones are, then
how much money you need to hit them, then which
funding sources to approach.
3. It will take at least 6 months after your next
milestone to close your next round. So raise enough
money to run the company for at least 6 months
past your next milestone.

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 What are the investors thinking
about while you are pitching?
How experienced and trust-worthy and committed is this team?
Have they done it before (together); can they do it now;
will they burn their boats; can I work with them.

Are potential customers convinced of the benefit of this technology?

Has it been validated by prospective customers;
can they stay ahead of the competitions future products; how soon do sales start.

How profitable is this business?

Margins; Overhead; Time to market; Risk;
(When the venture runs into problems, when competitors fight back.)

Does this deal make sense for me?

Is this the size and type of deal that I like to do? Am I familiar with the space?
How much money do they need now? Later?
Who else will co-invest with me?
How and when do we get our money out?

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 Thank You!

Christopher R. Noble
Technology Licensing Office
Massachusetts Institute of Technology

crn@mit.edu
tlo.mit.edu