University technologies are, in general, in very early stages of development. To be considered an appropriate technology to base a start-up company on, the technology needs to solve not only a scientific problem, but a business problem. Even then, very few of these technologies are able to be used to as a basis to form a start-up company without additional development work. It is also preferred that the technology be a platform technology that is able to be applied in a wide variety of areas and are not limited in their scope. In most cases, this work is better suited to be done outside the university as it is solving commercial, rather than scientific problems. Additionally most successful start-ups are those that have intellectual property that is protected by a portfolio of patents.
The path from the taking a technology from the lab bench to the market will require large amounts of capital for various reasons. Generally, venture capitalists want to see that those who are connected and start the company are willing to invest their resources in ensuring the company will succeed. (i.e., “skin in the game). The amount of risk involved in financing a start-up company usually makes the initial pre-revenue outside investment (pre-seed and seed investments) harder to secure than follow investments (typically series A, B, etc. rounds).
It takes large amounts of time to make a start-up successful. The researcher should not be the CEO of the company, whose time will be much scarcer. Even as scientific advisor the company could take 30+ hours a week. This type of commitment will be needed from everyone involved in the start-up.
Technologies developed at universities typically require development to be ready for market. The effort and resources involved in this endeavor make it critically important that the company be focused and coordinated around a strategy for moving the technology to market. As such, a preliminary roadmap to how the technology will get to market needs to be written. It should recognize what the current team can do and where there needs to be assistance.
Does it make sense?
The effort to produce a start-up company is massive and intense. As such, after all the above information is gathered their may still be reasons the company might not make sense – i.e. if the barrier to competition is too high, if Colorado isn’t the right geographic location. Having all the information allows the researchers, Mines Office of Technology Transfer (OTT) and other partners to have a discussion about the reality of the market, competition and the perceived effort involved.
So You Still Want to Form a Start-Up?
With all start-ups, Colorado School of Mines expects that their main function will be the commercialization of technology developed at the university. This is in agreement with state law and university policy which allows these start-ups. The university’s policy also states that the researcher should have a plan which will bring in professional business management and the researchers’ equity interest be diluted as more investment is attained.
Development Plan submission
As stated above, the Development Plan should be a preliminary roadmap to how the technology will get to market. Based on this Development Plan, OTT will make a decision on if optioning the technology to the proposed start-up company is the best way to get the technology to market. The Development Plan does not have to be a full Business Plan, but rather a brief four or five page paper outlining what parts of the business plan are in progress and what parts need to be addressed in the future.
The optioning of a technology refers to the start-up company attaining rights to the technology for a specific period of time (usually 6 – 12 months). An option can be exercised to become a license, should both entities agree that it’s the best way to commercialize the technology. The cost of an Option includes: 1) the costs of filing and maintaining the patent; 2) an option fee; 3) royalties for any products sold or sublicensed.
Business Plan Submission
Before licensing the technology, OTT requires that the start-up company submit a business plan. This business plan will be used in making a decision as to if the start-up company represents the best chance for the technology to make it to the market place. The Business Plan should include:
Business problem technology solves and how it solves it
- Competitive advantage of the technology
- Management team
- Production/Manufacturing plan
- Marketing plan
- Market/Opportunity size
- Intellectual Property plan
- Fiscal projections
Licensing a technology gives the start-up the right to make, have made, use, lease, sell, and import products using the technology and to practice processes involving the technology. Usually entered into after the option, the costs of a license are similar to an option: 1) the costs of filing and maintaining the patent; 2) a licensing fee; 3) royalties or yearly minimum payments from sales or sublicenses; 4) milestone payments. The licensing fee for a start-up is usually paid as an equity position in the company, via non-voting, common stock. The due diligence associated with a start-up allows the university to ensure that progress is being made to commercialize the technology.
Conflict of Interest plan
The Conflict of Interest plan (COI) is assurance that the researchers’ activities with the start-up company do not affect their students or responsibilities to the university. Some parts needed in a COI plan include the proper reporting of IP to OTT, consulting activities and facility use agreements. Agreements for sponsored research projects funded by companies commercializing employee research must include, at a minimum, a requirement for full University publication rights, university ownership of IP, and fully negotiated cost recoveries. To ensure conflicts and responsibilities for the researcher with the start-up company decrease, their management responsibilities are expected to decrease over time.
Facilities Use Agreement
In order for University facilities to be used by an outside entity, a facilities use agreement must be in place. The fees for use of these facilities are negotiated by the department administering the facilities based on competitive rates.
Researchers are allowed to consult for companies one day out of the week, as long as it doesn’t interfere with their duties and responsibilities to the university. When consulting, any IP that the researcher develops that is within his/her scope of expertise is owned by Colorado School of Mines.