How can i start a startup

how to create a startup business and how to create your own startup company
Dr.JesperHunt Profile Pic
Dr.JesperHunt,United States,Researcher
Published Date:16-07-2017
Your Website URL(Optional)
Comment
St anford univer S ity office of technology licen S ingcontentS Stanford university is frequently the place where the kernel of an idea for a new company takes root and begins to grow. Overview ......................................................................................... 2 for more than half a century, Stanford has been the source of TechnOlOgy Transfer a T a glance fOr sT ar T-Ups .....................4 ideas and discoveries – educating entrepreneurs and fostering geTTing The BUsiness TO Take Off ................................................ 9 breakthrough technologies. visitors from all over the country freqUenTly asked qUesTiOns ......................................................16 and the world come to Stanford to find the secret of Stanford’s sTanfOrd pOlicies, cOnflicT Of inTeresT , and cOnflicT Of cOmmiTmenT ..................................................... 25 entrepreneurial success. the secret, of course, is that there fOr facUl Ty: BesT pracTices fOr sT ar T-Ups .............................28 is no secret. it’s a mindset. it’s an approach. it’s the Stanford fOr sTUdenTs: BesT pracTices fOr sT ar T-Ups .......................... 32 culture. as many people have observed about Stanford, “it’s ok OTl and enTrepreneUrs .............................................................. 35 to experiment” – and to fail. it’s also ok to be successful, wildly resOUrce gUide ............................................................................36 successful. This guide is intended for Stanford faculty, staff, and students interested in launching a start-up company based on intellectual property that is owned by the University. It is a broad overview of the start-up process and provides background on resources available for Stanford entrepreneurs. Certain sections contain information derived from “An MIT Inventor’s Guide to Startups: For faculty and students.” This guide was written in December 2012 and updated in March 2016. Stanford’s policies and practices may be revised from time to time. Inventors should refer to Stanford’s Research Policy Handbook (rph.stanford.edu) for current guidelines on intellectual 1 property, conflict of interest and commitment and other issues. Additional information may be found on the Office of Technology Licensing (OTL) website: otl.stanford.edu or by contacting our office at 650-723-0651.Whether OTL is licensing to a start-up company or an existing company, Overview Stanford’s goal is to maximize the chances of successfully transferring the technology while prioritizing the University’s missions of research and education. This obligation is the shared responsibility of OTL and the start-up entrepreneurs, especially if they expect to maintain connections to n the last several decades, over 6,000 companies were the University (as faculty, staff or students) during the creation of the start-up founded by members of the Stanford community. Most or after it is launched. This guide summarizes some of these responsibilities of these businesses, including hewlett-Packard and and Best Practices (see pages 28–34), but individuals are expected to know and follow Stanford’s policies about conflict of commitment and conflict of yahoo, were started by Stanford faculty and students but did interest and related matters. These policies and procedures can be found at not use intellectual property owned by the university. other www.stanford.io/coi. start-up companies were formed to commercialize inventions OTL realizes that most Stanford technologies are early stage and require a that are subject to the intellectual property polices of Stanford significant investment to bring them to the marketplace. To do this, start-up university – founding technologies that were created with more entrepreneurs must have a passion that borders on irrational optimism and than incidental use of Stanford resources or in the course of faith in the technologies along with an eagerness to commit their own time and resources to develop these inventions. OTL is willing to negotiate with the inventors’ institutional responsibilities for research and new companies to craft an agreement that is consistent with other licenses education. and can help them succeed. We do not claim to know which new ventures will be successful – that’s left to luck and hard work – but we want to work With all of this entrepreneurial activity, some people are surprised to learn with these new companies so they can get a start. that historically only about 8-12 OTL licenses per year (approximately 10% of its total licenses) are to start-up companies. However, the pace of start-up licenses seems to be increasing in recent years, with start-ups comprising over 20% of licenses in 2014 and 2015. Some examples of start-ups based on intellectual property owned by Stanford and licensed through the Office of Technology Licensing (OTL) include: • Alexo Therapeutics• Coverity (acquired by Synopsis) • Amati Communications (acquired by Texas Instruments)• Forty Seven • Amprius• Google • Capp Medical • Oculeve (acquired by Roche) (acquired by Allergan) • Circuit Therapeutics• Tableau Software • Verinata Health (acquired by Illumina) 2 3 C C C D C C C Here we’ve highlighted some of the steps that may be particularly relevant to Technology Transfer at a entrepreneurs starting a new venture based on Stanford intellectual property. OTL’s Inventor’s Guide, otl.stanford.edu/documents/OTLinventorsguide.pdf, Glance for Start-Ups explains these general stages in further detail. 1. reSearch Observations and experiments during research activities often lead to discoveries and inventions or the development of software and other he technology transfer process at Stanford can be copyrighted works. An invention is any useful process, machine, composition conceptualized as a continuous cycle—one where of matter (e.g., a chemical or biological compound), or any new or useful discoveries in the laboratory are developed into improvement of the same. Often, multiple researchers – including students, post-docs and research staff – contribute to an invention and may be licensed products in the marketplace that then help fund the inventors. next generation of research and innovation. for the most part, the steps of the cycle are similar whether the company 2. invention and technology diScloSure This written notice of an invention to OTL begins the formal technology commercializing the technology is a new venture or an transfer process. The Invention and Technology Disclosure (also known as an established one. invention disclosure) is a confidential document and should fully describe the new aspects of the invention, including the critical solution it provides and its a e s e r r h advantages and benefits over current technologies. Invention disclosures can s e i i n t l v be submitted through OTL’s Researcher Portal (otldisclosure.stanford.edu). a e i y s n o t l r i o o s n u r e 3. aSSeSSMent n o i t The disclosure is assigned to a Licensing Associate who will review the a a z i s l s invention disclosure and evaluate the invention’s commercialization a e i s s r m potential based on patent searches (if applicable), market analysis, existing e e m n The ce cly m competitive technologies and other factors. This assessment guides the t o f inno avo Tion licensing strategy. i p n r t o e l If the inventors are contemplating starting a company around the p l i e l r e e t n technology, it is helpful to inform OTL about their plans during the y t s u i n a l assessment stage. The OTL Licensing Associate will take this into g consideration when evaluating the technology and developing a strategy for s o e t l e e g a n e t i s intellectual property (IP) protection, marketing, and licensing. l i t n e i g k n a r e e m n i s l e a e i n 4 5 F D C C C To choose the best licensee, OTL evaluates which company is in the 4. intellectual ProPerty Protection best position to develop the technology and bring it to the marketplace. (if appropriate, necessary, or warranted) A well-established company typically has resources, business networks Patent protection, a common legal protection method, begins with the filing and product development experience but can lack commitment to the of a patent application with the U.S. Patent and Trademark Office and, technology. A small company often has the singular focus and passion when appropriate, foreign patent offices. Once a patent application has been of a technology champion, the drive and “fire in the belly” to bring the filed, it requires several years and tens of thousands of dollars to obtain technology forward and see that it succeeds – but insufficient experience or an issued patent. Other common forms of IP protection include copyright resources to make sure it can happen. and trademark. Unique biological materials and software can often be successfully licensed without formal IP protection. Additional information To assess the commitment of potential licensees, OTL asks companies for about copyright and software licensing can be found in OTL’s publication a development plan with details about how they intend to develop and “Creator’s Guide to Commercializing Copyrighted Work” (otl.stanford.edu/ market the technology. This plan should make the case that the company documents/OTLCopyrightGuide.pdf.) and its leadership are the best choice for commercializing the invention. It is important to note that inventors may not serve a management role in the 5. MarKeting start-up company unless they plan to leave Stanford (either permanently or Stanford is committed to broadly marketing all technologies to appropriate on a leave of absence). companies that could be interested in commercializing the particular invention. With the inventors’ input, OTL creates a marketing overview of 7. licenSing the technology; identifies candidate companies (potential licensees) that OTL negotiates and executes a license or option agreement. This agreement is have the expertise, resources, and business networks to bring the technology a contract between the University and a company in which certain University to market; and contacts those companies to generate interest and gauge rights to a technology are granted to a company in return for financial and other commercial potential. benefits. Most start-ups request an exclusive license because they believe it is required to raise funding for the company. Typical terms for an exclusive license To ensure fair and open access to potential licensees, OTL markets all with a start-up company are described on page 20. They include equity, Stanford technologies, including those with start-up interest. Broad royalties, diligence milestones and an assignment fee. marketing helps the University find companies who may be interested in developing the technology and helps to mitigate and manage conflicts of When Stanford inventors are involved in a start-up company, licensing interest if the technology is licensed to a start-up. The marketing period to that company can raise concerns about conflicts of commitment and typically lasts 1-3 months before the Licensing Associate selects a licensee interest. The University needs to maintain an arms-length relationship (if there is any commercial interest at all). Sometimes entrepreneurial in all its business transactions (including license negotiations). The inventors receive valuable industry feedback and begin to establish final license agreement must fall within the normal range of terms and relationships with potential partners during this process. conditions of similar licenses to non-inventor-associated companies (taking into consideration the unique circumstances of each technology and 6. Selecting the BeSt licenSee(S) transaction). OTL cannot conclude any agreements until the appropriate Typically, there is only one party or none at all interested in licensing. If there conflict of interest reviews and approvals are completed. Additional are several parties interested in a license, OTL may grant non-exclusive 6 7 information about negotiations and conflict issues can be found in the FAQs or field-of-use licenses. If it is not possible to accommodate all interested and Stanford Policies sections of this guide. parties, OTL will license the company most committed and able to bring the technology to the marketplace.8. coMMercialiZation Getting the Business Most University inventions are very early stage and require further research and development efforts. The licensee typically makes significant business to Take Off investments of time and funding to commercialize the product or service. These steps may entail regulatory approvals, sales and marketing, support, training, and other activities. The licensee will be expected to meet commercialization milestones described in the license. aunching a successful start-up company requires com- It is fairly common for licensees, particularly early stage ventures, to mitment, dedication, and perseverance. Many companies evolve their strategy and development plans as the company grows, faces fail even if the core technology is innovative and technical challenges, and recognizes new market opportunities. OTL can work with licensees to amend and renegotiate license agreements in promising. however, when the right technology is implemented response to these changes if the request and reasons to renegotiate are at the right time, it has the potential to significantly benefit reasonable. society. components of a successful start-up include a com- 9. royaltieS pelling concept, a strong market opportunity, a competitive Royalties received by the University from licensees are distributed annually to advantage, a sound business and financial plan, and an experi - inventors, departments, and schools according to Stanford policy. Royalties enced management team. luck and timing are also important. include both cash and equity received from licensees in consideration for granting the license. The inventors, including those who are involved in Entrepreneurs spearheading the new company formation will be the key the start-up, will receive their share under Stanford policy outlined in the champions for the technology and the start-up. In addition to navigating the Research Policy Handbook (stanford.io/rph). standard technology transfer process, they are responsible for a variety of tasks such as identifying the market opportunity, developing a business plan, 10. reinveSt and pursuing financing. Every start-up follows its own unique path. But there Royalties and the proceeds from equity that are shared throughout the are many common steps to get the business off the ground as outlined in this University collectively foster the creation of the next generation of research section. Additional Resources are available on pages 36-42 to help guide and innovation. Stanford entrepreneurs through this process. Often an important immediate question for Stanford inventors is whether they want to be involved in these tasks directly as part of the company team or to continue in their Stanford roles as faculty, research staff or students. School Deans and the Dean of Research can offer guidance about these decisions and information about options (e.g., taking a leave of absence). Also, faculty mentors often share their personal experiences with other inventors. There is 8 9 additional information about Stanford’s Best Practices for Start-ups on pages 28-34 of this booklet.Several key factors should be considered when deciding to form a start-up networK and SeeK inPut company: Throughout the start-up process, advice and mentorship are invaluable in • Technology innovation and patent/IP position – Is broad patent coverage building the foundation for a successful business. Stanford cultivates a strong possible? Are there background patents owned by others? Will the company entrepreneurial spirit and has many resources to help with networking and have freedom-to-operate to develop the product? provide guidance for a path to commercialization. Stanford’s formal programs • Development risk – How far along is the technology? How much time and and entrepreneurship classes, combined with informal advice from advisors, money is required to bring a product to market? friends, and colleagues, can help shepherd entrepreneurs through all facets of • Development costs versus investment return – Can investors obtain their the start-up process – such as writing a business plan, building a management required rates of return (e.g., 10X initial investment in 5 years)? team, attracting board members, and meeting potential investors. • Product strategy – Does the technology lend itself to opportunities for multiple products/platforms? Entrepreneurs should be careful to separate their outside start-up activities • Market size, dynamics and potential – Is the market big enough? Is it from their Stanford responsibilities. For example, faculty are expected to controlled by a few players? Is there a healthy growth trend? use the time they are allowed for outside professional activities, typically 13 • Financial potential – What market share can be obtained? Is it worth the days a quarter (see the Research Policy Handbook at stanford.io/rph), and effort? students need to consult with advisors overseeing their academic progress. A business plan should be clear and concise. It will be easier to “sell” the Stanford Entrepreneurship Network (SEN) vision to investors and attract management talent with a formal business The Stanford Entrepreneurship Network (SEN) is a working group of plan. Investors are interested in investing in start-ups with high growth university programs and student organizations offering opportunities for the potential. The business plan should address what investors want to know: Stanford community to learn and explore various aspects of entrepreneurship. the compelling concept, competitive advantage (including patent/IP position), Stanford entrepreneurs searching for advice, mentors and networking market and financial potential, and proven management team. The business opportunities can start by joining this network. SEN serves as a single point plan is generally a confidential document and should be carefully distributed. of contact, bringing together about three dozen entrepreneurship-related campus programs under one umbrella organization. Information about Components of a typical business plan include: additional SEN programs and resources is available at sen.stanford.edu. • Company name • Mission statement – A guiding vision for the company. develoP a BuSineSS caSe • Current market situation – How big is the market? What are its critical Entrepreneurs should develop a thoughtful business case to understand the problems and shortcomings? How is the landscape changing? Who is the market potential, competition, and funding needs. This should include a plan competition? Is it a consolidated or fragmented industry? for developing the technology and attaining sufficient revenue to sustain and • The company’s solutions – Which products or methods will be developed? grow the company. This plan will be useful when meeting with investors and How long will it take? What are its applications? What are the company’s pursuing funding. unique advantages and are those advantages sustainable? How will the current market change due to the company’s products, methods, etc.? • Patent/IP landscape 10 11• Marketing and sales strategy – Pricing, Product, Placement. How will the Start-uP financing cycle target market know about the product? Which sales distribution channels Angels, FFF, VCs, Acquisitions/Mergers, IPO will be used? Seed Capital Strategic Alliances • 5-10 year strategic/financial plan: • Financial projections – When will the company break even? Secondary Offerings • Key milestones required to meet financial projections. Public Market • Key metrics to be measured and tracked. Mezzanine • Key assumptions and how they change based on a competitor ’s response. 3rd • Funding requirements. 2nd • Management team – Members with resumes/CV and roles. 1st • Timeline and key milestones Valley of Death • Risk factors and mitigation measures Time The Resource Guide of this booklet contains a list of references that provide This graphic is an example of a start-up financing cycle using traditional funding sources, through additional information about writing business plans. an initial public offering (IPO). There could be more or fewer rounds of funding. The 1st, 2nd, and 3rd rounds can be equivalent to Series A, B, and C. (Source: “Startup Company” Wikipedia, The Free Encyclopedia. Wikimedia Foundation, Inc. 11 March 2009. Web. June 2012 PurSue inveStorS/funding en.wikipedia.org/wiki/File:Startup_financing_cycle.svg) Commercializing technology is typically a capital-intensive process, with the exception of some software companies. Entrepreneurs need to present their Angel Investing opportunity to people with the funds to help them make it happen. Typically Angel investors are typically high-net-worth individuals who have a personal these are venture capitalists, angel investors and – perhaps in the initial interest in funding new companies. They are often willing to invest in earlier stages – friends and family. Using Stanford’s network is one way to start the stages and with smaller amounts of money than VC’s in exchange for equity. personal introduction process that can help get the attention of angel and They can take passive or active roles in the start-up and typically have a venture capital investors. longer investment horizon than VC’s. According to the Center for Venture Research at the University of New Hampshire (paulcollege.unh.edu/cvr), There is a rich history of start-up investing in Silicon Valley with a broad total angel investments in 2014 were 24.1 billion to a total of 73,400 network of investors. The most common forms of technology start-up funding entrepreneurial ventures. are angel investing and venture capital (VC). In the very early stages of start- ups, entrepreneurs raise funds on their own and through friends and family Venture Capital funds (FFF). However, technology commercialization often requires multiple Compared to angels, venture capitalists can invest larger amounts of money rounds of funding from multiple sources. (usually millions of dollars) in a company. In exchange they tend to receive more equity. VC’s also exercise control and bring experienced management Angels and venture capitalists (VC’s) are private investors who take on high talent to help guide and grow the company. Sometimes they invest in several risk ventures with goals of high returns. Return requirements vary based rounds of funding and are part of a larger consortium of investors in the on industry and stage of funding, but many investors seek 10X their initial company. According to PriceWaterhouseCoopers (www.pwcmoneytree.com), 12 13 investment over 5 years. the U.S. total of VC investments in 2014 was 48.3 billion from 4,356 deals, with 23.3 billion and 1,409 deals in the Silicon Valley alone. Revenue BREAK EVENNon-traditional Funding exit Strategy Start-ups may also investigate and pursue funding from non-traditional Investors plan to recoup their investments via exit strategies. Typically, a sources. Some examples of these are: VC hopes to sell its equity in a portfolio company within 3-7 years, ideally • Government grants – Certain research grants are available through through an initial public offering (IPO). Another exit strategy could be through programs such as SBIR/STTR (Small Business Innovation Research and mergers and acquisitions (M&A) instead of an IPO. Small Business Technology Transfer – www.sbir.gov/) or the Department of Energy (https://arpa-e-foa.energy.gov/). PitfallS • Banks – Banks do not usually participate in equity investments in New company formation is a high risk proposition. While many Stanford new companies, but they are a source of loans, particularly for capital start-ups are successful, others are not. Some common problems that can purchases when there is some kind of collateral (such as large equipment). cause academic start-ups to fail are: • Crowdfunding – Various crowdfunding companies enable entrepreneurial • Inexperienced management – A strong, experienced, cohesive team is fundraising by pooling small investments from a network of individuals. required for a successful start-up company. Problems can arise if founders or other members of the team do not have enough start-up and business how inveStorS evaluate a coMPany experience or if founders, new management, and investors do not have the Investors listen to pitches constantly and only a small portion of start-ups same strategic vision. get funding. The investors will determine if the start-up meets their strategic • Lack of funding – A start-up needs sufficient capital to overcome technical and financial goals and if the company fits into their current portfolio of challenges, reach critical business milestones, and progress to the next investments. VC funds are targeting at least an overall 20% annual return on phase of development. To attract investors the company must have a solid the fund which is significantly higher than other investment vehicles such as business plan and a strong management team. stocks and bonds. • Technology does not meet commercial need – Sometimes the science is innovative and exciting but does not correlate to a critical commercial need, Investors typically perform due diligence before funding new opportunities, or current solutions are still better than the new technology. and they often view the fact that a new company is working with Stanford • Timing – Even when a commercial need exists, the company may miss the positively in this analysis. For example, OTL’s involvement may provide an market. Sometimes this is because the market is not ready for a product, extra measure of reassurance to investors that IP rights are being properly e.g., too early, still too expensive, unrecognized need. Sometimes it is secured by the company. (Bear in mind, however, that OTL will carefully because the product is too late to the market and the need has already evaluate the patentability and commercial potential of an invention before been filled by a different technology or competitors have leapfrogged over embarking on the costly and lengthy process of obtaining patent protection.) the company with an even better product. • Marginal niche – If the target market is smaller than expected the company Funders and Founders offers an infographic explanation of “How Startup may not meet its financial targets. Valuation Works - Measuring a Company’s Potential” (fundersandfounders. • Bad luck – Sometimes events outside of the entrepreneur’s control can com/how-startup-valuation-works). negatively impact a company. But even failure is often seen as one of Silicon Valley’s greatest strengths. Additional information about why start-ups fail can be found at www.inc. 14 15 com/geoffrey-james/the-7-real-reasons-startups-fail-and-what-to-do-instead. html.invention without marketing. Even after marketing (see pages 6 and 7), Frequently Asked Questions inventor start-ups have almost always been chosen as the most appropriate licensee and have received an exclusive license when requested. This is because the start-up usually has a deep understanding of the technology and the passionate commitment required to develop it. how are entrePreneurial inventorS involved in the licenSing ProceSS? The University is obligated to maintain an arms-length relationship in all In most ways, an entrepreneurial inventor’s involvement in the licensing business transactions. Therefore, license negotiations and agreements with process is similar to that of any other inventor. However, OTL’s relationship inventor start-ups must fall within the normal range of terms and conditions with inventors becomes more complex when inventors want to start a of similar licenses to non-inventor-associated companies. Since University company, particularly with regard to negotiations. royalties often become the main source of financial return for inventions, a fairly-negotiated deal benefits inventors over the long run. OTL’s track record of success would not be possible without the ingenuity of Stanford inventors. The licensing process starts when they disclose their new how Much can i tell Potential inveStorS aBout the invention? ideas and continues as they collaborate with us throughout the life cycle of First and foremost, research at Stanford must comply with Stanford’s the technology. OTL carefully considers inventor feedback and strives to keep Openness in Research Policy (see the Research Policy Handbook— stanford. them informed along the way. OTL encourages inventors to recommend leads io/rph). In particular, research results – the underlying data, the processes, on potential licensees, to provide input for assessing technical and market and final results of research – must not be secret and must also be accessible feasibility, and to offer suggestions on which licensing strategy would be best by all interested persons. For the purposes of investment discussions that to commercialize the technology. occur prior to public dissemination of their work under Stanford’s research policies, entrepreneurs will need to describe the general aspects of the However, in the case of an inventor start-up, the inventors do not participate invention to potential investors in order to generate any interest. Information in OTL’s actual negotiation of license agreements with potential licensees. can be shared with investors, but entrepreneurs are not permitted to delay This approach is based on the principle that Stanford faculty/employees disclosure of their research results by postponing presentations or slowing cannot represent the company and the university at the same time. down the process of manuscript submissions. Therefore, the inventor’s role should not include representing the potential licensee or negotiating directly with OTL. In addition, if an inventor has a Some entrepreneurs are more comfortable sharing details of an invention potential conflict of interest (COI), he or she will need to participate in a COI after a patent application is filed. A patent filing allows the inventors to claim review (described on pages 25-27). and prove a filing date for their ideas as described in the application, which can be useful. However, a patent application does not provide the rights of an doeS otl give any SPecial conSideration to inventor Start-uPS issued patent to prevent others from practicing the invention. when Selecting a licenSee? Stanford cannot offer inventors preferential treatment even though inventor Understanding that delays must be avoided, if an inventor or entrepreneur start-ups are often in the best position to bring the technology to commercial wants to discuss the details of a technology while the work is being prepared fruition because of the inventor’s passion and expertise. An entrepreneurial for publication and prior to filing a patent application or other IP protection, a 16 17 inventor can always have, at a minimum, a non-exclusive license to the Non-Disclosure Agreement (NDA) is often used to facilitate open discussions and to prevent the loss of patent rights from inadvertent disclosure. OTL can what iS an oPtion and can a Start-uP taKe that inStead of a full provide NDAs for companies that are evaluating the technology for potential licenSe? licensing. The start-up management or its legal counsel typically handles An option agreement is often used to reserve rights in an invention while a NDAs for discussions of the technology on behalf of the company (e.g., with company evaluates the technology, explores funding opportunities and raises potential investors or corporate partners). Keep in mind that many VC’s and the capital needed to fully license the rights in question. Option agreements strategic corporate investors do not sign NDAs because they fear it would include financial consideration to Stanford in order to reserve those rights. constrain their existing portfolio technologies or future opportunities. Start-up companies sometimes prefer this route and OTL may grant options for any time period up to one year in duration, most often in 6-month Sample NDA agreements are available on OTL’s website (stanford.io/otl_ increments. sampleagr). When a technology is either optioned or licensed to an inventor’s start-up when can the Start-uP ManageMent negotiate a licenSe? company, the inventors are required to stop initiating new work on that After broadly marketing the invention, if the start-up is the best choice for technology at Stanford (that is, using University resources). Subject to conflict commercializing the technology, OTL will negotiate with a representative of interest (COI) review, the final separation between a company and Stanford of the company to grant a license to the new company. Stanford markets is determined on a case-by-case basis, but it must be completed within 12 its inventions because it is committed to looking for the best licensees to months. It is important that inventors plan accordingly and begin to wind transfer technology from Stanford to the marketplace for the public benefit. down Stanford activities before either the licensing or optioning takes place. Also, under the Bayh-Dole Act, the University has an implicit obligation to ensure that inventions funded by the Federal government are effectively how long doeS it taKe to licenSe technology froM otl? commercialized. Under Stanford policy, faculty, staff and students cannot The time it takes to license an invention varies. After the technology is represent the company in negotiations due to conflicts of interest. disclosed to OTL it could take several weeks to a few months to review the invention and then apply for a patent application (if OTL feels filing an which coMeS firSt, the licenSe agreeMent or the funding application is appropriate). OTL will also need about 1-3 months to market agreeMent? the invention to other potential licensees and assess licensing interest from This is a chicken and egg scenario. Investors usually want to be sure the the broader community. If other companies express interest, the marketing entrepreneur has an option or license to the technology before investing in period may be longer. the company but the entrepreneur often does not know what kind of license (field of use, financials, etc.) the investor requires. One solution is for an During this time, the entrepreneur(s) could begin to develop other aspects of entrepreneur to take an option to a license, with the terms of the license to the new venture to better position the start-up as a potential licensee (e.g., be negotiated later. The negotiations for an option/license and investment develop a business plan, research entrepreneur resources, begin seeking funding agreement will often occur in parallel. investors) but there is no guarantee that the new venture will get the exact license they want. If OTL decides that the start-up company is the best possible licensee, negotiations with OTL for a license could take several weeks to many months. However, some negotiations may only take a few days if both parties can agree to terms easily. Information about streamlining 18 19 these negotiations can be found at stanford.io/otl_streamline.In addition, licensing to start-up companies usually presents conflict of assignment fee. Exclusive licensees are generally expected to pay patent commitment (COC) and conflict of interest (COI) issues that must be expenses. Financial terms may also include a small, minority share of disclosed by inventors and managed by the University (see the Research equity in the company. Policy Handbook— stanford.io/rph). Conflict of commitment and interest • Field of use restrictions, since a start-up company often does not have the policies are determined by the Faculty Senate. The School Deans, the Dean resources to develop all the applications of an invention. of Research and the Provost have responsibility for their implementation. If • Diligence terms to ensure reasonable progress in the growing the company faculty, staff or students propose to have a management role in the start-up and commercializing the invention. company, approvals for leaves of absence must be obtained. OTL cannot conclude any agreements until the appropriate COC and COI reviews and Many entrepreneurs are concerned that the financial terms are overly onerous approvals have been completed. This review can take place in parallel to and unreasonable. OTL has completed hundreds of agreements with license negotiations. It can begin once the basic parameters of the license are start-ups and understands the constraints they have. OTL’s goal is to decided and the faculty member submits the required ad hoc COI disclosure negotiate an agreement that is fair and reasonable based on our experience, to the appropriate Deans. More information about COC and COI can be found on the industry and on how the Stanford technology fits into the ultimate on pages 25–27. product. Because the University needs to maintain an arms-length relationship in all its business transactions, license negotiations and the what are tyPical licenSing terMS for Stanford’S agreeMentS with final license agreement for Stanford-associated companies must fall within Start-uP coMPanieS? the normal range of terms and conditions of similar licenses to any other License agreements have both financial and non-financial terms. These vary company (taking into consideration the unique circumstances of each based on the particular set of facts for each agreement – for example, the technology and transaction). stage of development, the field of use, and the commercialization risks are all taken into consideration. Typical terms consist of: There are several documents on OTL’s website that provide further • Negotiated financial terms including issue and annual fees, payments information about valuations and provisions found in standard license when technical milestones are achieved, royalties on product sales, and an agreements: • How OTL Thinks about the Value of a License – stanford.io/otl_value • Sample Option Agreement and Sample Exclusive License that includes equity - stanford.io/otl_sampleagr doeS the univerSity taKe equity in Start-uPS? Stanford often accepts equity (typically no more than 5% ownership) as part of the financial terms of the license. Because most start-up companies have limited cash, equity is often substituted for some of the cash consideration. Equity is also a way for the University to share some of the risk associated with the start-ups. A decision to take equity must make sense for both the University and the company. 20 21In addition, when OTL enters into an exclusive license agreement with a what haPPenS if there are follow-on PatentS to the original privately-held company (such as a start-up), the standard contract allows Patent? Stanford to participate as a co-investor to purchase additional equity in the It depends on who owns the follow-on patents. Typically, Stanford will have company’s private financing rounds prior to initial public offering (IPO). The filed the initial patent application that is exclusively licensed; the exclusive Chief Financial Officer of the University decides whether to invest based on licensee provides input for the prosecution of this original patent. Follow-on established criteria and is independent of OTL. As a co-investor, Stanford inventions conceived by the licensee without Stanford involvement usually does not negotiate the terms of future private investments; it takes the same belong to the licensee. These patents must be filed by a different law firm terms that the lead investor negotiates. than the original patent (to avoid the conflict of interest caused by the attorney representing both Stanford and the licensee). Follow-on inventions how doeS otl Manage the equity granted aS Part of a licenSe based on work at Stanford will be owned by Stanford and the licensing of the agreeMent? new invention will be handled by OTL as if it were a new disclosure. In other The distribution of equity differs slightly from distribution of cash royalties. words, the existing licensee will not be automatically granted a license to the After 15% is deducted for OTL’s administrative fee, inventors ordinarily follow-on invention. receive their proportional share (1/3) of equity directly from the licensee. The remainder is earmarked to split between the OTL Research and Fellowship can a Start-uP get a licenSe without Being incorPorated? Fund (administered by the Vice Provost and Dean of Research) and the Vice The company is not required to be officially incorporated. But, it should have Provost for Graduate Education/OTL Graduate Education Fund (administered a name and place of business. OTL must sign an agreement with an entity, by the Vice Provost for Graduate Education). not individual inventors. Stanford employees may not sign an agreement on behalf of the company nor have positions/titles at the company that imply a The University share is managed by the Stanford Management Company management role. which generally liquidates equity as soon as a public market exists. If Stanford holds equity in a company that conducts a clinical trial at Stanford if the Start-uP iS BaSed on an invention jointly owned By Stanford on Stanford-owned IP, the University will generally sequester the equity and and another inStitution, what haPPenS to the invention? earned royalties for institutional conflict of interest reasons. Typically, OTL enters into an Inter-Institutional Agreement whereby one of the institutions will take the lead. This way a company can negotiate a single doeS Stanford taKe a Seat on the coMPany Board? agreement with an exclusive license to both parties’ IP rights. No, nor does Stanford take an active role in managing the company. if a Start-uP needS technology froM another inStitution BeSideS will Stanford aSSign the Patent to a Start-uP (or exiSting Stanford, But the technology iS not jointly-owned with Stanford, coMPany)? will the coMPany need a SeParate licenSe? No, Stanford does not assign or transfer IP rights. When appropriate, Stanford Under most circumstances the company will need to negotiate separately can grant an exclusive license after marketing and deciding that the start-up with the other institution for a license. However, schools do sometimes is the best candidate to commercialize the invention. package their technologies together in a single license agreement. For complicated technologies, the company will need to conduct a freedom to operate (FTO) analysis and confirm that the company has a path to acquire 22 23 all the necessary IP components the start-up will need to make its proposed products.if the invention iS unPatented Software, will the Start-uP Still Stanford Policies, need a licenSe? Yes, a copyright license is required if the software falls under Stanford’s Conflict of Interest, and ownership policy (see the Research Policy Handbook— stanford.io/rph). Conflict of Commitment can i continue to do reSearch at Stanford on the technology that iS the BaSiS of a Start -uP? Stanford always reserves the right to practice its own inventions for research intellectual ProPerty Policy and ownerShiP purposes. However, researchers are not permitted to continue to develop Stanford’s intellectual property (IP) policies are outlined in the Research technology at Stanford for the benefit of a start-up in which the researcher Policy Handbook (stanford.io/rph). For new companies started by Stanford has a financial interest. See the next section (Stanford Policies and Conflict of faculty, staff, or students with technology created at Stanford and falling Interest) for further details. under Stanford policy, ownership of IP rights will be with the University. This ownership policy applies to any sort of intellectual property, including patents, copyrights on software, semiconductor maskworks, trademarks and tangible research property. Managing conflict of intereSt at Stanford OTL works with Stanford inventors both to facilitate technology transfer and to manage the licensing process. In the case of Stanford-affiliated start-ups, this process often raises issues regarding conflicts of interest (COI). A full explanation of Stanford’s policies and procedures for managing COI can be found at stanford.io/coi. OTL must be particularly sensitive to public perception when a potential licensee is a Stanford-affiliated start-up or a faculty-associated company. Marketing inventions and negotiating from an arms-length relationship are two ways that OTL manages potential COI (see Best Practices of Faculty and Student Start-ups on pages 28–34). In addition, ad hoc disclosures are required whenever a current or prospective relationship creates the potential for COI (e.g., when there are additional financial relationships proposed between a faculty member and a prospective licensee or research sponsor). A COI occurs when there is a divergence between an individual’s private interests and his or her professional obligations to the University such that an independent observer 24 25might reasonably question whether the individual’s professional actions or Stanford will ordinarily presume that intellectual property developed 1) while decisions are determined by personal financial considerations. A COI depends a faculty is consulting at the company; and 2) on an on-going company on the situation and not on the character or actions of the individual. program (e.g., drug development, medical device, chip development, software issue, or any other specific company research or design activity) A resource page for COI is available at stanford.io/coi. COI reviewers are belongs to the company as long as there has not been more than incidental concerned with whether or not a researcher/faculty member can separate use of Stanford resources. Stanford resources are considered to include University research from company research, provide unbiased and facilities, equipment, or the time and expertise of students and post-doctoral appropriate guidance and support to students, maintain academic integrity fellows and research staff. However, Stanford resources do not include use of in research and education, and adhere to government mandated policies. personal computers, telephones, or libraries. OTL cannot conclude any agreements until the appropriate COI reviews and approvals have been completed. When a faculty member is consulting for a start-up company with which he or she has another financial relationship, it is particularly important to conflict of coMMitMent make certain that the separation between consulting activities and the faculty Stanford faculty members owe their primary professional allegiance to the member’s academic program, including research and teaching activities, University. Their primary commitment of time and intellectual energies is clear to all parties. These policies also apply during sabbatical leave. should be to the education, research, and scholarship programs of the Information on requirements for faculty consulting activities can be found at institution. stanford.io/rph_fac_consult. When a question arises as to the appropriate delineation between a researcher’s University responsibilities and a Conflicts of commitment usually involve issues of time allocation. If a researcher’s consulting obligation, the researcher should discuss the situation situation raising questions of conflict of commitment arises, faculty should with his or her cognizant dean. If there is a question of IP ownership, the IP discuss the situation with their department chair or school dean, or the Dean should be disclosed to the University. of Research. More information about University policies concerning conflicts of interest and commitment can be found at stanford.io/coi and in the Best oBligation to SPonSorS Practices sections of this guide. Inventors should take particular care in disclosing all sponsors, including companies whose funding or materials led to the invention. Sponsored conSulting and ownerShiP of intellectual ProPerty research agreements specify what rights a sponsor has in any IP developed Start-up companies may hire Stanford inventors as consultants. Since the as a result of the sponsored research. Under most circumstances, Federal University does not ordinarily review consulting arrangements, inventors funding of research leading to an invention will not impose significant should be clear about the delineation between University work and private impediments on commercializing the invention via a start-up. Funding consulting. Stanford inventors cannot enter into any agreement that creates or materials provided by other entities (such as companies) may result in copyright or patent obligations that conflict with their SU-18 agreement to license rights to those entities, limiting the license rights available for a assign their rights to Stanford. Faculty members must separate and clearly start-up. Corporate sponsors are typically granted rights to negotiate a license distinguish ongoing University research from work being conducted at the for any IP arising from sponsored research, but sponsorship agreements company as outlined in the Best Practices for Faculty Start-ups in this guide. vary widely. The Licensing Associate responsible for the invention reviews the research agreements listed on the invention disclosure to identify any 26 27 licensing restrictions on the invention.OTL takes several steps to effectively transfer the technology while managing For Faculty: conflict of interest. First, OTL markets all Stanford technology to ensure fair and open access to potential licensees – faculty Start-ups should not receive Best Practices for Start-ups or be perceived as receiving preferential treatment. Second, Stanford faculty/ employees are not allowed to represent the potential licensee and must not negotiate directly with OTL. Third, OTL licensing agreements may be exclusive or non-exclusive depending on what is most suitable for a given 1 aculty-associated start-up companies (“Start-ups”) technology. Finally, the faculty member’s School Dean and the Dean of Research must review any actions that present a potential conflict of interest, are both opportunities and challenges for Stanford. specifically: Stanford has had a long history of entrepreneurial • If, after thorough marketing, OTL determines that a faculty-affiliated activity by faculty, staff, students and alumni and the university company is the appropriate licensee, then it documents its marketing results and summarizes the rationale for its licensing decision for the Deans. is, in general, supportive of its entrepreneurs. • The faculty member must disclose any interest (consulting fees and/or stock options) in the Start-up to the Deans. On the other hand, Stanford is an institution of public trust, with education • The faculty member must agree to separate University responsibilities and research as its mission, and a requirement to maintain openness in from company responsibilities according to the criteria listed under Faculty research. Therefore, entrepreneurial activity must be balanced by careful Responsibilities. review of the proposed relationships, which may or may not be allowed. • OTL may proceed with licensing only if the conflict is deemed manageable These relationships may require active management to assure openness in by the Deans (based on the faculty member’s plan for separating research, academic freedom for trainees, and clear understanding about how responsibilities). conflicts of interest are to be managed. f aculty reSPonSiBilitieS Stanford is committed to avoiding either perceived or actual conflict of Faculty members are responsible for separating University duties for research interest issues with respect to faculty Start-ups. Both Stanford and its faculty and education from personal financial interests in the company. members have responsibilities to optimize technology transfer and mitigate COI when licensing Stanford IP to a Start-up is considered. Faculty must • Separate and clearly distinguish on-going University research from work univerSity/otl reSPonSiBilitieS being conducted at the company. OTL makes licensing decisions based on its professional judgment about • Limit consulting for the company to a maximum of 13 days a quarter, per technology transfer to achieve the best possible benefit to the public, without University policy. undue influence from internal or external parties. • Serve only in advisory or consultative roles at the company as opposed to managerial roles or titles (e.g., CTO) suggesting management responsibility. • Take a leave of absence if engaging in a management role. 1 Faculty-Associated Start-up is defined as a company where the original intellectual property 28 29 originates with the faculty, where the faculty is a founder and has a significant equity position in the company, and often has an influential role in determining the direction of the company.Faculty must not oPtion and licenSe agreeMentS to faculty Start-uPS • Negotiate with the University on behalf of the company. Faculty inventors are expected to wind down ongoing research in the • Receive gifts or sponsored research from the company. particular area that is going to be commercialized by the faculty inventor’s • Involve research staff or other University staff in activities at the company. Start-up. COI offices will also review this wind-down with inventors, and it Company personnel cannot be affiliated with the University. will become part of the record. • Involve company personnel in Stanford research. • Involve current students in company activities. If a student asks to take An option agreement is often used to reserve rights in a technology so that a leave of absence to participate in the company, the student should the company can begin exploring funding opportunities in order to actually be referred to the School Dean who will review the request and offer acquire the rights in question. A start-up company sometimes prefers to independent advice. take an option to a license, rather than an outright license itself. OTL may • Involve junior faculty that they supervise in company activities. Even if the grant options for any time period up to one year in duration, most often faculty member does not have a supervisory role, he or she should avoid in 6-month increments. Inventors are required to stop initiating new work situations in which junior faculty might feel expected to be involved in the on the technology at Stanford (that is, using University resources) when company. the technology is either licensed to a company or has been optioned to a • Use University facilities for company purposes. company. Subject to conflict of interest review, the final separation between • Undertake human subjects research at the University as PI/protocol a company and Stanford may take up to 12 months, the period to be director. determined on a case-by-case basis. Since it may take several months to • Supervise faculty who are PI/protocol directors for human subjects research wind down ongoing research, it is important that inventors plan accordingly related to the company. and begin the wind-down of the Stanford activities before either the licensing or optioning takes place. ‘Pipelining’. Many times, the faculty member wishes to continue to do research at Stanford in the area of interest to their Start-up. Stanford is It’s important for inventors to understand that this policy covering options particularly concerned that University resources will be used to benefit the and licenses is intended to enable inventors to succeed in translating their company, especially new companies that do not have their own facilities technologies into use without jeopardizing the mission or funding status of or many employees (i.e., the “virtual” company). Stanford should not Stanford University. Stanford has a rich history of translating inventions, and be the research or development arm of a Start-up. If a new follow-on or these practices are designed to build on that strong base. improvement invention is developed after the original dominating technology has been licensed to the Start-up, OTL will still market it to all potentially interested parties. Exclusive licenses will not always be granted to the Start- up, even if there is no other interest. In cases where the original technology dominates the subsequent developments, sometimes a nonexclusive license will suffice. If, in the interest of effective technology transfer, it is reasonable to grant an exclusive license to the follow-on technology, the exclusivity may be mitigated by a shorter term of exclusivity, limited field of use, increased diligence, etc. Any new license is subject to conflict of interest review and 30 31 approval.• If, after thorough marketing, OTL determines that an inventor-affiliated For Students: company is the appropriate licensee, OTL documents its marketing efforts and summarizes the rationale for its licensing decision. Best Practices for Start-ups • If the inventor is at Stanford, the inventor’s School Dean and the Dean of Research will review any actions that present a potential conflict of interest. • The inventor must disclose any financial interest (consulting fees and/or stock options) in the start-up to the Deans. nnovation and the translation of inventions into products • Student inventors must describe 1) how they will separate and clearly distinguish their on-going activities that serve the public are deeply ingrained in Stanford’s as students (e.g., thesis research) from work being conducted at the culture and we have benefited greatly from it. Stanford company; and is supportive of faculty and students becoming inventors and 2) measures that will allow them to avoid all use of Stanford facilities and personnel for company purposes (e.g., availability of off-campus office starting companies – whether or not these companies are based or R&D space and support personnel). Ideally, the separation between on Stanford technology. in addition, Stanford is committed to Stanford and the company will occur contemporaneously to any formal avoiding either perceived or actual conflict of interest issues option or license agreement. However, in some cases, a transition period of up to 1 year might be acceptable. with respect to start-ups. when licensing Stanford intellectual • The School Dean and Dean of Research must also review and approve any property to a start-up, both Stanford and its entrepreneurs have conflict of interest under policies that apply to faculty if Stanford faculty are responsibilities to optimize technology transfer and mitigate involved with and have a financial interest in the start-up company. • OTL may proceed with the licensing only if all conflicts are deemed conflict of interest (coi). manageable by the cognizant Dean and the Dean of Research. OTL options and licensing agreements may be exclusive or non-exclusive depending OTL makes licensing decisions based on its professional judgment about on what is most suitable for achieving technology transfer and the best how to achieve the best possible benefit to the public, without inappropriate possible benefit to the public. influence from internal or external parties. oPtionS and licenSeS To effectively transfer the technology in an unbiased way: An option agreement is often used to reserve rights in a technology so that • OTL markets all Stanford technology to ensure fair and open access to the company can begin exploring funding opportunities in order to actually potential licensees. acquire the rights in question. A start-up company sometimes prefers to • Start-ups should not receive or be perceived as receiving preferential take an option to a license, rather than an outright license itself. OTL may treatment. grant options for any time period up to one year in duration, most often • Student inventors (or faculty) involved in a start-up may not negotiate with in 6-month increments. Inventors are required to stop initiating new work the University on behalf of the company unless they are on leave from on the technology at Stanford (that is, using University resources) when Stanford. the technology is either licensed to a company or has been optioned to a 32 33 company. Subject to conflict of interest review, the final separation between a company and Stanford may take up to 12 months, the period to be OTL and Entrepreneurs determined on a case-by-case basis. Since it may take several months to wind down ongoing research, it is important that inventors plan accordingly and begin the wind-down of the Stanford activities before either the licensing or optioning takes place. tanford’s approach to educating entrepreneurs is to It’s important for inventors to understand that this policy covering options provide an environment that encourages networking and licenses is intended to enable inventors to succeed in translating their and collaboration across disciplines and industries; to technologies into use without jeopardizing the mission or funding status of Stanford University. Stanford has a rich history of translating inventions, and offer opportunities for testing ideas; to be open and welcoming these practices are designed to build on that strong base. to new and experienced entrepreneurs and investors; and to maintain transparency regarding university policies. otl is one small part of Stanford’s entrepreneurial culture, with over 250 companies started around technology licensed through the office. One of OTL’s goals is to find a company that is the best fit for an invention so that it can be commercialized for society’s use and benefit. At Stanford we are fortunate that the best fit often involves an entrepreneur with the passion and commitment to realize the potential of the technology. We are excited to work with those entrepreneurs and negotiate an agreement that can help build the foundation for both a successful company and a mutually beneficial long term relationship between the company and OTL. 34 35Innovation Farm Teams (iFarm Teams) reSource guide The iFarm Team program, begun by OTL in 2011, is an experimental initiative that aims to accelerate the commercialization of new Stanford- invented technologies while providing a unique educational experience to iFarm Team participants. Each iFarm Team consists of current Stanford Stanford has a wealth of entrepreneurial history and knowledge. Some community members (students, postdocs, faculty, alumni), relevant industry entrepreneurs are already aware of the various organizations, classes experts, and an OTL Licensing Associate. iFarm Team activities may include and websites that are available to them. Below is a list of resources, both conducting analysis using design thinking, business model generation, on- and off-campus, that can educate and guide Stanford entrepreneurs opportunity assessment, market research and technical development such as through the start-up process or help them network and gain feedback for prototyping. their new company. SPARK organiZationS and PrograMS at Stanford SPARK is a partnership between Stanford University School of Medicine Association of Industry-Minded Stanford Professionals (AIMS) and volunteers from biotech, pharma, and healthcare investment. SPARK AIMS is the postdoc link to entrepreneurship and industry. Their main goal is working to make translational medicine a reality by promoting innovative is to create a fertile networking environment for entrepreneurially minded research; educating students in technology, drug discovery and drug postdocs and ease the transition between academia and industry development; creating partnerships between scientists and entrepreneurs; aims.stanford.edu and bridging basic science and pre-clinical studies with expertise in clinical testing and product development. SPARK provides funding, education, access Business Association of Stanford Entrepreneurial Students (BASES) to facilities, expert advice, and mentorship to researchers whose projects BASES is a nonprofit, student-run organization that has grown from five show promise as future medical therapies. founding engineering students in 1996 to more than 5,000 members, http://med.stanford.edu/sparkmed including undergraduates, graduate students and faculty from all seven schools at Stanford. It is a community that encourages learning, fosters Stanford Angels & Entrepreneurs (SA&E) innovation and inspires the next generation of entrepreneurial leaders. SA&E seeks to strengthen Stanford’s entrepreneurial community by fostering BASES sponsors annual business plan competitions, the E-Challenge and relationships among potential investors and entrepreneurs. Beyond funding Social E-Challenge. During these competitions, industry experts, venture start-ups, SA&E supports both angels and entrepreneurs through educational capitalists and lawyers judge and coach students on their ideas, plans and programs and access to the Stanford entrepreneurial ecosystem. presentation skills. BASES also organizes workshops and other programs that stanfordaande.com assist students in finding employment and developing business plans. It has funding relationships with several leading venture capital firms. Stanford Byers Center for Biodesign bases.stanford.edu Stanford Biodesign trains students, fellows and faculty in the biodesign innovation process: a systematic approach to needs finding and the invention and implementation of new health technologies. Stanford Biodesign administers seed funding from several sources for medical device, diagnostic 36 37 and healthcare IT projects and provides mentoring and networking with relevant experts in the health technology, venture and legal industries. biodesign.stanford.edu

Advise: Why You Wasting Money in Costly SEO Tools, Use World's Best Free SEO Tool Ubersuggest.