start-ups and business incubation: the challenges and the opportunities presented to:
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Start-ups and Business Incubation: The Challenges and the Opportunities Presented to: Students to Start-ups By David Schetter Assistant Vice Chancellor for Research UCI Office of Technology Alliances May 6, 2008. Challenges Facing Universities and the Role of Start-up Companies. - PowerPoint PPT PresentationTRANSCRIPT
Start-ups and Business Incubation: Start-ups and Business Incubation:
The Challenges and the OpportunitiesThe Challenges and the Opportunities
Presented to:Presented to:
Students to Start-upsStudents to Start-ups
ByBy
David Schetter David Schetter Assistant Vice Chancellor for Research Assistant Vice Chancellor for Research
UCI Office of Technology AlliancesUCI Office of Technology Alliances
May 6, 2008May 6, 2008
Challenges Facing Challenges Facing Universities and the Role of Universities and the Role of
Start-up CompaniesStart-up Companies
Universities Need Research Funding Universities Need Research Funding AlternativesAlternatives
Federal funding becoming highly competitive
State funding becoming highly restricted
Many universities are growing rapidly, infrastructure being stressed
Costs of research are increasing
Conduct of research becoming more complex
Regulatory requirements result in project delays
Bottom line: Research now takes longer, costs more and
competition for available funds is Intense
Industry is a Significant Research Industry is a Significant Research Funding AlternativeFunding Alternative
Industry offers universities a degree of freedom however,
Larger companies have moved away from funding discovery research: preferring to buy proven technologies or start-ups that own them
Start-up companies founded on University technologies offer a route to research funding and technology commercialization
Requirements include: Strong Intellectual Property Coordination among University offices Flexibility on IP terms Attention to Conflicts of Interest and Commitment
Challenges Facing Industry: Challenges Facing Industry: The Bio/Pharma Technology The Bio/Pharma Technology
Pipeline ExamplePipeline Example
Top Ten Selling Drugs in 2003Top Ten Selling Drugs in 2003
Drug Company 2003Sales
Year offPatent
1 Lipitor Pfizer $ 9.2 Bn 2010
2 Zocor Merck $ 4.9 Bn 2006
3 Norvasc Pfizer $ 4.2 Bn 2007
4 Zyprexa Eli Lilly $ 4.2 Bn 2011
5 Paxil Glaxo $ 3.5 Bn 2006
6 Zoloft Pfizer $ 3.0 Bn 2006
7 Procrit J&J $ 2.9 Bn 2013
8 Pravachol BMS $ 2.8 Bn 2006
9 Fosamax Merck $ 2.7 Bn 2007
10 Effexor Wyeth $ 2.6 Bn 2008
• Total 2003 Sales - $ 40 Bn
• Percent of Sales off Patent by 2010 – 82%
Substantial Revenues at Risk Substantial Revenues at Risk Due to Patent ExpiryDue to Patent Expiry
2009-20132003-2008
Abbott
Roche
Novartis
JNJ
AZ
BMS
Wyeth
Glaxo
Pfizer
Merck
7
9
21
15
16
15
3
18
37
40
0 20 40 60 80 100
Percent of 2003 Sales Coming off Patent
41
26
27
42
24
17
13
4
15
8% % % %% %
Bridging Two CulturesBridging Two Cultures
UNIVERSITY
• Create and propagate knowledge for the public good
• Narrow Scope of License
• Revenue
• Academic Freedom
• Control of Intellectual Property
• Diligent Development
COMPANY
Financial return to investors, founders and employees using knowledge
License
Expense
Confidentiality
Control of Intellectual Property
Commercial Flexibility and Uncertainty
Expands corporate R&D capabilities
Lowers R&D costs and adds flexibility
Provides access to matching grants and other sources of non-dilutive funding
Provides access to scientific and technical expertise
Facilitates recruiting of technical staff
Enhances the corporate technology portfolio Licensing direct from University
Start-up acquisition or strategic partnering
Why Should Industry Partner Why Should Industry Partner with Universities?with Universities?
Types of University/Industry Types of University/Industry Interactions Interactions
Sharing of Materials, Equipment & Facilities
Industrial Consortia
Gifts
Affiliate Programs
Continuing Education
Student Recruitment
Internships/Externships
Faculty Consulting
Clinical Trials
Technology Option or License
Collaborative/ Sponsored Research
Decentralizing technology transfer to campuses Principles for Industry/UC partnering
Open dissemination - Accessibility for UC purposes Public benefit - Fair consideration Informed participation - Objective decision-making Legal/ethical integrity - Impact on students
Patent Policy changes and incentives Equity Policy Licensing flexibility for different industry sectors
California Institutes for Science & Innovation
The UC Discovery Grant Program
UC Commitment to Industry UC Commitment to Industry PartneringPartnering
Theme: U.S. global competitiveness
Focus: “Rising Above the Gathering Storm” report
Challenge to participants: Recommend one action your community could take within the next six months that would address the issues in the Report
Attendees: VP level executives from Orange County industrial firms, civic leaders, UC Irvine executives, community members, California Governor’s Office Rep
Primary Recommendation: Orange County needs more business incubation
National Academy of Sciences National Academy of Sciences Convocation, Fall 2006Convocation, Fall 2006
Orange County Business Orange County Business Incubation Network (OCBIN)Incubation Network (OCBIN)
Enhancing economic growth in Orange County:
New business incubation
Collaborative R&D
Leveraging investment capital, services and
business resources
OCBIN-ConnectionsOCBIN-Connections
Secure communications for matching vetted start-ups with VCs and qualified service providers (screening process)
Start-ups access “best in class” on most favorable terms
Sponsorships by OCBIN-Connections members with visibility on www.OCBIN.org
OCBIN Corporate PartnersOCBIN Corporate Partners
Technology scouting
Incubating new company technologies
Collaborative R&D
Accessing UCI and the UC system resources
The Incubation EcosystemThe Incubation Ecosystem
CorporatePartners
CorporatePartnersInvestorsInvestors
ServiceProviders
ServiceProvidersSponsorsSponsors
EconomicDevelopment
EconomicDevelopment
IncubatorsIncubatorsPortfolioCompany
PortfolioCompany
The Incubation ProcessThe Incubation Process
Pre-Incubation Identification of Incubation Prospects Vetting of Incubation Prospects
Incubation Seed Capital Provided by Incubator Fund Mentoring by Incubator Staff and Advisors Support from Service Providers Transition from Technology to Product Series A funding as needed
Post Incubation Continued Growth Pursuit of Exit Strategy
Incubation Business ModelsIncubation Business Models
License-in/ Acquire
Technology
License-in/ Acquire
Technology
Sub-License Technology to
Customers
Sub-License Technology to
Customers
Improve Technology
Improve Technology
Sub-License Technology to
Customers
Sub-License Technology to
Customers
Productize Technology
Productize Technology
Sell Products via Channel or
Direct
Sell Products via Channel or
Direct
Open-Source: Provide Services
Open-Source: Provide Services
Advantages of IncubationAdvantages of Incubation
Inventors Retain Control of Technology UCI and Inventors Increase Revenue Share Inventors Can Focus on Technology
Mentors Provide Guidance Additional Assistance from Service Providers Funding Provided as Needed
Economic Development Stays Local
UCI Virtual Incubation Model for UCI Virtual Incubation Model for Start-up CompaniesStart-up Companies
Company founded on optioned/ licensed UCI technology and pre-seed capital
Initial non-dilutive funding SBIR, STTR and UC Discovery Grants
Provides for early stage technology development, leveraging UCI resources
A web of agreements between the start-up company and UCI: Sponsored/collaborative research, license/option,
Material Transfer Agreements, Sales & Service, sublease, gifts, consulting, subleases
All standard terms with no exceptions to policy Management and integration of agreements is key
Research $
Futu
re R
ight
s
from
Res
earc
h
UCI Virtual Incubation UCI Virtual Incubation ModelModel
UCIResearch
LabOTA
FederalAgencies
SBIR STTR
UCDiscovery
Grant
InventionAt Risk Patent Filing
Research $
Sales & Service
Agmt
$
Funding Sources
Seed Funds
$R
esearch
Pro
po
sal
Opt
ion/
Lice
nse
Proprie
tary R
ights
$M
atch
ing G
rant
Proposa
l
Ma
tch
ing
Gra
nt
Pro
po
sa
l
Sublease
UCDG $
UC
Dis
co
very
Gra
nt
$
Futu
re R
ight
s
from
Res
earc
h
NewCompany
Virtual
Business Plan
IndependentCompanyPhysical
Virtual Incubation Model Virtual Incubation Model (continued)(continued)
Conflict of Interest Review “Without conflict there is no interest”
(Conflicts can exist but must be managed) Review of financial interests (income, stock,
board or management position) Percent equity holding allowed for UC founder
based on stage of financing and dilution Board membership discouraged and no
tolerance for management position – can serve on the Scientific Advisory Board but not as chair
Virtual Incubation Model Virtual Incubation Model (continued)(continued)
Sponsored Agreement Terms Full UCI overhead “Improvement inventions” rolled into
license/option at no additional charge New inventions in the “Field” added to
license/option for one-time fee First right to negotiate a license to new
inventions outside the Field
Virtual Incubattion Model Virtual Incubattion Model (continued)(continued)
Move to Non-virtual Status
Company does strategic partnership with larger company including research funding, sublicense and co-development milestones
UCI receives “attributed income” share of company partnering revenue and liquidity events
Company raises next round of capital, moves out of virtual phase to own facilities & carries out product development, production & sales
UCI receives license revenue on milestones and net sales
Virtual Incubation with Incubators
UCIResearch
LabOTA
FederalAgencies
SBIR STTR
UCDiscovery
Grant
InventionAt Risk Patent Filing
Research $
Sales & Service
Agmt
$
Funding Sources
Seed Funds
$R
esearch
Pro
po
sal
Opt
ion/
Lice
nse
Proprie
tary R
ights
$M
atch
ing G
rant
Proposa
l
Ma
tch
ing
Gra
nt
Pro
po
sa
l
UCDG $
UC
Dis
co
very
Gra
nt
$
Futu
re R
ight
s
from
Res
earc
h
NewCompany
Virtual
Business Plan
IncubatingCompany
IndependentCompanyPhysical
Take Home MessagesTake Home Messages Diligence on IP absolutely critical
Solid business plan essential from R to D to regulatory all the way through certification and reimbursement
Assessment of University inventor current and future projects and potential overlapping obligations is key
Understand inventor motivations and expectations Understand investor motivations and expectations Communication, Communication, Communication A business incubator can provide needed services,
expertise & support, often on an equity basis Leverage University resources to the extent possible
Thank you for your attention!Thank you for your attention!
David Schetter David Schetter Assistant Vice Chancellor for ResearchAssistant Vice Chancellor for Research
[email protected]@uci.edu
UCI Office of Technology AlliancesUCI Office of Technology Alliances
www.ota.uci.eduwww.ota.uci.edu
Orange County Business Incubation NetworkOrange County Business Incubation Networkwww.ocbin.orgwww.ocbin.org
May 6, 2008May 6, 2008