Crossing a Small Chasm
The road to a shorter university startup licensing process
By: Kirsten Leute
Last year, I surprised many (including myself) by leaving a job I loved in university technology transfer and accepting a job at a venture capital firm that invests in university spinouts. In my almost two decades of being a technology transfer person, I often negotiated with attorneys, entrepreneurs, and other business people in licensing technologies to newly created startups. Now at the juncture between venture capital and university technology transfer, I am gaining even more perspective from both sides.
I recently sat on a panel with two venture capitalists in front of an audience of university technology transfer professionals. Not surprisingly, a topic mentioned was the length of time it takes to negotiate a license agreement out of the university (insert groans and rolling eyes). I asked one of my co-panelists how long he thought the negotiation process should take. The answer? 5 to 6 weeks.
And honestly, I agree with him. 5 to 6 weeks is reasonable. So why does the process usually take much longer?
Looking back on my own negotiations, it was a rare event to finish a full startup license in a month and a half; I would guesstimate the typical duration was 4 to 6 months. The reasons for the delay were exactly what you would expect — numerous drafts back and forth, delays at the law firm where everyone was overworked, too many constituents needing to have a say in the deal, review of the potential conflicts at the university, the company still looking for its investors and therefore tenuous about committing to the license and payment obligations, etc. And at the end of the day, if people don’t negotiate a lot on a deal, do they end up feeling confident they got the right deal?
All that being said, I do think there are ways we could streamline the process. Some small adjustments could shave some time off this process, saving everyone time to work on the multitude of other tasks requiring their attention.
Before moving on to some suggestions, I’d like to address two criticisms of academic technology transfer:
1) “University policies and guidelines are getting in the way of startups and should be changed to make the process easier.” There are many issues with this criticism, but let’s just tackle the ultimate goals of each of the parties. For investors, the goal is to provide a great return for their limited partners. For universities, the goal is educating its students and conducting cutting-edge research. The goal of the technology transfer office may be to transfer the technology for society’s use and benefit, but that is secondary to the mission of the university. So when a technology transfer officer says they cannot change the warranties and indemnities clauses, it’s not because they are being difficult and trying to get in the way of the startup. They are adhering to the primary mission of the university. Licensing is way down on the priority list.
2) “University technology transfer offices’ number one goal is to maximize revenue.” While this might be true in a minority of cases (universities, feel free to raise your hands if it is), most TTOs are focused on transferring the technologies out of the university by means of a fair deal for the university. Always remember that a startup can come back and ask for changes to the deal if it is not working for the company, either financially or in other ways. It is extremely rare that the university can do (or does) the same.
One solution some universities are trying in order to speed up the licensing process is through university express licenses (examples here (North Carolina), here (WUSTL), and here (UChicago). In my opinion, it remains to be seen how effective these deals are for either party and how often these licenses are used. Since the majority of the time start up licenses require traditional negotiation, my recommendations are intended for those situations.
These recommendations focus on how to make the startup licensing process easier, rather than focusing on certain license clauses.
Technology transfer offices:
1) Save both parties time by highlighting the terms that are not negotiable in the deal in the first draft. There are only a few.
2) Train your officers to negotiate the same priorities consistently. Yes, these may shift between technologies and deals, but one common complaint from VCs is that the deals are radically different depending on which licensing officer is doing the negotiating.
3) Involve more than one licensing officer on the deal. The officers will learn from one another (assisting with point #2), brainstorm ideas together, and have different experiences from which they can draw upon. If they work well together, they can keep each other on track on the deal. If one of the officers leaves the university, all of the knowledge and relationship regarding the deal does not leave with them.
Startups/VCs:
1) If you are using an attorney for the negotiation, ask the technology transfer office for recommendations of attorneys who have successfully and productively negotiated startup deals with their office. Nothing stalls a deal like an attorney or firm that has limited experience negotiating licensing deals with academic institutions.
2) Don’t sweat the small stuff. You are a startup. You will come back and ask for amendments to the agreement. The university will grant them if they are not egregious and you are a licensee in good standing. Their job is not to kill startups; it is to get the technology successfully transferred to an entity that will further research the technology and bring it to market.
3) Don’t try to account for every possibility. Again, you are a startup. You will pivot. See point #2.
Both sides:
1) Determine and communicate your priorities from the outset of the deal. Set a “top 10” list of what you are looking for from the deal and provide that list to each other at the start of the negotiation. The needs of the startup are likely to include financial terms and scope of the rights granted, which the institution will, in many instances, find reasonable. The needs of the institution will include non-negotiable terms related to risk management, use of name, and publication rights, which the startup should not even try to negotiate. In addition, set an expected turn-around time frame for each draft of the agreement (e.g., three business days).
2) Communicate, communicate, communicate. Do so in person and/or via phone rather than just electronically. As a technology transfer professional, my best experiences were with startups who didn’t just provide me an annual written update, but with whom we had a running dialogue throughout the year. Then I knew what was coming down the pike and license amendments were much easier.
3) Very few venture capitalists and technology transfer officers interact on a regular basis. Change that, and it will likely change your interactions.
In another blog post, I’ll take a deeper look at the particular elements and clauses of the university startup license negotiation. In the meantime, what are some small and large solutions you’ve found effective in making the process speedier and less bumpy? Please post away below.
