Startups

Startups in the domain of UNL's Office of Technology Development are new companies created to commercialize intellectual property owned by the University. Startups are different from other commercial relationships entered into by OTD because they are new companies, not established firms looking to extend their existing product offerings.

Startups arising from University technology can be founded by faculty or by entrepreneurial individuals and teams who are not affiliated with the University. Such non-affiliated teams may well include a member of the University community as a scientific advisor or perhaps as a part time chief scientific officer. They also may employee former graduate students familiar with the technology.

Faculty and staff who wish to participate in a technology commercialization company must first obtain approval from their department chairs and deans, including compliance with any conflict of interest policies. [Regents Policy 3.2.8].

OTD's Commitment to Startups

The University of Nebraska-Lincoln encourages startups based on licensed UNL-owned patents. The staff of OTD has substaintial knowledge about startups and has resources available to help its startups to succeed. UNL OTD enthusiastically supports startups that intent to locate in Nebraska. For instance, OTD encouraged the formation of the Nebraska Angel Network, a group of high net worth individuals who can help finance an early stage business, subject to their confidence in the business plan, the market opportunity and a competent management team. OTD can provide guidance in writing a business plan and SBIR/STTR grant applications.

But there is a great deal of risk with a startup business. We are thus cautious and consider the risk in assessing the potential of a startup.

• Before licensing to a startup, we want to see a strong technology, backed by a compelling business plan, supported by a capable management team, funding and commitments for stage I activities, and a realistic plan for funding through break-even.
• Short of having all the pieces, we will work with a faculty member or other founder to establish an option to a license agreement for a period of time, giving them time to build.
• When we do negotiate an agreement, we expect to have an opportunity to earn a fair return for the University, based on AUTM (Association of University Technology Managers) practices, which vary considerably, but apply rule-of-thumb terms based on technology industry sectors. We seek to be in the mainstream, but because there is much variation from one deal to another and each negotiation is unique, any agreement we reach must be an attractive deal for all players.

Is a Startup Feasible?

To help determine whether it makes good business sense to start a company with UNL technology licensed from OTD, UNL inventors should ask some basic questions regarding company feasibility. We suggest you discuss these issues with your case manager and outside professionals as you prepare your business plan.

• Will the technology require considerable additional development before it's ready for the marketplace?
• Is the market for the product or service large enough to warrant starting a company?
• Are the profit margins large enough to permit the company to operate profitably?
• Is the market for the product or service accessible to a startup company?
• Is an existing business unlikely to license the technology unless it is developed further?
• What rights to use the technology (exclusive, non-exclusive) will the company need in order to successfully enter and compete in the marketplace with a product?
• Is the startup likely to be a lifestyle business or one that has the potential of going public or being sold to a public company?

Option Period

Once you've discussed the company's feasibility and have decided to move forward, your next step is to prepare a business plan describing the company's business model. Some faculty entrepreneurs and their business partners may be able to submit a full business plan relatively quickly, while others need more time to fully assess the company's feasibility and develop a solid business plan. To gain that additional time, entrepreneurs will often apply to enter into an option agreement with OTD.

The Technology Option Application is completed by the company founders. It helps OTD find out about you and your plans for evaluating or developing the technology. The answers you provide to the questions on the application allow OTD to better understand your proposal, and provide a mechanism for you to get additional clarification and assistance from OTD.

Once the application is approved by OTD, you can enter into an Option Agreement, which will typically contain agreed-upon milestone accomplishments that need to be met to maintain and exercise the option. During the option period, which normally lasts up to six months, OTD agrees not to license the technology to a third party. The option period is not meant to provide time for your company to develop a product. Instead, it gives you time to further evaluate the market potential for your product.

If you are interested in negotiating a license agreement at the end of the option period, your company must provide a business plan acceptable to OTD, containing the particulars of the business model, the strategy for developing products and/or service of the technology, the management team, and the evidence of financial means to initiate commercialization activities. Absent an acceptable business plan, OTD reserves the right to enter into license negotiations with a third party.

Business Planning Assistance

For those interested in applying for an option or license with the OTD, business planning assistance is available through the Nebraska Business Development Center. The Lincoln center, located within the Office of Technology Development, can provide specialized consulting services to early-stage firms exploring the potential of starting a company based on UNL research.

The process of writing a business plan and producing financial projections can be challenging. NBDC consultants can assist entrepreneurs to examine the feasibility of a startup idea and apply for an option to license a technology by providing consulting services to develop a business plan and financial projections. This includes assisting the founding team with: market research & analysis, management & operations, pro-forma financial development & analysis, and options for financing (including equity investment groups and lending institutions).

The Nebraska Business Development Center (NBDC) is a cooperative program of the U.S. Small Business Administration and the University of Nebraska. NBDC provides direct management and technical assistance to more than 2,000 entrepreneurs and businesses through its eight centers in Nebraska each year.

Final Agreements

In reviewing your business plan, OTD will consider carefully the key ingredients in the company – technology, people and capital – and how they blend to create a viable and profitable company. You may review the "Business Plan Outline," shown as Appendix B of the Option Agreement, for major components of the plan.

After OTD accepts the business plan, your company and your case manager will finalize the license and, if applicable, equity agreements between OTD and your company. These discussions typically center on a few key financial and non-financial terms. Financial terms include the license fee, the royalty rate paid on product sales, royalty minimums, and reimbursement of patent costs. An important non-financial term is the "field of use" restriction, defining the specific technological applications your company has the right to develop, as well asthe milestone accomplishments that need to be met to maintain the license to the technology. OTD allows your company to use a technology only for those applications you will actively develop, so that other businesses can license and develop the technology for other non-competing applications and markets.

The licensing process typically begins with OTD presenting to your company a set of draft license terms. In order to make an offer that is as fair as possible to all parties, OTD’s licensing staff analyzes:

• the value of the technology in the marketplace;
• its stage of development;
• the nature and amount of likely profitability;
• financing needs and other factors; and
• terms of license deals completed on comparable technologies in the recent past.

OTD prefers to negotiate with the company and business representatives or the company's legal representatives. If OTD does negotiate with a faculty member, that faculty member will be treated as if he or she were the business person.

If your company is willing to accept the terms as they are presented, a license agreement can be quickly executed. If your company instead wants to make changes to the offer, OTD is happy to work with you in an effort to reach a mutually acceptable agreement; however, each round of back-and-forth discussions will extend the length of time it takes to execute the final agreement.

Here we briefly describe the three main agreements that OTD enters into with startup companies.

The Option Agreement
This agreement grants the company an option to obtain a license within six months, if and when the company develops a business plan acceptable to OTD. OTD agrees not to license the technology to a third party during the term of the agreement.

The License Agreement
OTD uses the license agreement to convey to a company the rights to use and develop a technology. The license agreement often goes hand-in-hand with an equity agreement, under which OTD agrees to waive the usual upfront cash license fees in exchange for an equity stake in the company. The common features of OTD's standard license agreement are:

• Term: the life of the patent(s)
• Equity in lieu of cash license fees
• Royalty rate on product sales
• Patent reimbursement
• Due diligence clauses, including performance milestones, assembly of a qualified management team and acquisition of a certain level of financing and capital.

The Equity Agreement
In lieu of a cash license fee for a technology, OTD will normally accept (depending on the circumstances) an equity relationship with startup companies. The equity agreement relieves a business of having to make a large initial cash payment, allowing it instead to preserve its cash assets for critical development and commercialization efforts. Whether OTD will take equity in a startup company is determined on a case-by-case basis, and will be discussed in detail when license discussions begin.