4. There is a Market
His/Her Company Sells (or Want to Sell) to this
Customer Segment
Atractive Market Size
Pull-Through Likely with Customer Segment
Your Technology can Capture (or Help Capture)
a Hefty Market Share
“PEPPY” Value Proposition: Performance, Ease-of-
Use, Price, (PEP) and UMPF
Foresight Science & Technology
4
www.ForesightST.com
5. Ease of Use
Target
Foresight Science & Technology
5
www.ForesightST.com
6. Revenues
from Sales
$
Saving
from Operations
Time
(Life or death needs such as health,
environment, or military requirements and
aesthetics/taste for consumer items are the exception. )
Foresight Science & Technology
6
www.ForesightST.com
8. Poor Richard: “The The deal has to made
second vice is lying, sound business
the first is running in
debt. …It is hard for sense or it is a
an empty bag to nightmare to enforce
stand upright” Good Deals are:
Win/Win: Net Positive
Cash Flow for All
Parties
Foresight Science & Technology
8
www.ForesightST.com
9. Poor Richard: “Fair Value is defined by the
commerce is where equal product of:
values are exchanged for The number of units sold
equal, the expense of The profit per unit
transport included.” We usually use Net
Revenues or Gross Profit
Adjusted by the other
costs for the buyer and
seller to do the
transaction
Adjusted by the risk of
realizing the value
(discounting)
Foresight Science & Technology
9
www.ForesightST.com
10. Poor Richard: “Always Your Share is Your
taking out of the pot and Contribution to the End Value
never putting in one soon Cash Flow is the Lifeblood of
comes to the bottom” Business
The more risk a party bears, the
more upside cash flow potential
it deserves
Cash today is worth less than
cash tomorrow
The likelihood of cash tomorrow
decreases as total risk
increases
Allocate risk to the party able to
control it or bear it.
Use side payment(s) to make
the deal “fair.”
Foresight Science & Technology
10
www.ForesightST.com
11. Poor Richard: “A good Legal Terms Count
example is the best Get
sermon.” Move Technology to
Market
Upfront Fees
Minimums
Loss of Rights
Cash
Clear and Transparent
Metrics for Payments
The right amount
Audit Rights
Not sued
Indemnification
Infringement prosecuted
Right to Sue
Foresight Science & Technology
11
www.ForesightST.com
12. Make a list
Must Haves
No Ways
Nice to Have
Be Fair and Reasonable
Be Realistic About the
Value
Use Your Nice to Haves to
Negotiate for the Others
When you have:
Your Must Haves
None of Your No Ways
Sign
Foresight Science & Technology
12
www.ForesightST.com
13. NPV (million $)
NPV = PV of Total Revenues – Costs
NPV as a function of
P
Linear Equation for the
NPV (“Business Model”): spreadsheet value
NPV = q (P)-C
P (forecasted
price of the portfolio,
P = Σ 1…nIP xx p)
• The quality of IP (q) affects the NPV line slope.
• q measures the value of:
−C technology value at current TRL/
forecasted fair market value of current substitutes
Foresight Science & Technology
13
www.ForesightST.com
14. Technology is a Tool for Doing Something
5 W’s
Who is doing it?
What is being done?
Where are they doing it
Why is it being done?
When are they doing it?
Foresight Science & Technology
14
www.ForesightST.com
15. Product Innovation
Stage
Bundle of
Features
Standard User
Interface
Process Innovation
Stage
Eliminate Steps
Improve Reliability
Improve Efficiency
of Resource Use
Foresight Science & Technology
15
www.ForesightST.com
16. Improves Outcomes Has Utility
Bohn Knowledge Useful
Level Measured in Bundles
Skills/Know-how of Groceries
Extension
UMPF
Extension
Enabling
Core Strategic
Extension
Competing Enabling
Time
Foresight Science & Technology
16
www.ForesightST.com
17. Offensive
Emerging Lead all Competitors
Pacing Be in Top 5% of all Competitors
Spare Impact
Lead all Direct Competitors
from Use of
Defensive Product, Be in Top Half of all Competitors
Service, or
Hedging Technology Crucial for Future Growth
Imitative Crucial for Take-off
Spare Offensive Defensive
Function
17 Foresight Science & Technology
www.ForesightST.com
18. COMPARING YOUR TECHNOLOGY WITH OTHERS
YOURS
Functionality
of Tchnology
Features and
Relat ive Weig h t in g
3 Strong
2 Medium
1 Weak
Customer Requirements
Performance
Ease-of-Use
Price
Other
Total Weight 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Foresight Science & Technology
18
www.ForesightST.com
19. Is There a
Competitive
Opening?
Foresight Science & Technology
19
www.ForesightST.com
20. Conditional GO GO GO NO GO
Conditional GO
Conditional GO NO GO
NO GO
Inside the Triangles, the Technology
has a Competitive Advantage
Foresight Science & Technology
20
www.ForesightST.com
24. Cost vs. Delays for all Risks along Value Chain
Technical and firm specific risk
30%
are the basis for the discount 25%
Resulting Cost Increases
rate. 20%
15%
10%
Market risk is a probability
distribution for outcomes.
5%
0%
0% 5% 10% 15% 20%
Resulting Delays
Foresight Science & Technology 24
24
www.ForesightST.com
25. Risk Level Approximate DR(%) Description
Risk Free 10-18 Existing product, high demand,
building more of the same
Very Low Risk 15-20 New well understood technology
for an existing product
Low Risk 20-30 New features, well understood technology
into an existing market
Moderate Risk 25-35 New product, well understood technology
into market with competition
High Risk 30-40 New product, not well understood
technology into an existing market.
Very High Risk 35-45 New product, new technology, new
market
Extremely High Risk 50-70 New company, unproven technology,
new market
Source: Richard Razgaitis, Early Stage Technology
q: the measure of potential utility
is the inverse of the discount rate
Foresight Science & Technology
25
www.ForesightST.com
26. Any numbers in green found in the following fields can
be changed and will be reflected in the tables below
Factor Rate Weight Impact
Industry Norm 0.0% 0.0 0%
Significance (Breakthrough add 5-10%, Major add 0-5%%, Minor subtract 0-3% 0.0% 3.0 0%
Refinement/Maturity of Technology (High add, Low subtract) 0.0% 2.0 0%
Breadth and Strength of IP Protection (Yes add, No subtract) 0.0% 2.0 0%
Portfolio, Not Single Patent Being Licensed (Yes add, No subtract) 0.0% 2.0 0%
Exclusive Market Position in Field of Use Gained (Yes add, No subtract) 0.0% 3.0 0%
Immediate Utility in Market (Yes add, No subtract) 0.0% 2.0 0%
Commercially Successful (Already Successful in Market add, Not Yet Proven in Market subtract) 0.0% 3.0 0%
Competition Exists which Will Inhibit Ability to Exploit (Yes subtract, No add) 0.0% 1.0 0%
Foreign Rights (Yes add, No subtract) 0.0% 3.0 0%
Sales Conveyed or Highly Likely (Yes add, No subtract) 0.0% 2.0 0%
Duration (Over Ten Years add, Under Three Years subtract) 0.0% 1.0 0%
Upfront Payment Required (Yes subtract, No or Conditional add, Standard neutral) 0.0% 2.0 0%
Minimum Royalties (Yes subtract, no add, Standard neutral) 0.0% 2.0 0%
Know-How Included in Deal (Yes add, No subtract, Standard neutral) 0.0% 3.0 0%
Support/Training Provided After Initial Transfer (Yes add, No subtract, Standard neutral) 0.0% 2.0 0%
Maintenance and Enforcement Burden (Licensee subtract, Licensor add, Standard neutral) 0.0% 2.0 0%
Exposure to Liability (Yes subtract, No add, Standard neutral) 0.0% 2.0 0%
Total 0%
Add to Industry Norm 0.00%
RATE 0.000%
Foresight Science & Technology
26
www.ForesightST.com
27. Transitioning Deal
Design & Production Transaction Costs
Engineering Test and Evaluation
Regulatory Approvals Negotiations
Legal
Equipment and Set-up
Vendor Qualification On-Going Costs
Collection/Payment of
Customer Support and Revenues
Maintenance Systems Patent Fees
Development Infringement Monitoring
Product Launch and Prosecution
Foresight Science & Technology
27
www.ForesightST.com
28. Target Target
Advice Testing
Idea – Design – Proof – Brass – Prototype – Product – Production – Sales – Distribution – Customer
of of Board Engineering Marketing Support
Concept Feasibility
End User Testing
End User Advice
Foresight Science & Technology
28
www.ForesightST.com
32. Social Networking – SBIR Phase I or Earlier
Monitoring and Collaboration.
Option Agreement for Right of First Refusal
Foresight Science & Technology
32
www.ForesightST.com
33. Six Sigma –
Mission Agency
Phase II or
Phase III
Strike License
or Equity
Investment.
Joint Venture
Farm Teaming – SBIR Phase II Possible.
May have
Cooperative R&D Contracts . Option to
Option for License Acquire
or Equity Investment
Foresight Science & Technology
33
www.ForesightST.com
34. There is always a
reason for NO
Understand it
Respond to it
Foresight Science & Technology
34
www.ForesightST.com
35. Mailers Demonstrations
Non-Proprietary Working, Tested Prototype
Fact Sheet, Quad Chart, Presentation Slides
Specifications Sheet,
Brochure Follow-Along Manual
White Paper and/or Check List
Patents/ Published Patent Term Sheet (Be Careful
Applications with These)
Proprietary
Test Protocols and Results Legal Documents
Unpublished Patent Standard Contract or
Applications License
One-Way and/or Two-Way
Non-Disclosure
Agreements
Materials Transfer
Agreement where Relevant
Foresight Science & Technology
35
www.ForesightST.com
36. “Plough deep while “Always taking out of the
sluggards sleep, and pot and never putting in
you shall have corn to one soon comes to the
sell and keep” bottom”
Define the agenda – For issues you can give on,
Provide the initial offer “horse trades” or side
offering payments
“It is easier to suppress – Ask for the data to
the first desire than to understand their concerns
satisfy all that follow”
Know when to say no
Know how to say no. If
no is not really no,
explain how it can
become yes.
ForesightScience &
36
Technology
37. Partnr Partner Partner
Wants Deal Walks
SME
SME Wants $10m, $0.0m,
Deal $0.5m -$0.05m
SME Walks $0.1m, -$0m,
-$0.05m -$0m
Foresight Science & Technology
37
www.ForesightST.com
39. Do you correctly understand why the
technology is attractive?
What is the decision process and who
else is involved in what roles or
functions?
Sponsor Lawyer How long does the decision process
take?
What criteria will be important and why?
What information will they want?
Decision Technica
Technical
Gatekeeper Project Leader What kind of deals have they signed in
Maker l Expert the past and what do they prefer?
Expert Do they have standard agreements they
prefer to use?
Champion
Champion
End User Who is (are) the decision maker(s)?
Is there other insights they want to pass
along to make the process smoother and
quicker
Foresight Science & Technology
39
www.ForesightST.com
40. Poor Richard: “Pride is as Everyone always Three
loud a beggar as need Options:
and a good deal more Buy
saucy” Wait/Stall
Walk Away
Ask for the Deal
IF THEY DO NOT BUY
…
ASK WHY!
Do not be a “true believer”
Do not assume they are
stupid
Understand their needs,
requirements, and
constraints
Foresight Science & Technology
40
www.ForesightST.com
41. Open the Black Box if Possible
Come back with data driven answers or
questions
SEC, Yahoo Finance, Hoovers, trade publications
Foresight Science & Technology
41
www.ForesightST.com
43. Cash Flow is the
Lifeblood of Business
The more risk a party
bears, the more upside
cash flow potential it
deserves
Cash today is worth less
than cash tomorrow
The likelihood of cash
tomorrow decreases as
total risk increases
Allocate risk to the party
able to control it or bear it.
Use side payment(s) to
make the deal “fair.”
Foresight Science & Technology
43
www.ForesightST.com
44. Allocate tasking to the
most competent and cost-
efficient party
Allocate liability to the
party best able to mitigate
it
Structure hand-offs for
success
Clear Deliverables
Milestones
Progress Payments
Penalties
Use transfer payments to
make fair
Foresight Science & Technology
44
www.ForesightST.com
45. Govt. or
Foundation
Subsidy
BUYER SELLER
Don’t get greedy
Foresight Science & Technology
45
www.ForesightST.com
47. If NPV = q (IP xp) − C = (0.2 x $9,000m) – $1750m = + $50
million, do you buy now if the Discount Rate is 10%?
t=1
E[P+] = $19 ⇒ NPV+ = + $150 million
Wait
50%
t=0
Abandon
50%
E[P] = $18 / technology E[P−] = $17 ⇒ NPV − = − $150 million
NPV(t=0) = − 50 million $
Rational manager will not exercise
this option ⇒ Max (NPV−, 0) = zero
At t = 1, the portfolio NPV is: (50% x 150) + (50% x 0) = + $75 million
The present value is: NPVwait(t=0) = 75/1.1 = 68.2 > 50 so wait
Foresight Science & Technology
47
www.ForesightST.com
48. NPV = q (IP x p) − C = (0.22 x $9,000m) – $1750m =
+ $230 million
t=1
E[P+] = $19 ⇒ NPV+ = $340 million
50%
Move Forward
t=0
E[P] = $18 / technology 50% Wait
E[P−] = $17 ⇒ NPV − = $120 million
NPV(t=0) = $230 million
At t = 1, the portfolio NPV is: (50% x 340) + (50% x 120) = $230 million
The present value is: NPVwait(t=0) = 230/1.1 = $209.1 < $230.
Deep-in-the-money (high NPV) means exercise the option
Foresight Science & Technology
48
www.ForesightST.com
49. Foresight Science & Technology
www.ForesightST.com
Provision Focus – Comments and Issues
Business/Legal
Identification of parties Legal This section is straightforward and factual.
1.Date
2.Addresses
3.State of incorporation
Whereas clauses (recitals) Business These recitals are important for future interpretation of the agreement.
1. Purpose of the agreement
2. Facts leading up to the agreement
3. What each party brings to the agreement
Definitions Business Background information is needed for the understanding of other clauses in the agreement
1. Field of agreement
2. Licensed product/process/service
3. Licensed intellectual property
4. Confidential information
5. Affiliates
6. Net revenues
Grant of rights Business These clauses are determined by business considerations, although attorneys will put them into proper
terminology.
1. Exclusivity
2. To make, use, or sell
3. Grantbacks
4. Geographic information
5. Field of use information
6. Cross licenses and sublicenses
Consideration paid for intellectual property rights Business These are primarily business decisions, although input from the legal staff will be needed, particularly on
up-front patent costs to be recovered and projected maintenance fees.
1. Up-front payments-lump sum, sum for paid up licensees
(no running royalty) 2. Running royalty — base rate 3.
Annual or other minimums
4. Technical support-scope, cost
5. Patent maintenance-scope, cost
6. Special provisions-currency, stock, etc.
7. Most favored licensee
49
50. Technology Development Issues Business Extremely important for exclusive licenses, but many firms are scared to negotiate. Companies can have two
different technology development goals under the same license. The goals need to be explicit and time
1. Goals of the license and technology development plan sensitive so that it is very clear to both parties when the license has strayed outside of its original intention.
2. Key goals/milestones that the licensee needs to accomplish These plans are not only important to make sure both parties are on the same page, but they also help reduce
and timelines the risk that the licensor has picked a bad licensee while increasing the value of the license through payments
3. Milestone Payments to reflect when the technology risk is reduced.
Payment of consideration Legal Licensors will normally have set provisions for these that they will try to keep consistent in all of their
agreements. Audit provisions are sometimes a concern. The usual resolution is to use an outside audit firm
1. Accounting methods acceptable to both parties. The only audit information that can be reported to the licensor is information
2. Timing of payment and reporting defining errors in royalty payments.
3. Record-keeping requirements
4. Audit rights
Major license restrictions Legal These considerations are specific to each agreement, but the attorneys normally take the lead in assembling
the relevant information.
1. Government export limitations
2. Liability limitations-indemnifications, insurance, warranties,
etc.
3. Tax payments, lack of partnership, tax-like payments
4. Guarantees, test runs
Confidentiality Legal Confidentiality is treated as a legal issue, but business input is needed.
1. Definition
2. Term
Enforcement of /defense against intellectual property rights Legal Payment for enforcement is usually a contentious issue, as it can be more costly than the royalties. Licensors
usually will resist having to pay these expenses. The argument is that the licensee is receiving the benefit and
1. Notification of infringement the majority of the operating profit from the technology and thus, they should pay these costs. It is important
2. Responsibility for enforcement/defense for the licensor to retain the right to go after infringers if the licensee defers.
3. Payment for enforcement/defense
Future intellectual property Legal This issue is tailored to the circumstances of a specific license.
1. Responsibility for protection
2. Payment for protection
Duty to use (best efforts) Legal This is to protect against a licensee sitting on technology.
Termination Legal Termination is particularly important for exclusive licenses. If, after a strong effort, an exclusive licensee
cannot sell enough to meet minimum royalties, converting the license to a non-exclusive license is preferred
1. Term of agreement to exercising a termination provision.
2. Conditions for termination
3. Default
4. Post-termination obligations-confidentiality, payments, etc.
Foresight Science & Technology
50
www.ForesightST.com
51. Other provisions Legal This is usually standard terminology.
The governing law provision can be contentious. The licensor generally prefers to have the state in which the
1. Impossibility to perform (force majeure) corporate office is located as the governing law. The licensee may have a preference for the governing law in
2. Severability their home state.
3. Arbitration
4. Assignments
5. Entire agreement
6. Governing law
7. Notices
8. Execution
Foresight Science & Technology
51
www.ForesightST.com
52. Poor Richard: “We can give The decision is
advice, but we cannot give management’s
conduct” Decide on sound business
reasons (personalities
change as people change)
Don’t get greedy
Go back to your three
columns: Must Have and No
Way
Cross off items on Must
Have and No Way
If no No Ways and all Must
Haves, sign
If you have not been there
before, work with someone
who has
Foresight Science & Technology
52
www.ForesightST.com
53. • Nothing happens without a sale.
David Speser
• If opportunity doesn’t knock,
build a door.
Milton Berle
• A well-defined imagination is the
source of great deeds.
Chinese Fortune Cookie
401.273.4844, ext. 35; phyl.speser@ForesightST.com
Foresight Science & Technology
53
www.ForesightST.com