The lecture covers topics such as: * Which is best - licensing or start-up? * Who owns my invention? * How do I work with my Tech Transfer Office? More information: http://www.marsdd.com/Events/Event-Calendar/Ent101/2007/introcommercializing-20071107.html Speaker: Tom Corr, Associate VP Commercialization, University of Waterloo Office of Research

2. `
ONTARIO RESEARCH INSTITUTION
COMMERCIALIZATION
Presented by:
Dr. Tom Corr
CEO – Waterloo Research and Technology Park Accelerator Centre &
Associate Vice President, Commercialization – University of Waterloo
tcorr@uwaterloo.ca
November 7, 2007

3. TOPICS
• Research Funding
• Who Owns the Intellectual Property?
• Commercialization Options
• Dealing with VCs
• Outcomes of Commercialization Efforts

4. Research Funding
• Where does the funding come from (OCE, NSERC,
CIHR, etc.).
• Governments spread around the $ (federal and
provincial) usually based upon competitive applications.
• Range from $10K POP grants to multi-year, multi-million
long term funding.
• Most researchers spend a lot of time applying for grant $
to fund their research (i.e. pay for equipment, students,
and conferences).

5. • At research institutions in Canada - typically the
researchers own the IP, or the institution owns the IP,
or some combination of the two.
• Institution owned: McMaster (researcher can negotiate
with the university for ownership and
commercialization rights)
• Researcher owned: Waterloo
• Joint Ownership: UHN (1/3 to researchers, 1/3 to UHN,
and 1/3 to researchers department)
• Joint Ownership: UofT (50/50 - Researchers/UofT)
until Disclosed, and then Researcher has the option to
own.
IP Ownership Policies

6. IP Commercialization if University Involved in Commercialization
• Waterloo: 25% to University and 75% to Researchers
• UofT: 60% to University and 40% to Researchers
IP Commercialization if University NOT Involved in
Commercialization
(i.e. researchers commercialize on their own IP)
• Waterloo: 0% to University and 100% to Researchers
• UofT: 25% to University and 75% to Researchers
These are just 2 examples – all universities have their own
ownership and commercialization policies.
.

7. IP Ownership is a HUGE issue when it
comes to commercialization….
Who owns what…future development
• Researchers are typically obligated to DISCLOSE their research to the
institution with the institution keeping rights for further research and
teaching only.
• Many times disagreements between researchers as to who invented
what, and the % of any proceeds from commercialization that should
go to each– especially difficult to deal with when researchers include
profs and their students.
• Clear ownership is needed before investors will fund or they will walk
away from the deal.
• Future development of same IP is also a big issue as some
researchers (students) may come and go, which may result in issues
about assigning interest in new but related IP at a future date.

8. What are a lot of professors focused on?
• Younger profs concerned about getting tenure.
• How do they get it:
- Publishing papers
- Doing more research
- Teaching
Commercialization of IP is not always high on
their list – has implications for businesses who
want to license/buy the IP and move the IP
forward in conjunction with the researchers.

9. What’s in it for the researchers?
- Royalties (At UofT 60%-75% of royalties go to
the researchers, at UW 75%-100%)
- Equity in start-up
- More $ to do research
- Peer recognition
Does little to get tenure other than as a result of
the papers that may be published on the on-
going research, and sometimes publishing in
itself is a huge problem in commercialization.

10. What do Technology Transfer operations at
Universities do in the commercialization process?
• Pay to Protect IP – patents, trademarks,
copyrights.
• Assist in the developing of Business Plans and
commercialization strategy.
• Assist in getting additional grant funding to
further develop IP (sometimes mandatory that
the technology transfer office is involved
NSERC –i2i).
• Create start-up company when appropriate
vehicle for commercialization.
• Assist in raising financing for company.
• Negotiate agreements with licensees.

11. Why do some research institutions only commercialize
~10% of the researchers inventions?
• Intellectual Property (IP or Invention) is pure
research with no market potential.
• Market is too small to bother going after.
• Existing patents may not allow for the IP to be
practiced.
• Researchers have unrealistic expectations that
the institution cannot meet (e.g value of IP)
However, researchers can take ownership of
their IP and commercialize it themselves
should they choose.

12. Commercialization Options:
Spin-Off’s versus Licensing
Pros and Cons

13. Licensing
Typical Agreement Terms and Conditions:
• Licensing (to start-ups or large corporations):
- royalty paid to researchers (and university if
they are involved in the commercialization)
based upon sales attributable to IP – typically
around 5% of sales.
• Milestones – if license is exclusive then
minimum royalties typically apply as well as
development milestones (especially in drug
development).

14. Spin-Off Company
New Company Created to:
• License researchers technology and
build a company around it.
• Fund further research at institution with
the aim of developing/improving
technologies for license by the company.

15. SPIN-OFF’s
- Company formed in which researchers may be a
shareholder.
- Typically key researcher will be acting head of
R&D (most researchers don’t want to leave the
university except temporarily on paid sabbatical).
- Given priorities of researchers it is sometimes
problematic to get them on the critical path to
commercialization – they sometimes get in the
way and slow the commercialization process.

16. Spin-Off’s
• Until mid-1990s most research institutions IP
was licensed to large companies (i.e. not spin-
offs) that were in business related to the IP.
• Some research institutions still have policy not to
license IP to spin-offs (risk involved in licensing
IP to under-funded start-up).

17. Industry Need
• Some large established companies not
well suited to generating new lines of
business and divisions.
• Large companies look to M&A (Mergers
and Acquisitions) as an alternative.
• Companies will pay premium for small
companies that are synergistic with their
business mission.

18. What to consider when looking at the
Spin-Off alternative to licensing?
• Lack of suitable receptor capacity (licensee) for IP.
• Is IP a solid foundation for a new company and
potential platform for additional synergistic IP?
• Potential to be a $50 million+ public company?
• Can funding and management be attracted to spin-
off.
• Potential return to inventors, research institution,
and investors.

19. Other Factors
• Spin-offs may create more value quicker, as the
potential value of shares may have more upside
than licensing.
• Royalties may flow sooner on licensing deals.
• Licensing will have lot of up-front work but less
than spin-off once agreements negotiated.
Bottom Line – Spin-offs take more effort than
licensing, but have the potential for bigger upside in
the long term.

20. Research Institutions Potential Role in Spin-Offs
• Impetus may come from the research institution,
inventors, or investors to create spin-off.
• If formed by research institution, there is the need for a
“champion” to be identified to look after everyone’s
interest. Must have the skills to deal with start-up
companies.
• Provide patent and legal financing.
• Research Institutions role may range from very little, to
creation and on-going management of company -
especially until funding and management in place.

21. Research Institutions Potential Role in Spin-Offs
• Determine financing alternatives and pursue
them (government, angels, VCs).
• Promote the spin-off and potentially look for
other IP.
• Continuously consider the value of its
shareholding, the impact of decisions on its
share value, and look to maximize value and for
exit strategy (IPO or company sale).

22. Cross Cultural Issues
Investors need to understand:
• IP requires time and investment before ready to
market.
• Likely a requirement to fund on-going
commercially relevant IP research and
development.
• Researchers want freedom of research and
control over their IP.
• Researchers need to publish results.

23. Cross Cultural Issues
Researchers need to understand:
• Focus on marketing and market related issues is
essential.
• Market considerations require attention when R&D is
underway.
• Significant funds need to be raised and invested to
develop products and to market them.
• Companies need to operate at an accelerated time scale
compared to academia.

24. Spin-Offs vs. Licensing - Summary
• Spin-Off’s are time consuming, risky, and take
up a lot of time that may or may not, be better
spent on licensing the IP if that option available.
• Have potential for big upside under right
circumstances.
• Decision to do spin-off needs careful
consideration and commitment from all parties
involved.

25. It takes 10 times more time to
manage a spin-off than it does a
licensing transaction

26. Investors – what do they think?
• Attitude is everything…unless the
company is paramount in mind of
entrepreneurs and researchers - don’t
invest.
• Getting customers and learning from them
is the best way to guide commercialization
– not just doing more research without
industry input.

27. Investors – What do they think?
• Close governance is extremely important
to force focus.
• Dilution is forgotten if successful and
irrelevant if a failure.
• While plans change (and so they should),
having one is helpful.

28. Recurring pitfalls and themes
• Overestimating the science/technology and one’s
capabilities
– Lack of realism regarding the actual stage of development
of the science/technology
• Poor understanding of the customer and his/her
value chain
– Proactive ignorance of challenges involved in developing
and realizing value
• Disconnect between business and the science
– Underweighting of importance of demonstrating
progressive commercial achievement

29. • Late stage grants (OCE, NSERC).
• Some granting agencies getting wiser and some of them fund
the companies licensing the IP – not funding the researchers
as they want to see commercialization of the IP nor more
research done.
• Angel Investors – typically invest in start-ups where they have
had prior experience with their marketplace (www.tvg.org).
Valuation issues – convertible debt.
• Funding also comes from start-ups and large corporations.
• Spin-offs – funding from shareholders/early stage investors
Where does the money come from at this
EARLY stage?

30. - typically look to make minimum investment of $1
- $5 million (over time) and want to do later
stage deals (revenues, customers)
- Looking to get 10 times their money back in 5
years
- Fund based upon milestones and future
valuations based upon milestones (beware the
ratchet)
Later Stage VC Funding

31. Later Stage VC Funding
- Initial valuations based upon all the classic
models (e.g. sales multiples, DCFs.
earnings multiples, etc) don’t work.
However forget all that as most start-ups
are worth $1.5 - $2 million to VCs – very
rarely do you see exceptions.
- Important that expectations are agreed to
by both sides – you have both got a new
partner in your life.

32. Deal and Negotiation - steps/process/documentation
• Business plan development
• Who to take to
• Negotiations
• Term Sheet
• More Negotiations
• Close
REMEMBER – 1 deal in 100 – 200 that looks for VC
funding actually gets funding.
The majority should forget about VC funding and try
bootstrapping – read ART OF THE START by GUY
KAWSAKI.

33. Why deals fall apart
- Investors don’t have comfort in IP
ownership
- Investors don’t realize that they are
dealing with research – as opposed to
detailed business plans and products that
are ready to go.
- Long time to market which equates to lots
of investment – especially for life sciences
deals – regulatory issues.

34. Why deals fall apart
- Researchers don’t invest time that is required.
- Researchers lose interest in the research and
move on to other areas of research interest or
move to other institutions.
- Patents get rejected (more important in
institutional research than in typical IT deals).
- Expectations that grant $ will fund operations
which it seldom does

35. SUMMARY
- Most Canadian research institutions have a
researcher friendly policy which allows the
researcher to gain most of the financial
upside from their inventions.
- There is a lot of commercialization
assistance available for researchers who are
coachable (MARS, Accelerator Centre in
Waterloo, OCE, technology transfer offices,
etc).
- The investment community is always looking
for good IP to invest in but don’t just focus
on VCs for funding.

36. SUMMARY
- Successful research typically leads to more
funding for on-going research – huge focus
on commercialization outcomes by granting
agencies.
- More funding is being put into Canadian
research and commercialization than ever
before.
There has never been a better time for
commercialization in terms of the support
and funding available.

37. QUESTIONS