What to Expect When Licensing a Penn State Technology into a Start-Up Company

Forming a company is a demanding and challenging undertaking requiring a significant commitment of both time and money. While forming a company can be a positive and rewarding experience, it is not for everyone. If you are considering becoming involved in a start-up company, please review this document carefully and then schedule a meeting with the Intellectual Property Office to discuss the process.

· The Penn State Intellectual Property Office (IPO) negotiates license and option agreements on behalf of the Penn State Research Foundation (PSRF), which is responsible for administering the financial and business aspects of technology transfer for Penn State University.

· Faculty are required to be highly cognizant of, and address any conflict of interest issues that arise due to their involvement in companies, and to be particularly sensitive to issues surrounding human effects inventions. Strict compliance with the conflict of interest policies delineated in the following is essential:

RA05 - Significant Financial Interest Disclosure for Sponsored Project’s Investigators

RA12 - Technology Transfer and Entrepreneurial Activity (Faculty Research)

RA20 - Individual Conflict of Interest Policy

RA21 - Institutional Conflict of Interest in Sponsored Projects, Dedicated Gifts,

Research, Scholarship and Technology Transfer

HR91 - Conflict of Interest

· Universities are obligated by federal law to find the best possible route to commercialization for their technologies. Therefore, the IPO must consider and evaluate all reasonable licensees. Companies sponsoring research will be considered as likely successful commercial outlets because of their demonstrated resources and interest in the work.

· Negotiations will be conducted impartially and objectively. Faculty companies cannot receive any preferential treatment on licensing terms. Agreements with companies in which faculty are involved will receive the same level of review and scrutiny as would any other agreement. It is highly recommended that faculty not directly participate in negotiations with IPO.

· The IPO is responsible for protecting the interests of the University and University inventors who are not participating in the company to whom the technology is being licensed.

· There are extensive resources available in the Technology Transfer Office in addition to the IPO to support and assist companies formed from University technology. It is the responsibility of the companies to avail themselves of those resources.

· University inventors who are principals, founders, or participants in the company being licensed must realize that their business interests may not completely align with the University’s and as such, are responsible for all aspects of their own interests including financial and legal implications of stock ownership. Separate legal counsel and financial advice is recommended. Founders are responsible for the legal expenses associated with forming a company. It is advisable to obtain estimates of these expenses in advance.

Minimum Requirements for a Start-Up Company to be Considered as a Licensee

· Professional operating management of the company at the level of CEO/COO. Faculty should not attempt to manage start-up companies. Although positions such as Chief Technical Officer may be appropriate, most venture capital firms will not invest in start-ups that have faculty members as operating management. Faculty need to be cognizant of the highly competitive and complex nature of the business world and the level of effort and commitment which will be required for a company to be successful.

· A thorough and comprehensive business plan. Typical business plans address the following:

○ Mission statement and strategy

○ Objectives

○ Service/Product description

○ Market analysis

○ Competitive analysis

○ Key management

○ Financial projections

▪ Capitalization schedule

▪ Projected profit and loss

○ Exit strategies

· A reasonable level of capitalization to support the initial operations of the company and a plan for approaches to subsequent financing.

· Ability and commitment to reimburse all current and future patent expenses. It is not unusual for patenting costs for domestic and international filings to quickly exceed $100,000. The IPO maintains records of current patent expenses and will estimate future patent expenses based on defined patent protection strategies upon request.