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 new 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 licence agreement out of the university. I asked one of my co-panellists how long he thought the negotiation process should take. The answer? Five to six weeks.
And honestly, I agree with him. Five to six 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 licence in a month and a half. I would guesstimate the typical duration was four to six 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 licence and payment obligations. And at the end of the day, if people do not 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 a week off this process, saving everyone time to work on the multitude of other tasks requiring their attention.
But before moving on to some suggestions, I would like to address two criticisms of academic technology transfer.
“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 us 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 (TTO) may be to transfer the technology for society’s use and benefit, but that is secondary to the mission of the university. So when technology transfer officers say they cannot change the warranties and indemnities clauses, it is 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 the priority list.
“University technology transfer offices’ number-one goal is to maximise 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.
Some universities are trying to speed up the licensing process through university express licences – examples include University of North Carolina, Washington University in St Louis and University of Chicago. It remains to be seen how effective these deals are for either party and how often these licences are used. Since most of the time startup licences 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 licence 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 they can draw on. If they work well together, they can keep each other on track on the deal. If one of the officers leaves the university, all the knowledge and relationships regarding the deal do 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 with 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 turnaround timeframe for each draft of the agreement, for example three business days.
2 Communicate, communicate, communicate. Do so in person or via phone rather than just electronically. As a technology transfer professional, my best experiences were with startups who did not 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 licence amendments were much easier.
3 Very few venture capitalists and technology transfer officers interact on a regular basis. Change that, and it is likely to change your interactions.
This is an edited version of an article first published in an Osage University Partners blog