Description
On this detailed outline in relation to the pitt innovators guide to starting a company.
1
The Pitt Innovator’s
Guide to Starting a Company
o you’ve decided that you might
want to start a company around
your University-developed
innovation. Amidst all of the invention
disclosures, patent application filings, and
other paperwork that you have to face,
where on earth do you turn to take the
giant step – no, leap -- into the
entrepreneurial life with your technology?
Without question, the process will prove
challenging, but it also can offer
significant rewards for the successful.
Now what?
In general, the innovation
commercialization process begins once
you submit an invention disclosure to the
Office of Technology Management
(OTM) for commercial consideration.
The OTM, along with the Office of
Enterprise Development (OED) and
ultimately the University’s Technology
Transfer Committee, will review the
disclosure for patenting and commercial
merit. We also look for innovations that
might offer start-up potential.
When trying to identify potential start-up
opportunities, we look closely at a number
of criteria, including:
? strength of your science
? strength of your intellectual property
? the size of the commercial market
and how your innovation might fare
in that marketplace or competitive
environment
? your research and development team
S
Start-Ups
Pitt Innovator LIBRARY
Pitt Innovators and
PITT VENTURES
Whether you’re planning to run out and start your own technology
company or simply want to help transform your innovation into a
start-up company, you don’t have to take the journey alone at the
University of Pittsburgh.
Pitt’s Office of Technology Management (OTM) and Office of
Enterprise Development (OED) have introduced an initiative to bring
together the right resources, events, and partners to successfully
transform your innovation into a new company. We call it PITT
VENTURES.
As part of this program, the OED will take you through a formal
process that will help with value proposition development, market
research and competitive analysis, partner match-making, fund-
raising, and ongoing advisory services – all aimed at building a new
company.
Along the way, the PITT VENTURES program will provide plenty
of educational opportunities, entrepreneurial mentoring, and
interactive forums that will allow you to present your business case
to entrepreneurs, investors, economic development leaders and
other potential partners.
You’ll have an opportunity, for instance, to participate in Innovator
Speed-Dating programs; technology showcases on campus and
beyond; “elevator pitch” competitions; and student business plan
competitions.
All the while, the OTM and OED will connect you with our dynamic
and active PITT VENTURES network, made up of: experienced
serial entrepreneurs; investors looking for the next big idea; mentors
who donate their time to counsel Pitt Innovators; technology-based
economic development organizations; and other service providers
who can provide start-up assistance.
Contact the OED at 412-624-3138 to get started. We look forward to
working with you.
2
? whether your innovation can serve as a
platform on which multiple products can be
developed for commercial consideration.
If your innovation promises significant market
potential with several potential commercial
applications that could allow you to pursue more
than one market or a whole line of products – what
we refer to as a platform technology, you might just
have an innovation with start-up potential.
If that’s the case, our offices will proactively assist
you every step of the way, helping you to develop
business and marketing plans, identify financial,
management, legal and other resources, and,
ultimately, form a company.
Your role? You decide…
Once we determine that your innovation has start-
up potential, you will have to decide for yourself
what role you will play in that company. That’s
where University policies come into play –
depending on your decision. It really comes down
to three fundamental choices:
1. Leave the university – This, while risky,
would give you the most freedom to build a
company, maintain a level of fiduciary
responsibility and control, and possibly earn
the kind of reward that would be
commensurate with your risk. However, you
also would have to give up your academic
appointment to avoid conflicts of interest with
the University.
2. Take an entrepreneurial leave of
absence -- The Faculty Handbook addresses
the issue of faculty leaves of absence. As
stated in the handbook, the temporary pursuit
of an entrepreneurial endeavor is deemed an
acceptable reason to cite in your request for a
leave of absence.
Typically, you could take a leave of up to 2
years to participate in launching and/or running
a new start-up company, pending approval
from your department chair, your school’s
dean, and the provost. Please note that any
exemption you may receive by Pitt’s Conflict
of Interest Committee from restrictions on
holding equity or a management role in the
start-up remains in effect only for the period of
your entrepreneurial leave.
3. Maintain your academic
appointment -- The “Pitt Innovator’s Guide
to Technology Commercialization” lists start-
up-related activities that are permitted and
prohibited for those of you who choose to
remain in your academic appointment as others
build a new company around your University-
based innovation.
In all three scenarios, University conflict-of-interest
policies do apply. Consider the following:
? In March 2010, University of Pittsburgh
Chancellor Mark Nordenberg signed a
renamed and revised conflict of interest (COI)
policy for the University of Pittsburgh. The
new Policy, 11-01-03 “Conflict of Interest
Policy for Faculty, Scholars, Researchers,
Research Staff/Coordinators”, replaced the
previous version of 11-01-03, “Conflict of
Interest – Faculty/Researchers” and Policy
11-02-03 “Commercialization of Inventions
Through Independent Companies.”
? As a result, the Entrepreneurial Oversight
Committee (EOC), which had been a standing
subcommittee-of-the-whole of the Conflict of
Interest Committee (COIC), was eliminated.
Oversight of University relationships with
Licensed Start-up Companies (formerly
referred to as “EOC Companies”) is now a
function of the COIC.
In addition, all of the COIC’s “Working
Policies” adopted in the past few years for
managing conflicts of interest in research
overseen by the Institutional Review Board
(human subjects), Institutional Animal Care
and Use Committee, Committee for Oversight
of Research and Clinical Training Involving
Decedents, Human Stem Cell Research
Oversight, and Institutional Biosafety have
been incorporated into the following new
policy:
3
POLICY 11-01-03 Conflict of Interest
Policy for Faculty, Scholars, Researchers,
Research Staff/Coordinators
(http://www.cfo.pitt.edu/policies/policy/11/1
1-01-03.html)
? University policy 11-02-01 “Patent
Rights and Technology Transfer”
(http://www.cfo.pitt.edu/policies/policy/11/11-
02-01.html) This policy establishes the rights
and responsibilities of all faculty, staff, and
students under the circumstances specifically
outlined in the policy who discover or invent a
device, product, or method, while associated
with the University, whether or not University
time or facilities are used.
This policy also applies to all pending
invention disclosures, patent applications, and
patents not yet licensed or transferred as of
July 1, 2005. The policy also discusses Pitt’s
policy on the distribution of income from the
licensing of patent rights or other intellectual
property rights.
? University Policy 11-02-02
“Copyrights”
(http://www.cfo.pitt.edu/policies/policy/11/11-
02-02.html) This policy establishes the rights
and responsibilities of the University and of
faculty, staff, postdoctoral associates, students
and others regarding the creation, use and
ownership of works protected by copyright,
and the distribution of royalties generated from
the licensing and exploitation of those
copyrights.
Keep in mind that starting a company based on
your University research automatically creates the
perception of a conflict of interest, considering your
interest in advancing the value of your scholarly
work and the value of your start-up company.
However, not all conflicts of interest are unethical
or impermissible.
The University’s Conflict of Interest (COI) Office
will work with you to try to manage or reduce a
conflict to an acceptable level. You, along with a
representative from the OED, should meet with the
COI office to discuss your start-up company, your
anticipated role, funding considerations, and
resulting conflicts that will need to be disclosed and
managed.
You can find additional resources and information
on the COI Office’s Web site at www.coi.pitt.edu.
The site also includes case studies aimed at helping
you better understand specific conflict scenarios.
Equity ownership or royalties?
In addition to conflicts of interest, you also will
have to consider your options when it comes to
compensation for the success of your innovation in
the marketplace. If a start-up company, for instance,
is established based on your technology, you may
have an opportunity to hold significant ownership
in that company.
If you pursue that opportunity, however, University
policy requires that you waive your rights to
receiving licensing royalty proceeds that otherwise
would be due under University Policy 11-02-01.
This policy addresses equity or equity options that:
The University’s Conflict of Interest (COI) Office
will work with you to try to manage or reduce a
conflict to an acceptable level.
4
? represent more than 5 percent of the
outstanding equity of the new company
at the time of the license; or
? are equal to or greater than the amount
of equity taken by the University for
partial consideration of the license.
So, in a start-up situation, you basically
have to choose the form of compensation
you will receive for the commercialization
of your innovation. You could, for example,
receive “founder’s equity” in the company
or equity (or options to acquire equity) as a
result of performing work for the start-up
under a consulting agreement. As a
shareholder, you then could expect to
receive a share of the proceeds if the
company is acquired or initiates a public
stock offering.
At the same time, though, you could receive
30 percent of the “balance of proceeds from
any license, sale, or other amounts derived
from the transfer of patent rights or
unpatented intellectual property,” as Pitt’s licensing
royalty policy allows.
However, owning equity and receiving
compensation through the licensing proceeds could
bring about a conflict of interest because, for
instance, you as a company shareholder now may
want to make sure that the fees paid back to the
University are as low as possible.
What’s your story?
If you decide to launch a new company or
participate in a start-up, one of the first things
you’ll need to do is forge ahead with developing a
compelling story to tell, especially if you’re trying
to raise capital, recruit business leaders, or attract
other partners.
Over time, you will need to convince many people
that you have a viable technical solution to a
significant market problem that not only is realistic,
economical, and achievable, but also has the
potential for great profits.
Thus, among other propaganda, you’ll need to
prepare an “elevator pitch” to succinctly tell that
story. This is a 1 – 3 minute description of what
you are doing – including features and benefits --
and why someone should work with you.
It describes the challenge: "How would you explain
your business and make a sale if fate placed you in
an elevator with your dream prospect and you only
had the time it takes to get from the top of the
building to the bottom?"
Your pitch should address the following:
? Describe the problem that you’re solving,
or the pain that you’re alleviating.
? Describe your solution clearly and
simply, explaining how it works -- in layman’s
terms.
? Describe your business model. Explain
how you plan to make money around your
solution, who will pay you, how you plan to
distribute your solution, and your anticipated
gross margins.
This is my
story…
$$$$$$
5
? Describe your competitive
advantage. How is your solution
exponentially better, faster, smaller, cheaper,
and otherwise that much more novel than
existing or potential solutions?
? Describe your competition. Make sure
you provide a complete view of the
competitive landscape. Even if you can’t
identify direct competitors to your unique
solution, include those with other approaches
to solving the same problem.
? Describe your customers and how
you plan to reach them. How will you
distribute your product? Discuss your proposed
distribution channels and marketing leverage
points.
? Describe your management team.
Include the key players, as well as members of
your board of directors, current investors, and
even your scientific advisory board members .
? Provide reasonable financial
projections and other key metrics. Include a
five-year forecast (for our audience, would you
really give a five year forecast in an elevator
pitch….maybe for a more established
company?) not only in revenue, income, and
expenses, but also in
other measurable figures
such as number of
customers, new
products, and sales
conversion rates.
? Describe your
product’s current
development
status, as well as your
accomplishments to
date, and a timeline of
future development
efforts, and how you
plan to use the funds
that you’re trying to
raise to improve the
potential for commercial
success.
Who’s on your team?
If you haven’t already reached this conclusion,
you’ll come to realize quickly that technology
transfer – especially the launching of new
companies – rarely can be accomplished alone. The
good news, especially in the Pittsburgh region and
within the University itself, is that plenty of good
help exists to guide and support your
entrepreneurial aspirations.
Support, of course, begins with the OTM and OED,
whose job is to facilitate the commercialization of
your innovation, including new company
development. From there, the OTM and OED will
connect you with an abundance of regional support.
With such help, you should be able to focus your
own attention more directly on technology risk
reduction and the creation of value around your
innovation.
Among the most important roles of local support
organizations will be to help you develop your
value proposition and business opportunity. They
also serve as a vital connection to many other
support organizations, including angel and venture
capital investors who will look to those
organizations to vet and evaluate the most
promising of start-up opportunities. Consider the
following local organizations:
6
? The Idea Foundry
(www.ideafoundry.org) - This non-profit
organization supplies the critical ingredients
for transforming an entrepreneur’s information
technology- and engineering-oriented business
idea into a Pennsylvania-based, fundable, start-
up company.
? Innovation Works
(www.innovationworks.org) -- For more than
20 years, Innovation Works has played a vital
role in Southwestern Pennsylvania’s
technology economy, investing capital,
business expertise, and other resources into
high-potential companies. IW is part of
Pennsylvania’s Ben Franklin Partnership.
? Pittsburgh Life Sciences Greenhouse
(www.plsg.com) - This organization provides
capital, customized company formation, and
business growth services to our region’s life
sciences enterprises, with concentrations in:
biotechnology tools, diagnostics, healthcare IT,
medical devices, and therapeutics.
? The Technology Collaborative
(www.techcollaborative.org) -- This nonprofit,
member-driven organization focuses on
starting, attracting, and growing robotics,
cyber-security and digital technology
companies.
? Pennsylvania NanoMaterials
Commercialization Center
(www.pananocenter.org) – This organization is
a worldwide leader in facilitating the
commercialization of nanomaterial-based
technologies and builds upon Pennsylvania’s
excellence in advanced-materials research,
development and manufacturing.
? Pantherlab Works
(www.pittentrepreneur.com/pantherlabworks/i
ndex.php) -- This Pitt-based initiative guides
highly creative and motivated innovators
though an accelerated process of product
development, market validation and team
creation.
Ready to negotiate?
Once you’ve begun to put together your
management team, advisers and other regional
support, it’s time for you to do the deal. And that
means formalizing the formation of your start-up
company, receiving a term sheet, and negotiating
with the OTM to secure either an option or license
agreement with the University for the right to build
the company around your innovation.
Remember, if you chose to remain a University of
Pittsburgh employee, you cannot participate
personally in negotiations. Here’s what you need to
know:
? Option agreement – This is a short-term
agreement that will prohibit the University
from marketing and/or licensing your
innovation to others for a specific period, say 6
to 12 months. This type of agreement will give
you and your team an opportunity to further
investigate the market potential, prepare a
business plan, and secure additional funding
before finalizing a longer-term license
agreement.
Keep in mind that some financial consideration
will be required to strike an option agreement
with the University.
7
License agreement – This is a long-term
agreement with the University that formally
conveys to you and your company the rights to
use, further develop, manufacture, and sell
your innovation in the marketplace.
As with the option agreement, financial
consideration will be required that will include
the following:
? initial license fee
? maintenance fees
? minimum royalty and royalty percentage
? reporting requirements
? patent reimbursement costs
Other basic terms that you’ll have to consider
include:
? granting of rights to use the patent
? due diligence clause(s) relating to
commercialization milestones
? possible territorial restrictions
? patent protection
? default provisions
Where’s the money?
You should plan for the notion that your
initial start-up funding likely will have to
come from a variety of sources, including
personal savings, family, friends, TBEDs,
angel investors and even venture capital
funds.
That’s why it’s so important to build a strong
value proposition or business case for your
start-up venture and be able to articulate that
value simply and clearly even to those who
won’t understand the science behind your
innovation.
You also should consider government grants,
including state and federal programs -- the most
common of which is the federal Small Business
Innovation Research (SBIR) program
(http://www.sbir.gov/).
The SBIR program and the similar Small Business
Technology Transfer (STTR) program are the
largest and conceivably the most important, yet
often overlooked, sources of early-stage technology
R&D financing for America’s entrepreneurs.
The SBIR and STTR programs were created
through the 1982 SBIR Act and its reauthorizations.
Their purposes are to increase private-sector
commercialization of technology developed
through Federal R&D and increase small-business
participation in Federal R&D. The OED can help
you apply for such grants.
Annually, more than $2 billion is set aside for
small-business concerns to engage in federally
funded R&D with potential for commercialization.
For-profit companies with strong research or R&D
capabilities in science and engineering and a vision
for commercialization are eligible.
It’s so important to build a strong value proposition
or business case for your start-up venture.
8
Although companies with up to 500 employees are
eligible, SBIR is designed as a small-company
program. Nearly 70 percent of awardees have 30 or
fewer employees at the time of their Phase I
awards.
In general, participating federal agencies issue
solicitations at least once a year, listing research
topics or problem areas for which they would
welcome grant proposals from small companies.
The grants are awarded in two phases. In Phase I,
your company could receive up to $150,000 in
funding typically for a six-month technical
feasibility study. Only Phase I winners may submit
Phase II proposals. Phase II awards of up to $1
million are designed for full-scale R&D, with one-
to two-year terms.
Note that SBIR/STTR is not debt; there’s no loan to
service, nor are there repayment terms. It’s a
straight injection of money to enable a small
company to afford the people, equipment, time and
other resources required to bring an idea to market.
SBIR and STTR also are not assistance programs.
It’s a highly competitive process, and you’re
actually contracting with a federal agency to
perform high-quality R&D leading to business
development and product commercialization. And
only those companies demonstrating this capability
in a proposal will win.
When circumstances align
Throughout this whole start-up process, keep in
mind that a great innovation with strong intellectual
property protection will take you only so far in the
process; it won’t automatically carry you to
commercial success.
That’s where a good value proposition with clear
and substantial technical and market advantages, an
attention-getting elevator pitch, an experienced
entrepreneurial team and other partners, savvy
investors, and a marketplace teeming with
commercial opportunity come into play in building
a successful company.
Oh, and there’s one more thing. Some call it
serendipity, where your idea, careful planning, and
market circumstances all seem to come together in
your favor at just the right place and time.
Others might call it luck. But we’re not talking
about dumb luck. As Thomas Jefferson once said,
“I’m a great believer in luck, and I find the harder I
work, the more I have of it.”
Best of luck, as you embark on your
entrepreneurial adventure.
Pitt Innovator LIBRARY is a service of the University of Pittsburgh
Office of Technology Management and Office of Enterprise Development.
©2013 University of Pittsburgh.
www.innovation.pitt.edu
9
doc_874458178.pdf
On this detailed outline in relation to the pitt innovators guide to starting a company.
1
The Pitt Innovator’s
Guide to Starting a Company
o you’ve decided that you might
want to start a company around
your University-developed
innovation. Amidst all of the invention
disclosures, patent application filings, and
other paperwork that you have to face,
where on earth do you turn to take the
giant step – no, leap -- into the
entrepreneurial life with your technology?
Without question, the process will prove
challenging, but it also can offer
significant rewards for the successful.
Now what?
In general, the innovation
commercialization process begins once
you submit an invention disclosure to the
Office of Technology Management
(OTM) for commercial consideration.
The OTM, along with the Office of
Enterprise Development (OED) and
ultimately the University’s Technology
Transfer Committee, will review the
disclosure for patenting and commercial
merit. We also look for innovations that
might offer start-up potential.
When trying to identify potential start-up
opportunities, we look closely at a number
of criteria, including:
? strength of your science
? strength of your intellectual property
? the size of the commercial market
and how your innovation might fare
in that marketplace or competitive
environment
? your research and development team
S
Start-Ups
Pitt Innovator LIBRARY
Pitt Innovators and
PITT VENTURES
Whether you’re planning to run out and start your own technology
company or simply want to help transform your innovation into a
start-up company, you don’t have to take the journey alone at the
University of Pittsburgh.
Pitt’s Office of Technology Management (OTM) and Office of
Enterprise Development (OED) have introduced an initiative to bring
together the right resources, events, and partners to successfully
transform your innovation into a new company. We call it PITT
VENTURES.
As part of this program, the OED will take you through a formal
process that will help with value proposition development, market
research and competitive analysis, partner match-making, fund-
raising, and ongoing advisory services – all aimed at building a new
company.
Along the way, the PITT VENTURES program will provide plenty
of educational opportunities, entrepreneurial mentoring, and
interactive forums that will allow you to present your business case
to entrepreneurs, investors, economic development leaders and
other potential partners.
You’ll have an opportunity, for instance, to participate in Innovator
Speed-Dating programs; technology showcases on campus and
beyond; “elevator pitch” competitions; and student business plan
competitions.
All the while, the OTM and OED will connect you with our dynamic
and active PITT VENTURES network, made up of: experienced
serial entrepreneurs; investors looking for the next big idea; mentors
who donate their time to counsel Pitt Innovators; technology-based
economic development organizations; and other service providers
who can provide start-up assistance.
Contact the OED at 412-624-3138 to get started. We look forward to
working with you.
2
? whether your innovation can serve as a
platform on which multiple products can be
developed for commercial consideration.
If your innovation promises significant market
potential with several potential commercial
applications that could allow you to pursue more
than one market or a whole line of products – what
we refer to as a platform technology, you might just
have an innovation with start-up potential.
If that’s the case, our offices will proactively assist
you every step of the way, helping you to develop
business and marketing plans, identify financial,
management, legal and other resources, and,
ultimately, form a company.
Your role? You decide…
Once we determine that your innovation has start-
up potential, you will have to decide for yourself
what role you will play in that company. That’s
where University policies come into play –
depending on your decision. It really comes down
to three fundamental choices:
1. Leave the university – This, while risky,
would give you the most freedom to build a
company, maintain a level of fiduciary
responsibility and control, and possibly earn
the kind of reward that would be
commensurate with your risk. However, you
also would have to give up your academic
appointment to avoid conflicts of interest with
the University.
2. Take an entrepreneurial leave of
absence -- The Faculty Handbook addresses
the issue of faculty leaves of absence. As
stated in the handbook, the temporary pursuit
of an entrepreneurial endeavor is deemed an
acceptable reason to cite in your request for a
leave of absence.
Typically, you could take a leave of up to 2
years to participate in launching and/or running
a new start-up company, pending approval
from your department chair, your school’s
dean, and the provost. Please note that any
exemption you may receive by Pitt’s Conflict
of Interest Committee from restrictions on
holding equity or a management role in the
start-up remains in effect only for the period of
your entrepreneurial leave.
3. Maintain your academic
appointment -- The “Pitt Innovator’s Guide
to Technology Commercialization” lists start-
up-related activities that are permitted and
prohibited for those of you who choose to
remain in your academic appointment as others
build a new company around your University-
based innovation.
In all three scenarios, University conflict-of-interest
policies do apply. Consider the following:
? In March 2010, University of Pittsburgh
Chancellor Mark Nordenberg signed a
renamed and revised conflict of interest (COI)
policy for the University of Pittsburgh. The
new Policy, 11-01-03 “Conflict of Interest
Policy for Faculty, Scholars, Researchers,
Research Staff/Coordinators”, replaced the
previous version of 11-01-03, “Conflict of
Interest – Faculty/Researchers” and Policy
11-02-03 “Commercialization of Inventions
Through Independent Companies.”
? As a result, the Entrepreneurial Oversight
Committee (EOC), which had been a standing
subcommittee-of-the-whole of the Conflict of
Interest Committee (COIC), was eliminated.
Oversight of University relationships with
Licensed Start-up Companies (formerly
referred to as “EOC Companies”) is now a
function of the COIC.
In addition, all of the COIC’s “Working
Policies” adopted in the past few years for
managing conflicts of interest in research
overseen by the Institutional Review Board
(human subjects), Institutional Animal Care
and Use Committee, Committee for Oversight
of Research and Clinical Training Involving
Decedents, Human Stem Cell Research
Oversight, and Institutional Biosafety have
been incorporated into the following new
policy:
3
POLICY 11-01-03 Conflict of Interest
Policy for Faculty, Scholars, Researchers,
Research Staff/Coordinators
(http://www.cfo.pitt.edu/policies/policy/11/1
1-01-03.html)
? University policy 11-02-01 “Patent
Rights and Technology Transfer”
(http://www.cfo.pitt.edu/policies/policy/11/11-
02-01.html) This policy establishes the rights
and responsibilities of all faculty, staff, and
students under the circumstances specifically
outlined in the policy who discover or invent a
device, product, or method, while associated
with the University, whether or not University
time or facilities are used.
This policy also applies to all pending
invention disclosures, patent applications, and
patents not yet licensed or transferred as of
July 1, 2005. The policy also discusses Pitt’s
policy on the distribution of income from the
licensing of patent rights or other intellectual
property rights.
? University Policy 11-02-02
“Copyrights”
(http://www.cfo.pitt.edu/policies/policy/11/11-
02-02.html) This policy establishes the rights
and responsibilities of the University and of
faculty, staff, postdoctoral associates, students
and others regarding the creation, use and
ownership of works protected by copyright,
and the distribution of royalties generated from
the licensing and exploitation of those
copyrights.
Keep in mind that starting a company based on
your University research automatically creates the
perception of a conflict of interest, considering your
interest in advancing the value of your scholarly
work and the value of your start-up company.
However, not all conflicts of interest are unethical
or impermissible.
The University’s Conflict of Interest (COI) Office
will work with you to try to manage or reduce a
conflict to an acceptable level. You, along with a
representative from the OED, should meet with the
COI office to discuss your start-up company, your
anticipated role, funding considerations, and
resulting conflicts that will need to be disclosed and
managed.
You can find additional resources and information
on the COI Office’s Web site at www.coi.pitt.edu.
The site also includes case studies aimed at helping
you better understand specific conflict scenarios.
Equity ownership or royalties?
In addition to conflicts of interest, you also will
have to consider your options when it comes to
compensation for the success of your innovation in
the marketplace. If a start-up company, for instance,
is established based on your technology, you may
have an opportunity to hold significant ownership
in that company.
If you pursue that opportunity, however, University
policy requires that you waive your rights to
receiving licensing royalty proceeds that otherwise
would be due under University Policy 11-02-01.
This policy addresses equity or equity options that:
The University’s Conflict of Interest (COI) Office
will work with you to try to manage or reduce a
conflict to an acceptable level.
4
? represent more than 5 percent of the
outstanding equity of the new company
at the time of the license; or
? are equal to or greater than the amount
of equity taken by the University for
partial consideration of the license.
So, in a start-up situation, you basically
have to choose the form of compensation
you will receive for the commercialization
of your innovation. You could, for example,
receive “founder’s equity” in the company
or equity (or options to acquire equity) as a
result of performing work for the start-up
under a consulting agreement. As a
shareholder, you then could expect to
receive a share of the proceeds if the
company is acquired or initiates a public
stock offering.
At the same time, though, you could receive
30 percent of the “balance of proceeds from
any license, sale, or other amounts derived
from the transfer of patent rights or
unpatented intellectual property,” as Pitt’s licensing
royalty policy allows.
However, owning equity and receiving
compensation through the licensing proceeds could
bring about a conflict of interest because, for
instance, you as a company shareholder now may
want to make sure that the fees paid back to the
University are as low as possible.
What’s your story?
If you decide to launch a new company or
participate in a start-up, one of the first things
you’ll need to do is forge ahead with developing a
compelling story to tell, especially if you’re trying
to raise capital, recruit business leaders, or attract
other partners.
Over time, you will need to convince many people
that you have a viable technical solution to a
significant market problem that not only is realistic,
economical, and achievable, but also has the
potential for great profits.
Thus, among other propaganda, you’ll need to
prepare an “elevator pitch” to succinctly tell that
story. This is a 1 – 3 minute description of what
you are doing – including features and benefits --
and why someone should work with you.
It describes the challenge: "How would you explain
your business and make a sale if fate placed you in
an elevator with your dream prospect and you only
had the time it takes to get from the top of the
building to the bottom?"
Your pitch should address the following:
? Describe the problem that you’re solving,
or the pain that you’re alleviating.
? Describe your solution clearly and
simply, explaining how it works -- in layman’s
terms.
? Describe your business model. Explain
how you plan to make money around your
solution, who will pay you, how you plan to
distribute your solution, and your anticipated
gross margins.
This is my
story…
$$$$$$
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? Describe your competitive
advantage. How is your solution
exponentially better, faster, smaller, cheaper,
and otherwise that much more novel than
existing or potential solutions?
? Describe your competition. Make sure
you provide a complete view of the
competitive landscape. Even if you can’t
identify direct competitors to your unique
solution, include those with other approaches
to solving the same problem.
? Describe your customers and how
you plan to reach them. How will you
distribute your product? Discuss your proposed
distribution channels and marketing leverage
points.
? Describe your management team.
Include the key players, as well as members of
your board of directors, current investors, and
even your scientific advisory board members .
? Provide reasonable financial
projections and other key metrics. Include a
five-year forecast (for our audience, would you
really give a five year forecast in an elevator
pitch….maybe for a more established
company?) not only in revenue, income, and
expenses, but also in
other measurable figures
such as number of
customers, new
products, and sales
conversion rates.
? Describe your
product’s current
development
status, as well as your
accomplishments to
date, and a timeline of
future development
efforts, and how you
plan to use the funds
that you’re trying to
raise to improve the
potential for commercial
success.
Who’s on your team?
If you haven’t already reached this conclusion,
you’ll come to realize quickly that technology
transfer – especially the launching of new
companies – rarely can be accomplished alone. The
good news, especially in the Pittsburgh region and
within the University itself, is that plenty of good
help exists to guide and support your
entrepreneurial aspirations.
Support, of course, begins with the OTM and OED,
whose job is to facilitate the commercialization of
your innovation, including new company
development. From there, the OTM and OED will
connect you with an abundance of regional support.
With such help, you should be able to focus your
own attention more directly on technology risk
reduction and the creation of value around your
innovation.
Among the most important roles of local support
organizations will be to help you develop your
value proposition and business opportunity. They
also serve as a vital connection to many other
support organizations, including angel and venture
capital investors who will look to those
organizations to vet and evaluate the most
promising of start-up opportunities. Consider the
following local organizations:
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? The Idea Foundry
(www.ideafoundry.org) - This non-profit
organization supplies the critical ingredients
for transforming an entrepreneur’s information
technology- and engineering-oriented business
idea into a Pennsylvania-based, fundable, start-
up company.
? Innovation Works
(www.innovationworks.org) -- For more than
20 years, Innovation Works has played a vital
role in Southwestern Pennsylvania’s
technology economy, investing capital,
business expertise, and other resources into
high-potential companies. IW is part of
Pennsylvania’s Ben Franklin Partnership.
? Pittsburgh Life Sciences Greenhouse
(www.plsg.com) - This organization provides
capital, customized company formation, and
business growth services to our region’s life
sciences enterprises, with concentrations in:
biotechnology tools, diagnostics, healthcare IT,
medical devices, and therapeutics.
? The Technology Collaborative
(www.techcollaborative.org) -- This nonprofit,
member-driven organization focuses on
starting, attracting, and growing robotics,
cyber-security and digital technology
companies.
? Pennsylvania NanoMaterials
Commercialization Center
(www.pananocenter.org) – This organization is
a worldwide leader in facilitating the
commercialization of nanomaterial-based
technologies and builds upon Pennsylvania’s
excellence in advanced-materials research,
development and manufacturing.
? Pantherlab Works
(www.pittentrepreneur.com/pantherlabworks/i
ndex.php) -- This Pitt-based initiative guides
highly creative and motivated innovators
though an accelerated process of product
development, market validation and team
creation.
Ready to negotiate?
Once you’ve begun to put together your
management team, advisers and other regional
support, it’s time for you to do the deal. And that
means formalizing the formation of your start-up
company, receiving a term sheet, and negotiating
with the OTM to secure either an option or license
agreement with the University for the right to build
the company around your innovation.
Remember, if you chose to remain a University of
Pittsburgh employee, you cannot participate
personally in negotiations. Here’s what you need to
know:
? Option agreement – This is a short-term
agreement that will prohibit the University
from marketing and/or licensing your
innovation to others for a specific period, say 6
to 12 months. This type of agreement will give
you and your team an opportunity to further
investigate the market potential, prepare a
business plan, and secure additional funding
before finalizing a longer-term license
agreement.
Keep in mind that some financial consideration
will be required to strike an option agreement
with the University.
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License agreement – This is a long-term
agreement with the University that formally
conveys to you and your company the rights to
use, further develop, manufacture, and sell
your innovation in the marketplace.
As with the option agreement, financial
consideration will be required that will include
the following:
? initial license fee
? maintenance fees
? minimum royalty and royalty percentage
? reporting requirements
? patent reimbursement costs
Other basic terms that you’ll have to consider
include:
? granting of rights to use the patent
? due diligence clause(s) relating to
commercialization milestones
? possible territorial restrictions
? patent protection
? default provisions
Where’s the money?
You should plan for the notion that your
initial start-up funding likely will have to
come from a variety of sources, including
personal savings, family, friends, TBEDs,
angel investors and even venture capital
funds.
That’s why it’s so important to build a strong
value proposition or business case for your
start-up venture and be able to articulate that
value simply and clearly even to those who
won’t understand the science behind your
innovation.
You also should consider government grants,
including state and federal programs -- the most
common of which is the federal Small Business
Innovation Research (SBIR) program
(http://www.sbir.gov/).
The SBIR program and the similar Small Business
Technology Transfer (STTR) program are the
largest and conceivably the most important, yet
often overlooked, sources of early-stage technology
R&D financing for America’s entrepreneurs.
The SBIR and STTR programs were created
through the 1982 SBIR Act and its reauthorizations.
Their purposes are to increase private-sector
commercialization of technology developed
through Federal R&D and increase small-business
participation in Federal R&D. The OED can help
you apply for such grants.
Annually, more than $2 billion is set aside for
small-business concerns to engage in federally
funded R&D with potential for commercialization.
For-profit companies with strong research or R&D
capabilities in science and engineering and a vision
for commercialization are eligible.
It’s so important to build a strong value proposition
or business case for your start-up venture.
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Although companies with up to 500 employees are
eligible, SBIR is designed as a small-company
program. Nearly 70 percent of awardees have 30 or
fewer employees at the time of their Phase I
awards.
In general, participating federal agencies issue
solicitations at least once a year, listing research
topics or problem areas for which they would
welcome grant proposals from small companies.
The grants are awarded in two phases. In Phase I,
your company could receive up to $150,000 in
funding typically for a six-month technical
feasibility study. Only Phase I winners may submit
Phase II proposals. Phase II awards of up to $1
million are designed for full-scale R&D, with one-
to two-year terms.
Note that SBIR/STTR is not debt; there’s no loan to
service, nor are there repayment terms. It’s a
straight injection of money to enable a small
company to afford the people, equipment, time and
other resources required to bring an idea to market.
SBIR and STTR also are not assistance programs.
It’s a highly competitive process, and you’re
actually contracting with a federal agency to
perform high-quality R&D leading to business
development and product commercialization. And
only those companies demonstrating this capability
in a proposal will win.
When circumstances align
Throughout this whole start-up process, keep in
mind that a great innovation with strong intellectual
property protection will take you only so far in the
process; it won’t automatically carry you to
commercial success.
That’s where a good value proposition with clear
and substantial technical and market advantages, an
attention-getting elevator pitch, an experienced
entrepreneurial team and other partners, savvy
investors, and a marketplace teeming with
commercial opportunity come into play in building
a successful company.
Oh, and there’s one more thing. Some call it
serendipity, where your idea, careful planning, and
market circumstances all seem to come together in
your favor at just the right place and time.
Others might call it luck. But we’re not talking
about dumb luck. As Thomas Jefferson once said,
“I’m a great believer in luck, and I find the harder I
work, the more I have of it.”
Best of luck, as you embark on your
entrepreneurial adventure.
Pitt Innovator LIBRARY is a service of the University of Pittsburgh
Office of Technology Management and Office of Enterprise Development.
©2013 University of Pittsburgh.
www.innovation.pitt.edu
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