Description
In this such a detailed information around tias guide to launching a new company with uc technology.
tia.ucsb.edu I Page 1
An Entrepreneur’s
Startup Guide
TIA’s Guide to Launching a New
Company with UC Technology
tia.ucsb.edu I Page 1
Table of Contents
INTRODUCTION 2
CHAPTER 1 - FORMING THE COMPANY 3
CHAPTER 2 - LICENSING FROM THE UNIVERSITY 9
CHAPTER 3 - A WORD ABOUT APPLICABLE UC POLICIES 11
FREQUENTLY ASKED QUESTIONS 13
tia.ucsb.edu I Page 2
INTRODUCTION
One signifcant aspect of the UC’s public service
mission is to ensure that the results of its research are
made available for public use and beneft. For over 45
years, UC has maintained an active and productive
technology transfer program to encourage the devel-
opment of commercial products and services based on
UC’s academic discoveries. A few examples of products
that have been commercialized from UCSB research
include drugs to treat cancer and other diseases, cloud
computing systems and energy-efcient light bulbs.
Given that University innovations are ofen basic
research results from academic studies, they are far
from being commercial products. UC is a nonproft
research university, not a company, and the UC does
not directly commercialize its own research discoveries
(UC does not manufacture products to a commercial
standard). In order to assure our research is developed
into benefcial products and services, the UC secures
intellectual property rights, when appropriate, and
then licenses those rights to companies in the private
sector who develop commercially available products
and services. When these innovations are disruptive or
address an underserved market, ofen the best vehicle
for bringing these innovations to market is a startup
company.
Tis guide is intended to help university researchers,
including faculty and students, understand the process
involved in forming a company based upon a univer-
sity innovation. Many innovations made at research
universities fail to achieve their full potential because
they require resources that lie outside of the university
in order to do so. Starting up a company is one way
for innovations to “graduate” from the University and
take on a life of their own — while creating benefts to
everyone who helped make that happen along the way.
Tis guide will also identify resources available at UC
Santa Barbara (“UCSB”), in our local community and
around the state of California that can help you devel-
op a plan to go from where you are to where you want
to be, and to address and understand topics such as
how to analyze the business opportunity, external re-
sources for startups; university licensing processes, and
more. UCSB’s Ofce of Technology and Industry Alli-
ances (TIA) is the department you would work with on
all UC intellectual property and licensing needs your
startup company may have. See tia.ucsb.edu.
Storke Tower at UCSB. Credit: Tony Mastres
tia.ucsb.edu I Page 3
CHAPTER 1
FORMING THE COMPANY
Launching a successful startup company based on
university technology requires commitment, hard
work, good timing and, at times, luck. Every successful
startup has its own unique story, but some qualities are
consistently seen in success stories: a compelling solu-
tion to a market need, a substantial market opportuni-
ty, sound competitive advantage(s), solid business and
fnancial planning, and a strong management team.
Tere is no standard timeline for launching or growing
a startup. Launch and growth both depend on multi-
ple factors, such as the maturity of the technology, the
acquisition of funding and other necessary resources,
the market, and business trends.
Te company founders will spearhead company for-
mation and will be the key champions for the startup
during its launch. In the beginning, the founders will
need to complete several tasks in parallel: (a) secure
rights to the technology from the University; (b)
identify and research key commercial advantages; (c)
develop a business plan; (d) pursue fnancing; and, (e)
build a management team and advisors.
University researchers should carefully consider their
potential role in the new startup company. Direct in-
volvement in the company can be rewarding and ofers
a front row seat to the commercialization of the tech-
nology that the research group worked so hard to cre-
ate. However, launching and sustaining an early-stage
technology company takes considerable time and
efort. Researchers who do not have the ability to com-
mit signifcant time and efort or who want to focus on
academic research may want to consider participating
through advisory or consultant roles, with the compa-
ny’s core business team performing the heavy lifing.
Regardless of the role played by the University re-
searchers, it is critical to build a strong, cohesive
management team that shares the same passion for the
technology and the entrepreneurial journey. A startup
company never launches smoothly. Your cash will run
low. You may lose a critical employee, the market may
not be what you anticipated, or you could lose a com-
petitive battle or a key early customer. At these times,
you will need a strong management team that has the
passion (as well as the skills) to meet these challenges
head-on.
While every startup is diferent, there are common
steps to launching a startup company:
Network and Seek Input
Entrepreneurs should seek input and advice from
as many experienced business people and potential
customers as possible and listen carefully to the ratio-
nale behind conficting viewpoints on similar issues.
In an area as complex as launching a new technology
company, no single advisor or mentor will have all the
right answers or expertise. Further, as the company
progresses, mentors and advisors ofen have valuable
connections to funding and potential customers. Seek
out networking events, trade conferences and personal
recommendations to build a strong, diverse network of
mentors and advisors.
As a starting point, a list of campus and regional net-
working opportunities can be found on TIA’s website
at: tia.ucsb.edu/entrepreneurs.
ShadowMaps wins the 2014 New Venture
Competition. Credit: Sonia Fernandez.
tia.ucsb.edu I Page 4
Analyze the Business Opportunity
It is important to carefully and thoroughly analyze the
potential business opportunity that can be created by
building a company around your technology at the
outset. A clear understanding of the opportunities and
risks is essential to attract funding and talent to the
company, as well as to assure that it makes sense to
invest in the time and efort to launch the contemplat-
ed startup.
Several key areas should be thoroughly researched
and analyzed when building a business plan for a new
startup:
1. Is there a market for your product? Tis is the
most important question to answer – if you turn your
technology into a product, will there be customers who
will want to buy it? To answer this question, you must
speak with as many potential customers as possible.
Does your technology solve a problem they think
they have? Is your value proposition strong enough
that those customers will be willing to pay a sufcient
amount for it? Have you identifed thefeatures and
benefts that are most important to your potential
customers? Once you have answered these questions to
your satisfaction, you can turn to assessing the market
size.
2. Market Size, Dynamics and Potential. What is the
market size? Is it growing, stable or shrinking? When
analyzing the market size, it is important focus on the
addressable market that the product will specifcally
beneft. For example, the addressable market for a new
high power, extremely bright LED bulb, is not likely
to be the entire lighting industry, but rather, may be
automotive headlights and stage lighting as it may the
wrong ft for residential or other uses. Is the market
controlled by a few players? If so, how will your com-
pany break in? Of the addressable market, what share
can be obtained by your company?
3. Competition. Now that you have identifed/assessed
the market size, the next step is to understand your
competition in that market. Are there products already
in the market that address the same general need? If so,
how is your technology better? Are there other compa-
nies that are developing technology that would directly
compete with yours? If so, what is the stage of develop-
ment and how is your technology better?
4. Intellectual Property Protection. Your intellectual
property should give you a competitive advantage over
your competitors or should create a barrier to entry
by future competitors. Based on your understanding
of the market and your competitors: What is the best
form of intellectual property to protect the technol-
ogy? Is broad protection possible to secure? Are any
key intellectual property rights owned by someone
else? If so, how will the startup acquire the necessary
rights or re-design the technology to assure “freedom
to operate”? Can the company employ multiple forms
of intellectual property rights, such as a combination
of patents, trademarks, copyrights and, later in the
company’s development, trade secrets, to strengthen
and supplement protection of its products and ser-
vices? Some form of strong intellectual property rights
is essential to prevent competitors from copying the
startup’s products and services.
5. Development Needs/Risks. What research and de-
velopment will be needed to get the technology ready
for commercial sales? Are any regulatory approvals
required? If so, what is the history of similar products
obtaining approval and what is the risk that the ap-
provals will not be secured? What are the key devel-
Soraa’s MR16 LED bulb. Soraa was
founded in 2008 by UCSB professors
Shuji Nakamura, Steven DenBaars,
and James Speck.
tia.ucsb.edu I Page 5
opment milestones? How long will it take to achieve
these milestones and how much funding is needed to
achieve them? What are the development risks, in-
cluding full failure points, and how do you anticipate
mitigating these risks?
6. Return on Investment. Based on the amount of
funding required to develop the technology for com-
mercial sale, is it possible for investors to achieve their
necessary rate of return? Please note that diferent
funding sources have diferent needs when calculating
their necessary return on investment. For example, the
federal government would not expect any return on in-
vestment when awarding a grant. In contrast, venture
capital frms each have a return they seek to achieve,
which could be as high as 10x the invested funding.
Te required return on investment can vary, so it is im-
portant to research individual investors, when possible,
in addition to market standards.
Develop Materials to “Pitch” Company
Afer the analysis of the business opportunity is com-
plete, the startup company will need to develop clear,
concise materials that communicate the value of the
company and the business opportunity. Te presen-
tation materials should be updated as conditions and
strategies change, which will likely be ofen. Tese
materials will be used in many ways: for negotiating
a license with the university, raising funding, and
attracting talent to the company. Investors will rarely
hold advanced degrees related to the technology, so
presentations should be understandable by the educat-
ed layperson and should not assume that the audience
has any particular technical or scientifc experience.
Te most important materials to develop are:
1. Elevator Pitch. An “elevator pitch” is a concise, care-
fully planned, well-practiced and compelling descrip-
tion about the company that a non-technical layperson
should be able to understand in the time it would take
to ride up an elevator (approximately 30 seconds). An
“elevator pitch” that is well-known by the founder(s)
and management team is essential, as funding op-
portunities may arise in informal settings where it is
essential to hook an inventor’s interest quickly, for later
follow-up.
2. Slide Deck. Te slide deck should present the key,
compelling points of the business plan, typically con-
taining no more than 20 slides, plus backup slides, that
can be presented in 20 minutes. Many investors will
give you no more than 30 minutes for a frst meeting,
so you need to be able to grab their interest quickly
and leave time for questions. Te goal of the presenta-
tion is to generate enough interest to generate a fol-
low-up meeting.
3. Executive Summary. An executive summary is
a 1-2 page (maximum!) document that represents a
summary of who your company is, what you are trying
to accomplish, the basics of your value proposition, etc.
– basically, a summary of everything you would fnd in
a formal business plan. Tis document is ofen used as
the frst opportunity to grab a potential investor’s inter-
est, so it should highlight the company’s strengths.
4. Formal Business Plan. Some investors and uni-
versity license programs will require the submission
of a formal business plan. Te formal business plan
is a written document that more thoroughly presents
a startup company’s business opportunity analysis,
demonstrating the startup’s potential. Te business
plan should address what investors want to know most:
why the technology is compelling, it’s competitive ad-
vantage, the market size/potential, sales strategy (pric-
ing, product distribution, and marketing strategy),
Prof. Paul Hansma holds the OsteoProbe,
commercialized by ActiveLife Scientifc.
Credit: Spencer Bruttig.
tia.ucsb.edu I Page 6
product development timelines/key milestones, risk
factors and mitigation measures, intellectual property
protection and landscape and an introduction to the
management team and their experience/skill sets.
Pursue Investors/Funding
Commercializing technology can be a capital intensive
process. Entrepreneurs need to raise funds from inves-
tors and other sources to make it happen. Research
each funding source carefully before pitching to them
to confrm a match with your interests and needs and
be sure to adjust your pitch to address each investor’s
interests. Investors and grant programs will typically
focus on specifc markets or will provide funding only
at certain stages of the company’s lifecycle. If your
company does not match an investor or other funding
source’s interests, there is little chance of attracting an
investment.
Luckily, the state of California has a rich history of
housing good sources of investment in early-stage
technology companies. Common sources of early stage
funding for a startup company include:
1. Friends and Family. During the earliest stages of
company formation, entrepreneurs ofen use their own
funds, or funds provided by friends and family, to get
the company of the ground. A “friends and family”
round can provide critical seed funding. However,
take care to assure that what the company provides in
exchange for the funding will not unduly interfere with
future funding opportunities.
2. Angel Investing. Angel investors are typically afu-
ent individuals who have a personal interest in funding
new companies. Tey are ofen willing to invest at ear-
lier stages than venture capitalists, ofen with smaller
amounts of funding in exchange for equity positions.
Te best angel investors for your company are ones
with ties or direct experience in your market or indus-
try, who can ofer your start up more than just money.
Some angels will form into groups to share research,
vet opportunities and pool investments. Tese angel
groups or networks allow your company to pitch many
angels at the same time.
3. Venture Capital. Typical venture capital frms
(VCs) invest afer the seed funding round (i.e, during
Series A, B or C) in exchange for an equity stake in
the company. VCs raise substantial funds from other
sources, such as institutional investors, and then invest
the funds in high growth potential companies. VCs
are typically hands-on, interacting with the startups’
management team and will ofen help locate and place
senior management into the startup. VCs also typical-
ly requires a relatively high annualized return on the
funds used to make investments.
4. Strategic Investors (also called Corporate Venture
Funding). Many large companies have venture arms
that invest in startups. Tese can be a good source
of funding because the corporates usually invest in
companies who would make good business partners
for them. For example, they might invest in a materials
startup that could then supply them with better mate-
rials for their products. Tese investors are not always
looking for a high return on their investment, but they
are always seeking what would be in their best inter-
ests. Be wary of strategic investors whose interests may
not be aligned with your company’s.
5. Government/Nonproft Grants. In some markets, it
is becoming increasingly common for startup compa-
Sirigen was founded in 2003 to develop fuorescent
polymer dyes. It was acquired by Becton Dickinson
in 2012.
tia.ucsb.edu I Page 7
nies to secure government or nonproft grants to help
fund initial product development. Te most common
funding mechanisms are the U.S. federal government’s
SBIR and STTR grant programs, however, depending
on the technology area, federal agencies will award
grants through other general research and develop-
ment grant programs. Many nonproft foundations,
particularly those focused on medical issues, also
have emerging technology or startup grant programs.
Government and nonproft funding can be attractive
because it is ofen “non-dilutive,” meaning the com-
pany does not need to give any equity in exchange for
the funding, but they do ofen require a higher degree
of administrative efort. Note, however, that there is
an emerging trend in non-proft funding where these
foundations sometimes require equity in exchange for
grants, but U.S. federal funding is always non-dilutive.
6. Organic Growth (“Bootstrapping”). If a startup is
in a position to release an initial product fairly quickly,
it may be able to grow organically, based on sales or
joint ventures with partners, without the need to raise
any external funding. When bootstrapping is feasible,
it can be attractive for founders since it is non-dilu-
tive and founders usually retain more control over the
company. However, a company is likely to grow more
slowly and could have more resource constraints when
a bootstrapping strategy is employed.
A cautionary note: VC funding sometimes has a bad
reputation among entrepreneurs, however, as with
all areas of business, there are good partners and bad
partners. Again, it is very important to research your
potential investors before taking their money, no mat-
ter which category they fall in. Talk to other entrepre-
neurs who have worked with them and research their
reputation online.
Presenting to Investors
Investors listen to pitches constantly, and each inves-
tor will only invest in a very small percentage of the
companies who pitch to them. When evaluating an
opportunity to invest, the investors will frst determine
if the startup meets their strategic and fnancial goals
and if the company fts into their current portfolio of
investments. Investors will ofen invest only in specifc
markets, or at specifc stages of a company’s lifecycle,
so it is important to research an investor before ap-
proaching them for funding.
Investors invest to make proft. When evaluating a
company, investors are not only evaluating the compa-
ny’s potential for success, but also how they can recoup
their investment, with an appropriate return. Many
investors, such as VCs, need to recoup their investment
within time frames that are relatively short (i.e., 5-7
years), either through an initial public ofering (“IPO”)
or through a merger & acquisition (“M&A”). If so,
the investor will also analyze whether an exit is pos-
sible during the ideal time frame. When preparing to
present to these investors, it is helpful to think through
reasonable exit strategies and how much additional
funding will be needed to get to exit.
When scheduling a meeting with an investor, be clear
about its purpose. If you wish to meet with an investor
for informational or exploratory purposes, make sure
the investor understands your intent. If you are meet-
ing to request funding, make sure the presentation
team is thoroughly prepared. If the team is not fully
prepared or does not have a strong grasp of your start-
up company’s business analysis, subsequent meetings
(and funding) are unlikely.
Blue LED lamps. Eight UCSB startups have been
formed around solid state lighting & energy
technologies.
tia.ucsb.edu I Page 8
Te presentation should be interesting, engaging and
concise. Te use of examples to help illustrate the busi-
ness’s potential can be highly efective, as are product
prototypes. If potential customers or partners have
provided feedback, include representative samples of
that feedback. If investors ask a question, provide an
accurate answer or promise to follow up soon.
Practice your presentation in front of more experi-
enced entrepreneurs or mentors to obtain their feed-
back. Te questions they raise are likely to be asked by
the investors, as well.
Other Resources for Startups
Incubators/Accelerators/Hackspaces. Many regions
of California have incubators, accelerators or hack-
spaces to help technology companies get started. Tese
facilities can shorten the time and lower the cost from
innovation to company launch. Incubators and acceler-
ators can also provide afordable work space, referrals
to service providers (attorneys, accountants, etc.) that
understand how to work with startups and a gateway
to the local entrepreneur community for building your
network of mentors and advisors.
Entrepreneur Events/Organizations. Most regions
of California also have entrepreneur organizations that
host public events, such as lectures by successful entre-
preneurs, business training and workshops, and other
networking events. Tese events can provide a valuable
way to connect to the local entrepreneurial ecosystem
and some much-needed information.
A list of incubators in the Santa Barbara region, as well
as local organizations that sponsor entrepreneurial
events, can be found on TIA’s website at: tia.ucsb.edu/
entrepreneurs.
Pitfalls
Launching a new company is a high risk endeavor.
While many startups are successful, unfortunately, the
failure rate can be high. Some common challenges that
can cause early-stage startups to fail are:
1. Technology does not meet a compelling commer-
cial need. Sometimes, the science is brilliant, innova-
tive and cutting-edge, but it does not address a critical
commercial need. Other times, the existing solution
in the marketplace may be “good enough,” despite its
faws, so the market is not driven to embrace further,
unknown innovation.
2. Inexperienced Management. Launching a startup
is difcult, requiring multiple skill sets. Decisions and
deals made early in the company’s lifecycle can afect
the company’s health and opportunities for a long time
to come. A strong, experienced, cohesive team is nec-
essary for a startup company to succeed. It is important
for an inexperienced founder to build a strong initial
advisory board to help navigate the company through
early complexities and be prepared to cede control to
more experienced management as the company grows.
Problems can also arise if the initial founders, new
management and the investors do not share the same
vision.
3. Lack of Funding. A startup needs sufcient capi-
tal to develop a robust commercial product, secure a
strong intellectual property position and obtain any
necessary regulatory approvals. To attract and acquire
sufcient capital, the startup company needs to have
a solid business analysis that accurately forecasts the
UCSB has many facilities available for use by start-
ups, including the nanofabrication facility clean room
pictured here.
Credit: Spencer Bruttig.
tia.ucsb.edu I Page 9
total funding needed to get the product to the market-
place.
4. Timing. Even when a strong commercial need ex-
ists, a company can miss its “window of opportunity.”
Sometimes, the market is not ready for the product
(i.e., too early or too expensive). Sometimes, in the
time it takes a startup to bring a product to market, the
need has already been flled by a diferent technology
or by a competitor that leapfrogged over the startup
company’s technology with the next generation.
5. Niche product. Te initial market may look large
and promising, but over time, the addressable market
becomes much smaller and, as a result, the company
cannot meet its fnancial targets.
6. Bad Luck. Even the most successful and experienced
entrepreneurs will sometimes fail due to events outside
the control of the entrepreneur.
CHAPTER 2
LICENSING FROM THE
UNIVERSITY
Because the University must locate research funding
from a variety of diverse organizations, ofen, the
university will owe intellectual property obligations to
the research funder whose terms must be included in a
license agreement. Te most common source of re-
search funding is the U.S. federal government. Te U.S.
Bayh-Dole Act, which grants universities title to the
patentable inventions they create under a U.S. federal
grant or contract, requires the university to manage
federally-funded intellectual property in accordance
with certain rules. For example, Bayh-Dole requires
universities to grant a non-exclusive license to the U.S.
federal government for its own use, distribute a por-
tion of net revenues to inventors and, when the uni-
versity issues an exclusive license to a federally-funded
invention, it is required to assure the license contains
commercial diligence terms, “preference for U.S.
industry” conditions, and march-in rights of the U.S.
government. Te university is legally bound to include
any terms in its licenses that were licensing-related
conditions of the funding used to create the intellectual
property.
Tere are several diferent forms of licensing arrange-
ments that can be explored by a startup company:
1. Letter Agreement. A letter agreement is a simple,
one to two page agreement, in a letter format with
minimal “legalese,” where the university promises to
negotiate the terms of a license with the startup com-
pany for a short period of time (3-12 months, depend-
ing on campus practices). In exchange, the company
typically reimburses certain patent costs incurred by
the university for the licensed invention and will pay
a one-time, relatively modest fee. A letter agreement
can be an efective tool to secure access to a patent or
copyright while the company is forming, seeking initial
funding and conducting a detailed analysis of the busi-
ness opportunity.
Prof. John Bowers holds one of
the frst hybrid silicon lasers. He
co-founded Aurrion, a silicon pho-
tonics startup, in 2007.
tia.ucsb.edu I Page 10
2. Option Agreement. An option agreement is a legal
contract that allows the startup company to exercise a
right to obtain a license at any time during a fxed time
period. Te term of an option is typically 1 – 3 years,
depending on circumstances. Te standard terms for
an option agreement are an annual fee (with the frst
fee due upon signing the agreement) and reimburse-
ment of certain patent costs incurred by the University
for the licensed inventions. An option agreement is a
good mechanism to employ if the startup company is
ready to commit to the development of the technolo-
gy, but the precise business model, proft margins and
other fnancial details are not yet predictable. It is also
a good mechanism if the startup company does not
know how the optioned technology will ultimately ft
within its product line. Because the option agreement
is an option to secure a license, but not itself a license,
the optionee is not granted the right to sell products
or services or issue sublicenses, but is granted the right
to use the intellectual property internally and even
engage in various product development activities.
3. License Agreement. A license agreement grants
the startup company all of the rights necessary to sell
commercial products. It typically lasts for the life of the
patent (although it can be terminated by the company
at any time, upon notice). Te terms of license agree-
ments vary widely, as each agreement is customized
to refect the specifcally anticipated products and
market, the development stage of the company and the
technology being licensed, and the role of the licensed
intellectual property. Te UC follows industry norms
when developing fnancial and business terms and has
“comparables” from thousands of university licenses
within the UC system and across the U.S. and Canada.
Tere are several standard terms for license agree-
ments that are important to understand:
A. Earned Royalties. Earned Royalties are gen-
erally a percentage of net sales and are negotiated
as part of the license agreement. Rates depend on
a variety of factors such as the value of the inven-
tion, the cost of commercializing the invention,
proft margins, and whether the license is exclu-
sive or nonexclusive.
B. Annual Maintenance Fees/Annual Mini-
mum Royalties. Annual fees, in set amounts
listed in the license agreement. Once the licens-
ee introduces commercial products, the annual
fees become a minimum annual royalty and are
creditable against earned royalties owed by the
licensee to the UC. For example, if a licensee paid
a minimum annual royalty of $10,000, but sells
products that generate $12,000 in earned royalties
to UC, it pays only an additional $2,000 to the
UC, the amount that the earned royalty exceeded
the minimum annual royalty.
C. Patent Cost Reimbursement. Te licensee
is required to reimburse the UC for the costs of
securing the licensed patent rights.
D. Sublicensing Revenue. If the licensee autho-
rizes others to use the licensed patents, the UC
requires that the sublicensee pay royalties at the
same rate as the licensee on the products sold by
the sublicesee. If the licensee receives any fees or
other payments in exchange for the sublicense of
UC’s patents, the UC must receive a share of that
revenue.
NEXT Energy Technologies develops trans-
parent organic photovoltaics. Te startup
was founded by UCSB graduate Corey
Hoven and renewable energy leader
Daniel Emmett.
tia.ucsb.edu I Page 11
E. Development Milestones. As discussed above,
the UC licenses intellectual property rights to
companies so that University innovations can
be actively developed into products and services
that beneft the public. To assure the company is
actively developing products and services, key
product development milestones are placed in
the license agreement with deadlines for meeting
them.
F. Equity. Startup companies face the combina-
tion of high developmental costs and risk, uncer-
tainty as to the potential value of the technology,
and are “cash-poor but equity-rich.” Small and
startup companies may fnd it particularly dif-
cult to commit signifcant cash outlays for both
R&D and licensing costs. Accordingly, the Uni-
versity may accept equity in a company as partial
consideration for technology licensing-related
transactions. Te decision whether to ofer eq-
uity is the company’s to make – the UC does not
require equity in exchange for a license.
G. Milestone Payments. At times, when fexibility
is needed, UC is able to agree that certain fxed
fees will be paid upon the achievement of spe-
cifc milestones, such as frst commercial sale or
initiation of the frst Phase I clinical trial. Tese
milestone payments, which occur over the life of
the license, can sometimes be used to reduce the
level of the licensee fees paid in the frst years of
the company’s life.
CHAPTER 3
A WORD ABOUT APPLICABLE
UC POLICIES
When a company is formed around University tech-
nology, it should be aware of any relevant UC polices.
TIA recommends that all startup companies meet with
a TIA licensing professional to identify and discuss
any policies that may potentially apply to its contem-
plated activities. While many diferent policies may be
invoked, the following policies are the most commonly
relevant:
1. Use of University Facilities/Resources. Te Uni-
versity of California is a public institution, heavily
subsidized by the state and federal taxpayers and
tasked with the performance of academic and scholarly
research. Private companies are not allowed to directly
use or access University resources unless the Universi-
ty has specifcally identifed that resource as available
for use by external users. If a startup company wants
to directly access UCSB’s research infrastructure for
its own projects, it can do so by using one of the many
shared research facilities that are set up as available for
external use. Additionally, many campuses, including
UCSB, have on-campus incubator space where startup
companies can lease ofces and basic lab space.
If the company is interested in having a UCSB re-
searchers conduct a research project for the company,
it can either provide funding as an unrestricted gif
or through a research agreement. While the UC will
be required to own any resulting intellectual property
developed by its employees, if the funding is provided
through a research agreement, the agreement typi-
cally includes the ability for the sponsoring company
to secure a license to any intellectual property devel-
oped by UCSB while performing the research project.
Please note that UCSB, as a scholarly institution, is not
allowed to undertake projects of a “commercial or rou-
tine” nature. Tere must be some academic research
value to the research that is undertaken.
Prof. Rich Wolski founded cloud-com-
puting startup Eucalyptus Systems in
2009. It was acquired by HP in 2014.
tia.ucsb.edu I Page 12
2. Permissible Consulting by Faculty. Te University
is unique from other employers because it allows facul-
ty to engage in certain “permissible” consulting activ-
ities. Te company may own any intellectual property
developed by faculty during permissible consulting ac-
tivities, as long as those activities meet certain criteria
and comply with all applicable UC policies. However,
if the policies and criteria are not followed, the Univer-
sity may be required to assert an ownership interest in
the intellectual property. Te University of California’s
Guidelines on Faculty Consulting and Intellectual
Property provides a helpful explanation of the policies
applicable to faculty consulting. Te Guidelines are
available on TIA’s website at: tia.ucsb.edu/about-tia/
forms.
3. Confict of Interest in Research. To protect against
the appearance of bias in research, state law requires
that if a UCSB researcher desires to accept research
funding from a for-proft company, and he or she
has any fnancial interest in that company (through,
among other things, being a paid consultant, serving
on the board or as a corporate advisor, or holding eq-
uity), the research must disclose the fnancial interests
to UCSB, which are then reviewed by UCSB’s confict
of interest committee. If the fnancial interests are
signifcant, the researcher may be required to follow
certain management conditions to protect against the
possibility of research bias or, in more extreme cases,
will not be allowed to accept the funding if the confict
is deemed “unmanageable.” If the startup company
anticipates funding research at UCSB, and the research
will be performed by any UC employee that has a
potential fnancial interest in the company, then the
startup company and/or the afected researcher should
discuss the potential interests with the UCSB Confict
of Interest Coordinator to assure problems won’t be
created down the road.
4. Confict of Interest in Licensing. If one or more
of the university inventors have a fnancial interest in
the startup company (stock, employment, consulting
commitments, etc.) and want to either negotiate the
license agreement directly with TIA (i.e., be “across the
table” from TIA), or desires to infuence TIA regard-
ing potential licensing terms, then the University of
California’s policy on Confict of Interest in Licensing
will need to be followed (patron.ucop.edu/ottmem-
os/docs/ott01-02.html). Since many UCSB inventors
retain an employment relationship with UCSB during
the startup company’s formation, TIA strongly recom-
mends that inventors ask an individual who is not af-
fliated with UCSB to conduct negotiations in order to
preserve campus relationships and eliminate potential
delays caused by implementing the policy’s require-
ments. Te unafliated individual is most ofen an
attorney representing the start up or a member of the
management team that is not employed at UCSB and
ofen has past experience negotiating license agree-
ments that can be benefcial.
5. Use of UCSB Name and Logo. As a public, state
entity, the University of California is prohibited from
endorsing any specifc company, product or service. As
a result, the use of the University of California names
and logos are restricted and cannot be used to imply,
directly or indirectly, that the University supports, fa-
vors or endorses your commercial products. If a faculty
member is involved in your company, it is appropriate
to identify them as a professor at UCSB as long as the
statement is factual and does not imply endorsement
by the University.
tia.ucsb.edu I Page 13
FREQUENTLY ASKED
QUESTIONS
How much does a license cost?
Valuing a license depends on many factors, including,
1) the type of IP being licensed (patents v. copyrights);
2) the scope of the rights being licensed (exclusive v.
non-exclusive); 3) the territory: (worldwide v. U.S.
only); 4) the feld/market area of the license; 5) the
anticipated product; 6) market size; and 7) the compa-
ny’s business model. Additionally, the fnancial con-
sideration is viewed as a whole. For example, a typical
exclusive license will include an upfront fee, equity,
maintenance fees, milestone payments, an earned roy-
alty on sales of products and reimbursement of patent
costs. If earlier fees/milestone payments are lower,
later fees/payments may be higher. UC’s philosophy
is to make the initial fees low enough that they don’t
provide a barrier to entry while they do demonstrate
the commitment of the licensee to develop the IP into
useful products.
Do I have to give the UC equity?
No. Giving equity to UC as partial consideration for
the license is an option that many startups choose to
make in order to conserve their cash for research activ-
ities, product development and development of its in-
tellectual property portfolio, which may be important
for future investment opportunities. However, UC does
not require owning equity in its startups and some
companies prefer to pay cash for the license. When the
company and university agree on an equity component
in the license, UC is restricted in the amount of equity
it can hold. UC also does not take a seat on the board,
so the startup can be assured that the university will
not take an active role in managing the company.
What if I’m not ready to enter into a full license?
A variety of agreements are available to serve the
particular needs of the company at diferent stages of
its growth. Initially a Letter of Intent may be sufcient.
Tis type of short-term agreement provides for an
exclusive negotiation period in exchange for limited
fnancial consideration to the university. Tis allows
the startup to do any necessary due diligence around
the IP and business opportunity, to refne its commer-
cialization plan and to negotiate the license without
being concerned that another party will also be nego-
tiating with the university. An evaluation license or
option provides the company with the ability to con-
duct more in depth due diligence, including evaluating
how the technology works in the company hands or
performing proof of concept experiments to confrm
the viability of the company’s plans. TIA can meet with
you and explain the diferent licensing arrangements to
help you determine the best ft for your company based
on its current circumstances.
How long does it take to negotiate a license?
Te time to negotiate is highly variable and can take
from a few weeks to several months depending on
the degree of license customization requested by the
company. Typically, a brief term sheet focusing on
the scope of the license and fnancial consideration is
negotiated frst. Tis is followed by negotiating the lan-
guage in the legal license agreement that incorporates
the terms in the term sheet and addresses such matters
as patent prosecution and infringement, reports, use of
names and warranties and indemnifcation. While UC
is willing to work extensively with a startup to under-
stand its business plan and to craf an agreement that
gives the company the best chance to succeed, there are
certain provisions that, as a university, we have limited
ability to negotiate. A startup can reduce the amount of
time it takes to negotiate a license by discussing up-
front with the licensing ofce those terms which there
PiMEMS designs, fabricates and packages thin, light-
weight MEMS devices using bulk titanium substrates.
tia.ucsb.edu I Page 14
is little, if any, ability to modify. Negotiations are also
facilitated when the company has a reasonably detailed
commercialization plan soon afer it frst approach-
es the university and before full license negotiations
begin and, if the company is engaging legal represen-
tation, selecting an attorney that is reasonably familiar
with University licensing practices, when possible.
Letters of intent and option agreements are generally
quicker to negotiate than a full license agreement.
What happens if my company develops IP?
It is anticipated that, during its research and develop-
ment activities, a company will develop new IP that
is distinct from the in-licensed UC IP. If the new IP is
generated independently by the company without uni-
versity resources or university employees, the company
will usually own the IP. If university funds, facilities
or employees were involved in generating the IP the
university is likely to have an ownership position in the
IP. Tis ownership may be shared with the company
© 2015 Te Regents of the University of California
All Rights Reserved
UC Santa Barbara Ofce of Technology & Industry Alliances
tia.ucsb.edu
342 Lagoon Road, MC 2055
Santa Barbara, CA 93106-2055
805.893.5196
[email protected]
should company employees who have not used univer-
sity resources be co-inventors or co-authors. As a com-
pany matures, it is likely to have a blend of UC-owned,
company owned and jointly owned IP in its portfolio.
If a faculty member participates in the company and
develops IP, does the UC own it?
UC faculty are permitted to engage in certain outside
professional activities, including consulting for compa-
nies. Companies are able to own intellectual property
developed by UC faculty during permissible consulting
activities that comply fully with applicable University
policies. To learn more and to discuss best practices,
please contact a licensing ofcer at TIA, or review the
University of California’s Guidelines on Faculty Con-
sulting and Intellectual Property, a copy of which is
located at: tia.ucsb.edu/about-tia/forms.
doc_888097035.pdf
In this such a detailed information around tias guide to launching a new company with uc technology.
tia.ucsb.edu I Page 1
An Entrepreneur’s
Startup Guide
TIA’s Guide to Launching a New
Company with UC Technology
tia.ucsb.edu I Page 1
Table of Contents
INTRODUCTION 2
CHAPTER 1 - FORMING THE COMPANY 3
CHAPTER 2 - LICENSING FROM THE UNIVERSITY 9
CHAPTER 3 - A WORD ABOUT APPLICABLE UC POLICIES 11
FREQUENTLY ASKED QUESTIONS 13
tia.ucsb.edu I Page 2
INTRODUCTION
One signifcant aspect of the UC’s public service
mission is to ensure that the results of its research are
made available for public use and beneft. For over 45
years, UC has maintained an active and productive
technology transfer program to encourage the devel-
opment of commercial products and services based on
UC’s academic discoveries. A few examples of products
that have been commercialized from UCSB research
include drugs to treat cancer and other diseases, cloud
computing systems and energy-efcient light bulbs.
Given that University innovations are ofen basic
research results from academic studies, they are far
from being commercial products. UC is a nonproft
research university, not a company, and the UC does
not directly commercialize its own research discoveries
(UC does not manufacture products to a commercial
standard). In order to assure our research is developed
into benefcial products and services, the UC secures
intellectual property rights, when appropriate, and
then licenses those rights to companies in the private
sector who develop commercially available products
and services. When these innovations are disruptive or
address an underserved market, ofen the best vehicle
for bringing these innovations to market is a startup
company.
Tis guide is intended to help university researchers,
including faculty and students, understand the process
involved in forming a company based upon a univer-
sity innovation. Many innovations made at research
universities fail to achieve their full potential because
they require resources that lie outside of the university
in order to do so. Starting up a company is one way
for innovations to “graduate” from the University and
take on a life of their own — while creating benefts to
everyone who helped make that happen along the way.
Tis guide will also identify resources available at UC
Santa Barbara (“UCSB”), in our local community and
around the state of California that can help you devel-
op a plan to go from where you are to where you want
to be, and to address and understand topics such as
how to analyze the business opportunity, external re-
sources for startups; university licensing processes, and
more. UCSB’s Ofce of Technology and Industry Alli-
ances (TIA) is the department you would work with on
all UC intellectual property and licensing needs your
startup company may have. See tia.ucsb.edu.
Storke Tower at UCSB. Credit: Tony Mastres
tia.ucsb.edu I Page 3
CHAPTER 1
FORMING THE COMPANY
Launching a successful startup company based on
university technology requires commitment, hard
work, good timing and, at times, luck. Every successful
startup has its own unique story, but some qualities are
consistently seen in success stories: a compelling solu-
tion to a market need, a substantial market opportuni-
ty, sound competitive advantage(s), solid business and
fnancial planning, and a strong management team.
Tere is no standard timeline for launching or growing
a startup. Launch and growth both depend on multi-
ple factors, such as the maturity of the technology, the
acquisition of funding and other necessary resources,
the market, and business trends.
Te company founders will spearhead company for-
mation and will be the key champions for the startup
during its launch. In the beginning, the founders will
need to complete several tasks in parallel: (a) secure
rights to the technology from the University; (b)
identify and research key commercial advantages; (c)
develop a business plan; (d) pursue fnancing; and, (e)
build a management team and advisors.
University researchers should carefully consider their
potential role in the new startup company. Direct in-
volvement in the company can be rewarding and ofers
a front row seat to the commercialization of the tech-
nology that the research group worked so hard to cre-
ate. However, launching and sustaining an early-stage
technology company takes considerable time and
efort. Researchers who do not have the ability to com-
mit signifcant time and efort or who want to focus on
academic research may want to consider participating
through advisory or consultant roles, with the compa-
ny’s core business team performing the heavy lifing.
Regardless of the role played by the University re-
searchers, it is critical to build a strong, cohesive
management team that shares the same passion for the
technology and the entrepreneurial journey. A startup
company never launches smoothly. Your cash will run
low. You may lose a critical employee, the market may
not be what you anticipated, or you could lose a com-
petitive battle or a key early customer. At these times,
you will need a strong management team that has the
passion (as well as the skills) to meet these challenges
head-on.
While every startup is diferent, there are common
steps to launching a startup company:
Network and Seek Input
Entrepreneurs should seek input and advice from
as many experienced business people and potential
customers as possible and listen carefully to the ratio-
nale behind conficting viewpoints on similar issues.
In an area as complex as launching a new technology
company, no single advisor or mentor will have all the
right answers or expertise. Further, as the company
progresses, mentors and advisors ofen have valuable
connections to funding and potential customers. Seek
out networking events, trade conferences and personal
recommendations to build a strong, diverse network of
mentors and advisors.
As a starting point, a list of campus and regional net-
working opportunities can be found on TIA’s website
at: tia.ucsb.edu/entrepreneurs.
ShadowMaps wins the 2014 New Venture
Competition. Credit: Sonia Fernandez.
tia.ucsb.edu I Page 4
Analyze the Business Opportunity
It is important to carefully and thoroughly analyze the
potential business opportunity that can be created by
building a company around your technology at the
outset. A clear understanding of the opportunities and
risks is essential to attract funding and talent to the
company, as well as to assure that it makes sense to
invest in the time and efort to launch the contemplat-
ed startup.
Several key areas should be thoroughly researched
and analyzed when building a business plan for a new
startup:
1. Is there a market for your product? Tis is the
most important question to answer – if you turn your
technology into a product, will there be customers who
will want to buy it? To answer this question, you must
speak with as many potential customers as possible.
Does your technology solve a problem they think
they have? Is your value proposition strong enough
that those customers will be willing to pay a sufcient
amount for it? Have you identifed thefeatures and
benefts that are most important to your potential
customers? Once you have answered these questions to
your satisfaction, you can turn to assessing the market
size.
2. Market Size, Dynamics and Potential. What is the
market size? Is it growing, stable or shrinking? When
analyzing the market size, it is important focus on the
addressable market that the product will specifcally
beneft. For example, the addressable market for a new
high power, extremely bright LED bulb, is not likely
to be the entire lighting industry, but rather, may be
automotive headlights and stage lighting as it may the
wrong ft for residential or other uses. Is the market
controlled by a few players? If so, how will your com-
pany break in? Of the addressable market, what share
can be obtained by your company?
3. Competition. Now that you have identifed/assessed
the market size, the next step is to understand your
competition in that market. Are there products already
in the market that address the same general need? If so,
how is your technology better? Are there other compa-
nies that are developing technology that would directly
compete with yours? If so, what is the stage of develop-
ment and how is your technology better?
4. Intellectual Property Protection. Your intellectual
property should give you a competitive advantage over
your competitors or should create a barrier to entry
by future competitors. Based on your understanding
of the market and your competitors: What is the best
form of intellectual property to protect the technol-
ogy? Is broad protection possible to secure? Are any
key intellectual property rights owned by someone
else? If so, how will the startup acquire the necessary
rights or re-design the technology to assure “freedom
to operate”? Can the company employ multiple forms
of intellectual property rights, such as a combination
of patents, trademarks, copyrights and, later in the
company’s development, trade secrets, to strengthen
and supplement protection of its products and ser-
vices? Some form of strong intellectual property rights
is essential to prevent competitors from copying the
startup’s products and services.
5. Development Needs/Risks. What research and de-
velopment will be needed to get the technology ready
for commercial sales? Are any regulatory approvals
required? If so, what is the history of similar products
obtaining approval and what is the risk that the ap-
provals will not be secured? What are the key devel-
Soraa’s MR16 LED bulb. Soraa was
founded in 2008 by UCSB professors
Shuji Nakamura, Steven DenBaars,
and James Speck.
tia.ucsb.edu I Page 5
opment milestones? How long will it take to achieve
these milestones and how much funding is needed to
achieve them? What are the development risks, in-
cluding full failure points, and how do you anticipate
mitigating these risks?
6. Return on Investment. Based on the amount of
funding required to develop the technology for com-
mercial sale, is it possible for investors to achieve their
necessary rate of return? Please note that diferent
funding sources have diferent needs when calculating
their necessary return on investment. For example, the
federal government would not expect any return on in-
vestment when awarding a grant. In contrast, venture
capital frms each have a return they seek to achieve,
which could be as high as 10x the invested funding.
Te required return on investment can vary, so it is im-
portant to research individual investors, when possible,
in addition to market standards.
Develop Materials to “Pitch” Company
Afer the analysis of the business opportunity is com-
plete, the startup company will need to develop clear,
concise materials that communicate the value of the
company and the business opportunity. Te presen-
tation materials should be updated as conditions and
strategies change, which will likely be ofen. Tese
materials will be used in many ways: for negotiating
a license with the university, raising funding, and
attracting talent to the company. Investors will rarely
hold advanced degrees related to the technology, so
presentations should be understandable by the educat-
ed layperson and should not assume that the audience
has any particular technical or scientifc experience.
Te most important materials to develop are:
1. Elevator Pitch. An “elevator pitch” is a concise, care-
fully planned, well-practiced and compelling descrip-
tion about the company that a non-technical layperson
should be able to understand in the time it would take
to ride up an elevator (approximately 30 seconds). An
“elevator pitch” that is well-known by the founder(s)
and management team is essential, as funding op-
portunities may arise in informal settings where it is
essential to hook an inventor’s interest quickly, for later
follow-up.
2. Slide Deck. Te slide deck should present the key,
compelling points of the business plan, typically con-
taining no more than 20 slides, plus backup slides, that
can be presented in 20 minutes. Many investors will
give you no more than 30 minutes for a frst meeting,
so you need to be able to grab their interest quickly
and leave time for questions. Te goal of the presenta-
tion is to generate enough interest to generate a fol-
low-up meeting.
3. Executive Summary. An executive summary is
a 1-2 page (maximum!) document that represents a
summary of who your company is, what you are trying
to accomplish, the basics of your value proposition, etc.
– basically, a summary of everything you would fnd in
a formal business plan. Tis document is ofen used as
the frst opportunity to grab a potential investor’s inter-
est, so it should highlight the company’s strengths.
4. Formal Business Plan. Some investors and uni-
versity license programs will require the submission
of a formal business plan. Te formal business plan
is a written document that more thoroughly presents
a startup company’s business opportunity analysis,
demonstrating the startup’s potential. Te business
plan should address what investors want to know most:
why the technology is compelling, it’s competitive ad-
vantage, the market size/potential, sales strategy (pric-
ing, product distribution, and marketing strategy),
Prof. Paul Hansma holds the OsteoProbe,
commercialized by ActiveLife Scientifc.
Credit: Spencer Bruttig.
tia.ucsb.edu I Page 6
product development timelines/key milestones, risk
factors and mitigation measures, intellectual property
protection and landscape and an introduction to the
management team and their experience/skill sets.
Pursue Investors/Funding
Commercializing technology can be a capital intensive
process. Entrepreneurs need to raise funds from inves-
tors and other sources to make it happen. Research
each funding source carefully before pitching to them
to confrm a match with your interests and needs and
be sure to adjust your pitch to address each investor’s
interests. Investors and grant programs will typically
focus on specifc markets or will provide funding only
at certain stages of the company’s lifecycle. If your
company does not match an investor or other funding
source’s interests, there is little chance of attracting an
investment.
Luckily, the state of California has a rich history of
housing good sources of investment in early-stage
technology companies. Common sources of early stage
funding for a startup company include:
1. Friends and Family. During the earliest stages of
company formation, entrepreneurs ofen use their own
funds, or funds provided by friends and family, to get
the company of the ground. A “friends and family”
round can provide critical seed funding. However,
take care to assure that what the company provides in
exchange for the funding will not unduly interfere with
future funding opportunities.
2. Angel Investing. Angel investors are typically afu-
ent individuals who have a personal interest in funding
new companies. Tey are ofen willing to invest at ear-
lier stages than venture capitalists, ofen with smaller
amounts of funding in exchange for equity positions.
Te best angel investors for your company are ones
with ties or direct experience in your market or indus-
try, who can ofer your start up more than just money.
Some angels will form into groups to share research,
vet opportunities and pool investments. Tese angel
groups or networks allow your company to pitch many
angels at the same time.
3. Venture Capital. Typical venture capital frms
(VCs) invest afer the seed funding round (i.e, during
Series A, B or C) in exchange for an equity stake in
the company. VCs raise substantial funds from other
sources, such as institutional investors, and then invest
the funds in high growth potential companies. VCs
are typically hands-on, interacting with the startups’
management team and will ofen help locate and place
senior management into the startup. VCs also typical-
ly requires a relatively high annualized return on the
funds used to make investments.
4. Strategic Investors (also called Corporate Venture
Funding). Many large companies have venture arms
that invest in startups. Tese can be a good source
of funding because the corporates usually invest in
companies who would make good business partners
for them. For example, they might invest in a materials
startup that could then supply them with better mate-
rials for their products. Tese investors are not always
looking for a high return on their investment, but they
are always seeking what would be in their best inter-
ests. Be wary of strategic investors whose interests may
not be aligned with your company’s.
5. Government/Nonproft Grants. In some markets, it
is becoming increasingly common for startup compa-
Sirigen was founded in 2003 to develop fuorescent
polymer dyes. It was acquired by Becton Dickinson
in 2012.
tia.ucsb.edu I Page 7
nies to secure government or nonproft grants to help
fund initial product development. Te most common
funding mechanisms are the U.S. federal government’s
SBIR and STTR grant programs, however, depending
on the technology area, federal agencies will award
grants through other general research and develop-
ment grant programs. Many nonproft foundations,
particularly those focused on medical issues, also
have emerging technology or startup grant programs.
Government and nonproft funding can be attractive
because it is ofen “non-dilutive,” meaning the com-
pany does not need to give any equity in exchange for
the funding, but they do ofen require a higher degree
of administrative efort. Note, however, that there is
an emerging trend in non-proft funding where these
foundations sometimes require equity in exchange for
grants, but U.S. federal funding is always non-dilutive.
6. Organic Growth (“Bootstrapping”). If a startup is
in a position to release an initial product fairly quickly,
it may be able to grow organically, based on sales or
joint ventures with partners, without the need to raise
any external funding. When bootstrapping is feasible,
it can be attractive for founders since it is non-dilu-
tive and founders usually retain more control over the
company. However, a company is likely to grow more
slowly and could have more resource constraints when
a bootstrapping strategy is employed.
A cautionary note: VC funding sometimes has a bad
reputation among entrepreneurs, however, as with
all areas of business, there are good partners and bad
partners. Again, it is very important to research your
potential investors before taking their money, no mat-
ter which category they fall in. Talk to other entrepre-
neurs who have worked with them and research their
reputation online.
Presenting to Investors
Investors listen to pitches constantly, and each inves-
tor will only invest in a very small percentage of the
companies who pitch to them. When evaluating an
opportunity to invest, the investors will frst determine
if the startup meets their strategic and fnancial goals
and if the company fts into their current portfolio of
investments. Investors will ofen invest only in specifc
markets, or at specifc stages of a company’s lifecycle,
so it is important to research an investor before ap-
proaching them for funding.
Investors invest to make proft. When evaluating a
company, investors are not only evaluating the compa-
ny’s potential for success, but also how they can recoup
their investment, with an appropriate return. Many
investors, such as VCs, need to recoup their investment
within time frames that are relatively short (i.e., 5-7
years), either through an initial public ofering (“IPO”)
or through a merger & acquisition (“M&A”). If so,
the investor will also analyze whether an exit is pos-
sible during the ideal time frame. When preparing to
present to these investors, it is helpful to think through
reasonable exit strategies and how much additional
funding will be needed to get to exit.
When scheduling a meeting with an investor, be clear
about its purpose. If you wish to meet with an investor
for informational or exploratory purposes, make sure
the investor understands your intent. If you are meet-
ing to request funding, make sure the presentation
team is thoroughly prepared. If the team is not fully
prepared or does not have a strong grasp of your start-
up company’s business analysis, subsequent meetings
(and funding) are unlikely.
Blue LED lamps. Eight UCSB startups have been
formed around solid state lighting & energy
technologies.
tia.ucsb.edu I Page 8
Te presentation should be interesting, engaging and
concise. Te use of examples to help illustrate the busi-
ness’s potential can be highly efective, as are product
prototypes. If potential customers or partners have
provided feedback, include representative samples of
that feedback. If investors ask a question, provide an
accurate answer or promise to follow up soon.
Practice your presentation in front of more experi-
enced entrepreneurs or mentors to obtain their feed-
back. Te questions they raise are likely to be asked by
the investors, as well.
Other Resources for Startups
Incubators/Accelerators/Hackspaces. Many regions
of California have incubators, accelerators or hack-
spaces to help technology companies get started. Tese
facilities can shorten the time and lower the cost from
innovation to company launch. Incubators and acceler-
ators can also provide afordable work space, referrals
to service providers (attorneys, accountants, etc.) that
understand how to work with startups and a gateway
to the local entrepreneur community for building your
network of mentors and advisors.
Entrepreneur Events/Organizations. Most regions
of California also have entrepreneur organizations that
host public events, such as lectures by successful entre-
preneurs, business training and workshops, and other
networking events. Tese events can provide a valuable
way to connect to the local entrepreneurial ecosystem
and some much-needed information.
A list of incubators in the Santa Barbara region, as well
as local organizations that sponsor entrepreneurial
events, can be found on TIA’s website at: tia.ucsb.edu/
entrepreneurs.
Pitfalls
Launching a new company is a high risk endeavor.
While many startups are successful, unfortunately, the
failure rate can be high. Some common challenges that
can cause early-stage startups to fail are:
1. Technology does not meet a compelling commer-
cial need. Sometimes, the science is brilliant, innova-
tive and cutting-edge, but it does not address a critical
commercial need. Other times, the existing solution
in the marketplace may be “good enough,” despite its
faws, so the market is not driven to embrace further,
unknown innovation.
2. Inexperienced Management. Launching a startup
is difcult, requiring multiple skill sets. Decisions and
deals made early in the company’s lifecycle can afect
the company’s health and opportunities for a long time
to come. A strong, experienced, cohesive team is nec-
essary for a startup company to succeed. It is important
for an inexperienced founder to build a strong initial
advisory board to help navigate the company through
early complexities and be prepared to cede control to
more experienced management as the company grows.
Problems can also arise if the initial founders, new
management and the investors do not share the same
vision.
3. Lack of Funding. A startup needs sufcient capi-
tal to develop a robust commercial product, secure a
strong intellectual property position and obtain any
necessary regulatory approvals. To attract and acquire
sufcient capital, the startup company needs to have
a solid business analysis that accurately forecasts the
UCSB has many facilities available for use by start-
ups, including the nanofabrication facility clean room
pictured here.
Credit: Spencer Bruttig.
tia.ucsb.edu I Page 9
total funding needed to get the product to the market-
place.
4. Timing. Even when a strong commercial need ex-
ists, a company can miss its “window of opportunity.”
Sometimes, the market is not ready for the product
(i.e., too early or too expensive). Sometimes, in the
time it takes a startup to bring a product to market, the
need has already been flled by a diferent technology
or by a competitor that leapfrogged over the startup
company’s technology with the next generation.
5. Niche product. Te initial market may look large
and promising, but over time, the addressable market
becomes much smaller and, as a result, the company
cannot meet its fnancial targets.
6. Bad Luck. Even the most successful and experienced
entrepreneurs will sometimes fail due to events outside
the control of the entrepreneur.
CHAPTER 2
LICENSING FROM THE
UNIVERSITY
Because the University must locate research funding
from a variety of diverse organizations, ofen, the
university will owe intellectual property obligations to
the research funder whose terms must be included in a
license agreement. Te most common source of re-
search funding is the U.S. federal government. Te U.S.
Bayh-Dole Act, which grants universities title to the
patentable inventions they create under a U.S. federal
grant or contract, requires the university to manage
federally-funded intellectual property in accordance
with certain rules. For example, Bayh-Dole requires
universities to grant a non-exclusive license to the U.S.
federal government for its own use, distribute a por-
tion of net revenues to inventors and, when the uni-
versity issues an exclusive license to a federally-funded
invention, it is required to assure the license contains
commercial diligence terms, “preference for U.S.
industry” conditions, and march-in rights of the U.S.
government. Te university is legally bound to include
any terms in its licenses that were licensing-related
conditions of the funding used to create the intellectual
property.
Tere are several diferent forms of licensing arrange-
ments that can be explored by a startup company:
1. Letter Agreement. A letter agreement is a simple,
one to two page agreement, in a letter format with
minimal “legalese,” where the university promises to
negotiate the terms of a license with the startup com-
pany for a short period of time (3-12 months, depend-
ing on campus practices). In exchange, the company
typically reimburses certain patent costs incurred by
the university for the licensed invention and will pay
a one-time, relatively modest fee. A letter agreement
can be an efective tool to secure access to a patent or
copyright while the company is forming, seeking initial
funding and conducting a detailed analysis of the busi-
ness opportunity.
Prof. John Bowers holds one of
the frst hybrid silicon lasers. He
co-founded Aurrion, a silicon pho-
tonics startup, in 2007.
tia.ucsb.edu I Page 10
2. Option Agreement. An option agreement is a legal
contract that allows the startup company to exercise a
right to obtain a license at any time during a fxed time
period. Te term of an option is typically 1 – 3 years,
depending on circumstances. Te standard terms for
an option agreement are an annual fee (with the frst
fee due upon signing the agreement) and reimburse-
ment of certain patent costs incurred by the University
for the licensed inventions. An option agreement is a
good mechanism to employ if the startup company is
ready to commit to the development of the technolo-
gy, but the precise business model, proft margins and
other fnancial details are not yet predictable. It is also
a good mechanism if the startup company does not
know how the optioned technology will ultimately ft
within its product line. Because the option agreement
is an option to secure a license, but not itself a license,
the optionee is not granted the right to sell products
or services or issue sublicenses, but is granted the right
to use the intellectual property internally and even
engage in various product development activities.
3. License Agreement. A license agreement grants
the startup company all of the rights necessary to sell
commercial products. It typically lasts for the life of the
patent (although it can be terminated by the company
at any time, upon notice). Te terms of license agree-
ments vary widely, as each agreement is customized
to refect the specifcally anticipated products and
market, the development stage of the company and the
technology being licensed, and the role of the licensed
intellectual property. Te UC follows industry norms
when developing fnancial and business terms and has
“comparables” from thousands of university licenses
within the UC system and across the U.S. and Canada.
Tere are several standard terms for license agree-
ments that are important to understand:
A. Earned Royalties. Earned Royalties are gen-
erally a percentage of net sales and are negotiated
as part of the license agreement. Rates depend on
a variety of factors such as the value of the inven-
tion, the cost of commercializing the invention,
proft margins, and whether the license is exclu-
sive or nonexclusive.
B. Annual Maintenance Fees/Annual Mini-
mum Royalties. Annual fees, in set amounts
listed in the license agreement. Once the licens-
ee introduces commercial products, the annual
fees become a minimum annual royalty and are
creditable against earned royalties owed by the
licensee to the UC. For example, if a licensee paid
a minimum annual royalty of $10,000, but sells
products that generate $12,000 in earned royalties
to UC, it pays only an additional $2,000 to the
UC, the amount that the earned royalty exceeded
the minimum annual royalty.
C. Patent Cost Reimbursement. Te licensee
is required to reimburse the UC for the costs of
securing the licensed patent rights.
D. Sublicensing Revenue. If the licensee autho-
rizes others to use the licensed patents, the UC
requires that the sublicensee pay royalties at the
same rate as the licensee on the products sold by
the sublicesee. If the licensee receives any fees or
other payments in exchange for the sublicense of
UC’s patents, the UC must receive a share of that
revenue.
NEXT Energy Technologies develops trans-
parent organic photovoltaics. Te startup
was founded by UCSB graduate Corey
Hoven and renewable energy leader
Daniel Emmett.
tia.ucsb.edu I Page 11
E. Development Milestones. As discussed above,
the UC licenses intellectual property rights to
companies so that University innovations can
be actively developed into products and services
that beneft the public. To assure the company is
actively developing products and services, key
product development milestones are placed in
the license agreement with deadlines for meeting
them.
F. Equity. Startup companies face the combina-
tion of high developmental costs and risk, uncer-
tainty as to the potential value of the technology,
and are “cash-poor but equity-rich.” Small and
startup companies may fnd it particularly dif-
cult to commit signifcant cash outlays for both
R&D and licensing costs. Accordingly, the Uni-
versity may accept equity in a company as partial
consideration for technology licensing-related
transactions. Te decision whether to ofer eq-
uity is the company’s to make – the UC does not
require equity in exchange for a license.
G. Milestone Payments. At times, when fexibility
is needed, UC is able to agree that certain fxed
fees will be paid upon the achievement of spe-
cifc milestones, such as frst commercial sale or
initiation of the frst Phase I clinical trial. Tese
milestone payments, which occur over the life of
the license, can sometimes be used to reduce the
level of the licensee fees paid in the frst years of
the company’s life.
CHAPTER 3
A WORD ABOUT APPLICABLE
UC POLICIES
When a company is formed around University tech-
nology, it should be aware of any relevant UC polices.
TIA recommends that all startup companies meet with
a TIA licensing professional to identify and discuss
any policies that may potentially apply to its contem-
plated activities. While many diferent policies may be
invoked, the following policies are the most commonly
relevant:
1. Use of University Facilities/Resources. Te Uni-
versity of California is a public institution, heavily
subsidized by the state and federal taxpayers and
tasked with the performance of academic and scholarly
research. Private companies are not allowed to directly
use or access University resources unless the Universi-
ty has specifcally identifed that resource as available
for use by external users. If a startup company wants
to directly access UCSB’s research infrastructure for
its own projects, it can do so by using one of the many
shared research facilities that are set up as available for
external use. Additionally, many campuses, including
UCSB, have on-campus incubator space where startup
companies can lease ofces and basic lab space.
If the company is interested in having a UCSB re-
searchers conduct a research project for the company,
it can either provide funding as an unrestricted gif
or through a research agreement. While the UC will
be required to own any resulting intellectual property
developed by its employees, if the funding is provided
through a research agreement, the agreement typi-
cally includes the ability for the sponsoring company
to secure a license to any intellectual property devel-
oped by UCSB while performing the research project.
Please note that UCSB, as a scholarly institution, is not
allowed to undertake projects of a “commercial or rou-
tine” nature. Tere must be some academic research
value to the research that is undertaken.
Prof. Rich Wolski founded cloud-com-
puting startup Eucalyptus Systems in
2009. It was acquired by HP in 2014.
tia.ucsb.edu I Page 12
2. Permissible Consulting by Faculty. Te University
is unique from other employers because it allows facul-
ty to engage in certain “permissible” consulting activ-
ities. Te company may own any intellectual property
developed by faculty during permissible consulting ac-
tivities, as long as those activities meet certain criteria
and comply with all applicable UC policies. However,
if the policies and criteria are not followed, the Univer-
sity may be required to assert an ownership interest in
the intellectual property. Te University of California’s
Guidelines on Faculty Consulting and Intellectual
Property provides a helpful explanation of the policies
applicable to faculty consulting. Te Guidelines are
available on TIA’s website at: tia.ucsb.edu/about-tia/
forms.
3. Confict of Interest in Research. To protect against
the appearance of bias in research, state law requires
that if a UCSB researcher desires to accept research
funding from a for-proft company, and he or she
has any fnancial interest in that company (through,
among other things, being a paid consultant, serving
on the board or as a corporate advisor, or holding eq-
uity), the research must disclose the fnancial interests
to UCSB, which are then reviewed by UCSB’s confict
of interest committee. If the fnancial interests are
signifcant, the researcher may be required to follow
certain management conditions to protect against the
possibility of research bias or, in more extreme cases,
will not be allowed to accept the funding if the confict
is deemed “unmanageable.” If the startup company
anticipates funding research at UCSB, and the research
will be performed by any UC employee that has a
potential fnancial interest in the company, then the
startup company and/or the afected researcher should
discuss the potential interests with the UCSB Confict
of Interest Coordinator to assure problems won’t be
created down the road.
4. Confict of Interest in Licensing. If one or more
of the university inventors have a fnancial interest in
the startup company (stock, employment, consulting
commitments, etc.) and want to either negotiate the
license agreement directly with TIA (i.e., be “across the
table” from TIA), or desires to infuence TIA regard-
ing potential licensing terms, then the University of
California’s policy on Confict of Interest in Licensing
will need to be followed (patron.ucop.edu/ottmem-
os/docs/ott01-02.html). Since many UCSB inventors
retain an employment relationship with UCSB during
the startup company’s formation, TIA strongly recom-
mends that inventors ask an individual who is not af-
fliated with UCSB to conduct negotiations in order to
preserve campus relationships and eliminate potential
delays caused by implementing the policy’s require-
ments. Te unafliated individual is most ofen an
attorney representing the start up or a member of the
management team that is not employed at UCSB and
ofen has past experience negotiating license agree-
ments that can be benefcial.
5. Use of UCSB Name and Logo. As a public, state
entity, the University of California is prohibited from
endorsing any specifc company, product or service. As
a result, the use of the University of California names
and logos are restricted and cannot be used to imply,
directly or indirectly, that the University supports, fa-
vors or endorses your commercial products. If a faculty
member is involved in your company, it is appropriate
to identify them as a professor at UCSB as long as the
statement is factual and does not imply endorsement
by the University.
tia.ucsb.edu I Page 13
FREQUENTLY ASKED
QUESTIONS
How much does a license cost?
Valuing a license depends on many factors, including,
1) the type of IP being licensed (patents v. copyrights);
2) the scope of the rights being licensed (exclusive v.
non-exclusive); 3) the territory: (worldwide v. U.S.
only); 4) the feld/market area of the license; 5) the
anticipated product; 6) market size; and 7) the compa-
ny’s business model. Additionally, the fnancial con-
sideration is viewed as a whole. For example, a typical
exclusive license will include an upfront fee, equity,
maintenance fees, milestone payments, an earned roy-
alty on sales of products and reimbursement of patent
costs. If earlier fees/milestone payments are lower,
later fees/payments may be higher. UC’s philosophy
is to make the initial fees low enough that they don’t
provide a barrier to entry while they do demonstrate
the commitment of the licensee to develop the IP into
useful products.
Do I have to give the UC equity?
No. Giving equity to UC as partial consideration for
the license is an option that many startups choose to
make in order to conserve their cash for research activ-
ities, product development and development of its in-
tellectual property portfolio, which may be important
for future investment opportunities. However, UC does
not require owning equity in its startups and some
companies prefer to pay cash for the license. When the
company and university agree on an equity component
in the license, UC is restricted in the amount of equity
it can hold. UC also does not take a seat on the board,
so the startup can be assured that the university will
not take an active role in managing the company.
What if I’m not ready to enter into a full license?
A variety of agreements are available to serve the
particular needs of the company at diferent stages of
its growth. Initially a Letter of Intent may be sufcient.
Tis type of short-term agreement provides for an
exclusive negotiation period in exchange for limited
fnancial consideration to the university. Tis allows
the startup to do any necessary due diligence around
the IP and business opportunity, to refne its commer-
cialization plan and to negotiate the license without
being concerned that another party will also be nego-
tiating with the university. An evaluation license or
option provides the company with the ability to con-
duct more in depth due diligence, including evaluating
how the technology works in the company hands or
performing proof of concept experiments to confrm
the viability of the company’s plans. TIA can meet with
you and explain the diferent licensing arrangements to
help you determine the best ft for your company based
on its current circumstances.
How long does it take to negotiate a license?
Te time to negotiate is highly variable and can take
from a few weeks to several months depending on
the degree of license customization requested by the
company. Typically, a brief term sheet focusing on
the scope of the license and fnancial consideration is
negotiated frst. Tis is followed by negotiating the lan-
guage in the legal license agreement that incorporates
the terms in the term sheet and addresses such matters
as patent prosecution and infringement, reports, use of
names and warranties and indemnifcation. While UC
is willing to work extensively with a startup to under-
stand its business plan and to craf an agreement that
gives the company the best chance to succeed, there are
certain provisions that, as a university, we have limited
ability to negotiate. A startup can reduce the amount of
time it takes to negotiate a license by discussing up-
front with the licensing ofce those terms which there
PiMEMS designs, fabricates and packages thin, light-
weight MEMS devices using bulk titanium substrates.
tia.ucsb.edu I Page 14
is little, if any, ability to modify. Negotiations are also
facilitated when the company has a reasonably detailed
commercialization plan soon afer it frst approach-
es the university and before full license negotiations
begin and, if the company is engaging legal represen-
tation, selecting an attorney that is reasonably familiar
with University licensing practices, when possible.
Letters of intent and option agreements are generally
quicker to negotiate than a full license agreement.
What happens if my company develops IP?
It is anticipated that, during its research and develop-
ment activities, a company will develop new IP that
is distinct from the in-licensed UC IP. If the new IP is
generated independently by the company without uni-
versity resources or university employees, the company
will usually own the IP. If university funds, facilities
or employees were involved in generating the IP the
university is likely to have an ownership position in the
IP. Tis ownership may be shared with the company
© 2015 Te Regents of the University of California
All Rights Reserved
UC Santa Barbara Ofce of Technology & Industry Alliances
tia.ucsb.edu
342 Lagoon Road, MC 2055
Santa Barbara, CA 93106-2055
805.893.5196
[email protected]
should company employees who have not used univer-
sity resources be co-inventors or co-authors. As a com-
pany matures, it is likely to have a blend of UC-owned,
company owned and jointly owned IP in its portfolio.
If a faculty member participates in the company and
develops IP, does the UC own it?
UC faculty are permitted to engage in certain outside
professional activities, including consulting for compa-
nies. Companies are able to own intellectual property
developed by UC faculty during permissible consulting
activities that comply fully with applicable University
policies. To learn more and to discuss best practices,
please contact a licensing ofcer at TIA, or review the
University of California’s Guidelines on Faculty Con-
sulting and Intellectual Property, a copy of which is
located at: tia.ucsb.edu/about-tia/forms.
doc_888097035.pdf