Crossing a Small Chasm
kleute / Sep. 28, 2016
Last year, I surprised many (including myself) by leaving a job I loved in university technology transfer and accepting a job at a venture capital firm that invests in university spinouts. In my almost two decades of being a technology transfer person, I often negotiated with attorneys, entrepreneurs, and other business people in licensing technologies to newly created startups. Now at the juncture between venture capital and university technology transfer, I am gaining even more perspective from both sides.
I recently sat on a panel with two venture capitalists in front of an audience of university technology transfer professionals. Not surprisingly, a topic mentioned was the length of time it takes to negotiate a license agreement out of the university (insert groans and rolling eyes). I asked one of my co-panelists how long he thought the negotiation process should take. The answer? 5 to 6 weeks.
And honestly, I agree with him. 5 to 6 weeks is reasonable. So why does the process usually take much longer?
Looking back on my own negotiations, it was a rare event to finish a full startup license in a month and a half; I would guesstimate the typical duration was 4 to 6 months. The reasons for the delay were exactly what you would expect — numerous drafts back and forth, delays at the law firm where everyone was overworked, too many constituents needing to have a say in the deal, review of the potential conflicts at the university, the company still looking for its investors and therefore tenuous about committing to the license and payment obligations, etc. And at the end of the day, if people don’t negotiate a lot on a deal, do they end up feeling confident they got the right deal?
All that being said, I do think there are ways we could streamline the process. Some small adjustments could shave some time off this process, saving everyone time to work on the multitude of other tasks requiring their attention.
Before moving on to some suggestions, I’d like to address two criticisms of academic technology transfer:
1) “University policies and guidelines are getting in the way of startups and should be changed to make the process easier.” There are many issues with this criticism, but let’s just tackle the ultimate goals of each of the parties. For investors, the goal is to provide a great return for their limited partners. For universities, the goal is educating its students and conducting cutting-edge research. The goal of the technology transfer office may be to transfer the technology for society’s use and benefit, but that is secondary to the mission of the university. So when a technology transfer officer says they cannot change the warranties and indemnities clauses, it’s not because they are being difficult and trying to get in the way of the startup. They are adhering to the primary mission of the university. Licensing is way down on the priority list.
2) “University technology transfer offices’ number one goal is to maximize revenue.” While this might be true in a minority of cases (universities, feel free to raise your hands if it is), most TTOs are focused on transferring the technologies out of the university by means of a fair deal for the university. Always remember that a startup can come back and ask for changes to the deal if it is not working for the company, either financially or in other ways. It is extremely rare that the university can do (or does) the same.
One solution some universities are trying in order to speed up the licensing process is through university express licenses (examples here (North Carolina), here (WUSTL), and here (UChicago). In my opinion, it remains to be seen how effective these deals are for either party and how often these licenses are used. Since the majority of the time start up licenses require traditional negotiation, my recommendations are intended for those situations.