Depending on the type of startup created, you most likely have or will have partners. The NewCo which was just formed is likely a C-Corp, S-Corp, LLC, LLP or some other configuration. The NewCo may have just acquired important technology covered by patents. NewCo has or soon will have a Board of Directors and possibly some trusted advisors. It is possible that any licensed technology required a business relationship with the Inventor and the licensing Institution.
Most inventors in Universities work off of Grants from the Government. These scientists make their living by conducting research and writing papers for publication. They also teach, but publications and grant funding are the leading criteria for getting promotions and tenure. Scientists file for patents, but sometimes they are not interested in the business aspects at all; they are encouraged to file for patents by the Technology Transfer Office and the University. Often after the patent is filed, the scientist is off on some other project that is grant funded. So, you may not get much inventor support for your new technology. This is a common scenario which encountered by many startups.
Most institutions have some sort of sharing arrangement with the inventors. When the university does the licensing deal, the arrangements are that the inventors shares in the proceeds received by the university. This includes any cash from milestones and royalties and any equity. In addition, you may have added arrangements with the university for some research to be done. This may even include an arrangement with the laboratory of the inventor. If your agreement provided equity to the university, the inventor gets some equity thus making them shareholders as well.
Having a patent from an institution is great, but often the technology is very early in the development stage and not ready for primetime. This makes additional developmental research essential for pursuing funding or partnering opportunities. If the inventor is not working on the technology and NewCo has no money, what next? Many early startups make business arrangements with the inventors via the university to have continued research on the company projects; i.e., the inventor remains at the university and does work on a company sponsored grant or a paid for research project. Unfortunately for NewCo., this means the University owns rights to new inventions and not the company. Keep in mind that when you finalized your initial license, you negotiated for the IP that was available at the time; many institutions will not pre-license future inventions, but a few will. Now you can expect to have continuing license discussions to get the new inventions coming from the research you are paying the university to conduct.
A second consideration is that most scientists have a strong attachment to their technology; i.e., “it is their baby.” Depending on the business or personal relationships you may have with the inventor, this can result in conflict where business takes precedence over the science. More experienced entrepreneurs know to look out for this at the start and plan appropriately. In any regard, you have three issues you may have to consider: 1) the inventor may be doing research and you continually will be licensing new inventions required for NewCo, 2) inventors have strong attachments to the science and need extra care in moving forward with business issues that may not fit with the science, and 3) it is possible that once you license the technology you will not have any science support until you hire researchers in the company or contract it out.
The concepts to be aware of are that NewCo may have countless issues arise relating the institutions and the inventors. These include; adverse discussions, arguments, legal actions, finding out new technology had been licensed to a different company, attempts to take the technology back, trying to re-negotiate the deal to get something better, and many other things. You really need to remember that you must manage expectations and relationship with the scientific inventor and with the university. You may need their continuing help or concessions to get a partnering deal done; the help will ultimately cost you more, either in money or percentage ownership of the NewCo. One or both parties may even be participating as a Board of Director meaning they are your boss also. So do not forget, you have multiple relationships to manage and sometimes the parties do not agree. Expect to have continual discussions and day to day negotiations! Keep your temper, remain business like in all discussions, make your decisions based on business and you will eventually get through everything OK.
You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at [email protected] or contact him via company contact info in the website. More Startup information is contained in his personal blog.