Licensing new technology as a way of financing your innovation

When does licensing your technology for further financing make sense?

Starting a business is a significant undertaking. Licensing your technology idea might make good sense if you’re more interested in having your research or invention commercialized for use than in creating a startup.

A startup may also consider licensing a technology or a right to use a technology in a specific field or geographic area to obtain funding for its core product.

Life science companies, particularly those developing therapeutic products, generally use licensing as a sales and marketing strategy for their products due to the very significant costs of development and clinical trials, as well as the eventual marketing, sale and distribution of the product.

Licensing a technology may also be used as way to create an exit for a business, if it becomes clear that the business cannot fund the marketing, sales and distribution of the product from existing resources and additional financing is not available.

Sometimes, shareholders will request that management or a third party attempt to license or sell the technology to provide some return on investment to shareholders in “stalled or failed” technology businesses that have been backed with equity investment.

Licensing proceeds usually involve a fee paid upfront to the inventor through a signed licensing agreement between the parties. These agreements may also include milestone payments that come due as the technology or innovation is commercialized, and/or a royalty fee set at a percentage of the revenue or earnings from the eventual sale of products or services.

The amount of the fee upfront, milestone payments and royalties are negotiated between the parties and generally reflect the effort and stage of commercialization. In other words, the more developed a product or service, the higher the proceeds tend to be.
There exist a number of organizations interested in licensing innovative technology and inventions that complement their existing products and services for a specific purpose or market. The organization that licenses the technology usually assumes all responsibility for subsequent costs of developing, marketing, selling and distributing the product or service.

Some considerations regarding licensing:

• Do you have the time, desire and personality to start a business and the necessary contacts to make it successful?
• Would you prefer to continue to teach and perform research in an academic environment?
• Who is the best partner to commercialize your technology?
• Can you approach licensing targets directly or do you need assistance with the process?
• Would your licensing partner steer your idea in a direction that was consistent with your vision? If not, would you be satisfied with that outcome?
• Would your licensing partner restrict the use of the technology to a narrower market opportunity, limiting the potential use and profits of your idea?

Licensing proceeds—sources and assistance:

• MaRS Innovation is a commercialization partnership of fourteen Toronto-based academic research institutions with the aim to accelerate the most promising research from its member institutions.
• Technology licensing firms (see “References” below) or online matchmaking services (for example, www.yet2.com or www.flintbox.com) may be of help.
• Large- and medium-sized businesses with products or services that your product would complement may have an interest.

If licensing is the preferred choice for financing your idea, research who the interested partners are likely to be and seek guidance from (or engage) one of the organizations above to assist you with the process.

References

Federal Partners in Technology Transfer (Government of Canada). Retrieved April 22, 2009, from .
Technology Transfer Tactics. Retrieved April 22, 2009, from http://www.technologytransfertactics.com/.
The Association of University Technology Managers. Retrieved April 22, 2009, from .
The Licensing Executives Society. Retrieved April 22, 2009, from http://www.usa-canada.les.org/.
Canadian Healthcare Licensing Association. Retrieved April 22, 2009, from http://www.chlassoc.com/.
CASTLE Worldwide. Certified Licensing Professionals Registry Search. Retrieved April 22, 2009, from http://www.castleworldwide.com/clp_cms/asp/registry_search.asp.
Pharmalicensing.com. Retrieved April 22, 2009, from http://pharmalicensing.com/.