Panel on

University Research: Spin-outs and Spin-offs

Dr. Burton H. Lee PhD MBA, Stanford Engineering, Moderator

International Technology Law Association

Fourth Annual Tallinn Conferencewww.itechlaw.org

“Addressing the Challenges of the Technology Company

in the Expansion Phase”

Friday June 3 2011

10.55am – 12.30pm Panel Session

Tallinn, Estonia

University Research: Spin-outs and Spin-offs

• Dr. Matthias Hölling, Spin-Off Program, ETH Transfer, Zurich

• Antii Ylimutka, Aalto Entrepreneurship Society/Aalto Venture Garage, Aalto University, Helsinki

• Alar Kolk, Tallinn University of Technology, Tallinn

• Dr. Erik Puura, Director, Institute of Technology, University of Tartu, Tartu

• Moderator: – Dr. Burton Lee PhD MBA, European Entrepreneurship &

Innovation, Stanford University, Palo Alto

Panel Format

• 60 Minutes – Presentations & Short Questions

• 30 Minutes – Open Discussion and Q&A

Dr. Burton Lee PhD MBA

Panel Moderator

European Entrepreneurship & Innovation

Engineering School

Stanford University, Palo Alto

Burton.Lee@stanford.edu

Key Issues in the Nordic Region

• University TTO models and performance

• University entrepreneurship education

• University-industry cooperation

• Roles of student-led Entrepreneurship Societies

• Selection of university research focus areas by professors

• EU FP7 research project outcomes, IP generation and commercialization

• University reform and institutional changes

Update on Stanford University InitiativesEntrepreneurship and Spin-outs

• Stanford Angels & Entrepreneurs– Initiative of Stanford alumni

• Stanford Student Enterprises (SSE) Labs– Aka “StartX”– Based at AOL in Silicon Valley, CA– Student-led initiative

• Stanford Office of Technology Licensing– Recent 2010 Data and Results

Disclosures

Licenses*

Royalty Income

Staff

* Majority of disclosures are never licensed; many disclosures have one license; some disclosures have multiple licenses

Stanford OTL: Disclosure & Licensing History

1970

28

3

$50,000

2

Cumulative

~8400

~3000

$1.33 B

2010

457

90

$65.5 M

35

Active

~3000

~850

Stanford OTL: The Upside

0

20

40

60

FY69-70 FY76-77 FY83-84 FY90-91 FY97-98 FY04-05

Fiscal Year

Ro

ya

lty

($

mil

lio

ns

)

• In FY09-10, $65.5 million in royalties

• From 1970 through 2010, ~$1.33 billion cumulative royalties

• Typically, 10 to 15 years may elapse between initial invention disclosure and any significant royalties

0

50

100

150

200

250

300

350

FY05-06 FY07-08 FY09-10

Fiscal Year

# o

f D

isc

los

ure

s

less than $10K$10K - $100K$100K - $1M$1M - $10Mgreater than $10 M

OTL: Looking Closely at Royalties

• In FY09-10, $65.5 million from 553 disclosures– 32 out of 553 disclosures

generated over $100,000 each

– 2 out of 32 generated over $1 million each

• From 1970 through 2010– 66 inventions generated

$1 million or more

– 3 out of 8000 is BIG WINNER

• Royalties from large portfolio of inventions

OTL: Conversion Numbers

~ 50% of disclosures are filed as patent applicationssome disclosures potentially licensable as copyright or biological materials

20 - 25% of disclosures, including those patented,

are licensed

~8-9 disclosures received per week

OTL: Revenue vs. Expenses

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

FY69-70 FY76-77 FY83-84 FY90-91 FY97-98 FY04-05

Fiscal Year

($ t

ho

us

an

ds

)

15% of Revenue Operating Expense

• OTL is self-supporting– 15% of revenue > operating expenses

• Operating budget of ~$5.0 million/year

• Patent expenses of ~$7.1 million/year

• OTL has given ~$45.2 million to Research Incentive Fund administered by Dean of Research

• OTL has given ~$14.4 million to the Research & Graduate Fellowship Fund

OTL: Equity from Licenses

0

5

10

15

20

FY91-92 FY96-97 FY01-02 FY06-07

Fiscal Year

# o

f L

icen

ses

invo

lvin

g E

qu

ity

• Stanford’s philosophy– Equity is one component of a

whole financial package

– Historically, most income is generated from earned royalties (~$965 M vs. ~$365 M)

– Equity is liquidated soon after IPO

– We can’t hold equity if licensee conducts clinical trials here

• Equity from licenses– ~190 companies cumulative

– ~105 companies currently

– Equity liquidated to date ~$365.5 million

Incentivizing Research Commercialization inside the UniversityDistribution of Royalties inside Stanford University (1970-2010)

Proper Selection of Research Focus Areas for Intellectual Content – and Commercialization Potential - is Essential

Research @ Stanford $1.15Bn out of $3.8Bn Annual Budget

+ an additional $189Mn in industry-sponsored research during FY2010

The “business model” of Stanford University, briefly summarized

Its All About the Research …

Poor Selection of University Research Focus Areas by Professors

• A major determinant of university IP production and commercialization strength

• Professors in Europe often choose research topics based on their own local knowledge and networks– Small, local networks – out of date with latest development in the

West– Do not survey research programs in US, Japan, UK, Germany, Finland

• www.nsf.gov, www.nih.gov

• Result:– Research areas that duplicate research in US, elsewhere– Research topics that are out-of-date and old– Research themes with relatively little commercialization potential

• Important role for national STI agencies to establish national research roadmaps, priorities and areas of interest as a guide to universities

Key Questions I

• University TTOs: – What are the most effective models here?

– Where do Baltic Region universities stand here in comparison to other European universities?

• What are current models of university entrepreneurship education? – How effective are these programs?

– What is current thinking/practice in Estonia/Baltics here?

• Current bottlenecks in university-industry cooperation in Estonia/Baltic Region; successful examples, future benefits

• How can Baltic Region universities replicate the successes of the student-led Aalto Entrepreneurship Society?

Key Questions II

• EU FP7 research project outcomes– How much IP is generated?

– How much of FP7 results are commercialized? Spin-outs, etc

• Selection of university research focus areas by professors as a major determinant of Baltic university IP production: – How is this done today, is this approach effective, what can be

improved here?

• What institutional changes are required at Baltic Region universities?– University reform as an unaddressed issue in Baltic Region national

innovation agendas

Dr. Matthias Hölling

Spin-Off Program

ETH Transfer, Zurich

KTT between Academia and Private Sector

– Core Relationships

June 7, 2011 25ETH transfer – Linking Science and Business - Matthias Hölling

Adapted from: Andreas Steiner, Marina de Senarclens, UWS 2004

Contractually bound

Partners in the

Private Sector

Education

Research

scientific

excellence

Re

se

arc

h

Pa

rtn

ers

hip

s

Graduates

Publications,

Congresses,

Exchange Programs,

etc.Private Sector

AcademiaCore of the

Technology Tansfer

Activities

Currently

unused research

results & resources

Tasks in the Tech Transfer Business

June 7, 2011 26ETH transfer – Linking Science and Business - Matthias Hölling

Protection of IP

Consulting for

researchers

Evaluation of inventions

Patenting

Industry Project

Internal Project

Licenses

... to Spin-offs ... without research project

... with research project

Spin-off Support

Consulting for researchers

Management of Spin-off

Process

Renting of rooms

Services

Consulting for researchers

Admin. support / controlling

Negotiating & drafting contracts

Licensing

Negotiation

License contracts

License controlling and admin.

Funding,

Project Contracts

Business Development

Acquisition of new projects

Sale of products and services

Coordination with researchers

Management & Support

Personnel, Commun., Legal, etc.

Know-How,

Inventions,

Copyrights

The “Endowment” from

a University (ETH Zurich)

Faculty (ETH 415 Professors)

Staff (6’300 FTE)

Students (16’342)

Excellence in research (21 Nobel Prizes)

Publications (over 5’000 referred publications)

Collaborations with industrial partners (>550 in 2010)

International collaborations

Budget for research and IP protection

Functional technology transfer Clear IP assignments

IP protection, invention disclosures

Licensing

Track record from existing spin-offs (215)

June 7, 2011 27ETH transfer – Linking Science and Business - Matthias Hölling

Good Ideas

Good People

Market Insights

As basis for a successful company

Spin-Off Definition

June 7, 2011 28ETH transfer – Linking Science and Business - Matthias Hölling

A private company of ETH employees or graduates

that commercializes products or services based on

technologies developed at ETH Zurich.

Conditions for ETH Spin-Off:

ETH technology, Know-how or SW

Founders are ETH students, employees,

or alumni

… and

The business idea and plan are sound

and sustainable

The team demonstrates entrepreneurial

skills

ETH Zurich Spinoff Support

June 7, 2011 29ETH transfer – Linking Science and Business - Matthias Hölling

Review of business idea / plan and help with incorporation

Pioneer’s Grant

“proof of concept” funding for prospective founders

Licensing of intellectual property (IP): patents, software, know-how, etc.

Preferred licensee

Renting of rooms and infrastructure

under preferred conditions

up to 2 (+1) years (if available)

Consulting & Coaching

Business Plan, Business Management, Sales, Negotiation, etc.

Link to seed money, BA’s and VC’s

Venture Incubator, others

Contacts to training, coaching, media, PR, etc.

Label „Spin-off Unternehmen der ETH Zürich“

The Spinoff Innovation Value Chain

And Support Structures Available to our Spin-offs

June 7, 2011 30ETH transfer – Linking Science and Business - Matthias Hölling

ResearchPoC,

Development Pilot, Prototyp Product

Preparation Foundation Growth Maturity

Swiss Private Equity

& Corporate Finance

SlElClA

Stimulation /

Training /

Coaching /

Collaboration

Infrastructure

Financing

Internal

Support

Kommission für Technologie

und Innovation KTI

*ET

H Z

uric

hd

irectly

invo

lve

d

Antii Ylimutka

Aalto Entrepreneurship Society/Aalto Venture GarageAalto University, Helsinki

facebook.com/aaltoes twitter.com/aaltoeswww.aaltoes.com

How it all began?

Fall 2008

• MIT

• Bengt Holmström

• Less talk, more action

Rolemodels:

• Silicon Valley

• Stanford

• BASES

http://www.aaltoes.com http://facebook.aaltoes.com

A community of over 5000

students, researchers, alumni &

entrepreneurs

AES team of 40 entrepreneurs,

Students & researchers

6 Board

Members

Startups

The Community

Culture

Starting up

Founders

An oldindustrial hallconqueredand renovatedinto a co-workingspace bystudents

Aalto Venture Garage

Suomi hyvinvoinnin jälkeenThe biggest panel discussion so far about rebooting the Finnish economy focusing on entrepreneurship.

Jorma Ollila/Nokia, ShellRisto Siilasmaa/F-SecureBjörn Wahlroos/Sampo & Nordea

Petteri Koponen/Jaiku, Lifeline VturesWili Miettinen/Hybrid, MicrotaskTina Aspiala/Eat.fi

Next up…

Antti Ylimutka+358 (0) 40 7268383

antti.ylimutka@aaltoes.comTwitter: @andynosebone

Skype: andynosebone

Alar Kolk

Tallinn University of TechnologyTallinn, Estonia

Innovation 1918 - 2018Entrepreneural University For Science

Open Business Model &

Internationalisation!

Alar Kolk

Whyuniversities

need to foundspin-offs?

The most prominent spin-offs and inventors?

...academy dropouts!!!

Students’ future career aspirations , GUESS 2008

We teach our students that start-up is not cool!

The use of the university services , GUESS 2008

Students value the innovation services but our universities do not deliver!

international + innovation

iTUTiTUT – innovative and international

Tallinn University of Technology 2011 - 2015

How to recruit our professors?

How to recruit our students?

How to make money?

iTUT key topics:

If you can’t explain it simply, you don’t understand it well enough. – Albert Einstein

Science

Teaching

Innovation

Integration & Balance!

Modern Estonian KnowledgeTransfer Organisation for You!

MeKTory!

Interdisciplinary platform Attracting international students Integration of study and practice

ApplicationsOriented Research

Innovation $

Research ProblemOriented Research

Science Quality

iTUT value chain...

…creates value for professors, students and companies –enhances our ecosystem!

NorTic

Technology MeKTory

Ideas

ProtoFondTest

Tehnopolis

GrowthiTUTech

Develop

TUT International Mobile Media

Spin-offEcosystem

A spin-off ecosystem is a self-organisingplatform aimed at creating a entrepreneuralenvironment for networked organisations thatsupports the cooperation, the knowledgesharing, the development of open andadaptive technologies and evolutionarybusiness models.

Spin-offEcosystem

Spin-off

Institute

ProfessorsNetwork

BrandingInvestors

Customers

People

IPPublications

Personal network

Know-howPatents

SoftwareValuation

RequierementsShareholder

Exclusive license

CoachingLegal

Business plan

Ecosystem

CapitalHow much?Investors

Growth

For what? For what?Pre-money

ManagementProfessors

Universities

Deliver innovation services and develop tools in collaboration with you partners!!!

vs

Dr. Erik Puura

Institute of TechnologyUniversity of Tartu

Tartu, Estonia

Some aspects of university – industry

collaboration

Erik Puura

Director of the Institute of TechnologyHead of industrial relations and innovation

We are participating in the informal network of

the university knowledge transfer managers called

UPPSALA ROUND TABLE

• University of Uppsala

• University of Gröningen

• University of Helsinki

• University of Linköping

• University of Tartu

University-industry collaboration methods and outcomes are

often discussed

We have structured university-industry relations into

4 activities:

• PUSH: we offer what the university has already produced

or is capable to provide (IP, knowhow, services, competence)

• PULL: we visit the companies without knowing exactly what

they need; the outcome can be very surprising

• STRATEGIC PARTNERSHIP: many activities, incl informal

meetings

• OPEN KNOWLEDGE TRANSFER: using media channels

OPEN KNOWLEDGE TRANSFER: using media channels

including

our own

channel

PULL: we visit the companies without knowing exactly what

they need; the outcome can be very surprising

• the experts have outstanding communication/selling

capabilities, not necessarily science/technology background

• the first contract may be small and irrelevant for the university,

even some help with project development (for SME-s)

• the offer includes project preparation for external funding

PUSH: we offer what the university has already produced

or is capable to provide (IP, knowhow, services, competence)

• the experts have science/technology background

• the offer includes project development and external

funding application preparation (if necessary)

• new method: open doors day for entrepreneurs every year

ON THE ROLE OF SCIENCE PARKS IN ESTONIA

The classical scheme

RESEARCHERS MAKE AN INVENTION

TTO HELPS TO DEVELOP A COMPANY

SCIENCE PARK HELPS WITH INCUBATION

is realised not so often

Science Park in the university town uses human capital,

wide knowledge, competences, creative atmosphere

RESEARCHER

WRITING NEW

PROJECT PROPOSALS

AN IDEA WITH

COMMERCIALISATION

POTENTIAL

WRITING TEACHING

MATERIALS

ADMINISTRATION AND

DEVELOPMENT

Time use - 100 alltogether © Erik Puura

TEACHINGAUTHOR’S

RIGHTS

25

15

TEACHING

MATERIALS

APPLIED RESEARCH

PROJECTS

FUNDAMENTAL

RESEARCH

PUBLICATIONS

GRADUATES

STUDENTS

PhD STUDENTS

TOP SPECIALIST IN COMPANIES, GOVERNMENT ETC

2

10

15

5

ANALYSIS

PATENT

LICENCE

CONSULTATIONS

SPIN-OFF

? ?

13

DEVELOPMENT

PROJECTS

COMMISSIONS

COUNCILS

MANAGEMENT

5

4

6

TIME USE, ACTIVITIES AND RESULTS OF A RESEARCHER

SOME FINAL REMARKS

The discussion, if TTO is needed or not, is nonsense;

but TTO has to be flexible and provide customer-orientated

services

The discussion, if researchers need to do basic or appiled

science, is nonsense – if ever possible, one should do both

Protecting IP is just like brushing teeth. You do not do it

only because you want to get rich.

But also you do not brush your teeth 6 hours per day.

Knowledge is the only resource, use of which increases its

reserves

THANK YOU

University Research: Spin-outs and Spin-offs

• Dr. Matthias Hölling, Spin-Off Program, ETH Transfer, Zurich

• Antii Ylimutka, Aalto Entrepreneurship Society/Aalto Venture Garage, Aalto University, Helsinki

• Alar Kolk, Tallinn University of Technology, Tallinn

• Dr. Erik Puura, Director, Institute of Technology, University of Tartu, Tartu

• Moderator: – Dr. Burton Lee PhD MBA, European Entrepreneurship &

Innovation, Stanford University, Palo Alto

Working in Silicon Valley, Europe, Latin America and Washington DC

• Senior financial, technical and strategy advisory services for global technology innovation organizations• Professional Services

– Technology startup and growth companies• Interim CXO and Advisory Board roles• Expert guidance & decision-making at the interface between market/customers, technology and finance• Business development – industrial and government• Business plan preparation/research/review; Government Grant proposal preparation/review• Coaching and mentoring of CEOs and other CXO-level managers• Assistance with government regulatory and policy agencies

– Angel, venture capital and private equity Investors• Fund strategy, team selection and market positioning• Due diligence: technical, financial, strategy and business models

– Public and non-profit R&D laboratories• Technology transfer & partnerships; venturing and spin-out of companies; strategy and business development; grant applications

– Research universities• Innovation-related models, policies and practices• Technology transfer and licensing; industry partnerships and relations; development and strategy; grant applications

– National and regional government agencies• Innovation policy formulation, analysis and review; cluster development strategy; economic impact studies• Science & technology policy formulation, analysis & review: space, aviation, nanotechnology, software/AI/robotics, manufacturing

• Selected recent clients– US/European technology startup companies – alternative energy, robotics/AI, software, Internet, nanotech– Venture and private equity funds – aerospace, nanotechnology, ICT, computing, advanced materials, clean tech– Office of the Prime Minister, Ireland; European Commission; National Science Foundation; NASA, National Academies

• Dr. Burton Lee PhD MBA, Managing Director– Contact: Burton.Lee@innovarium.net Based in Palo Alto, CA near Stanford University– Bio/References: LinkedIn Profile– Lecturer, European Entrepreneurship & Innovation, Stanford School of Engineering

June 4 2011 68Copyright 2011 Burton H. Lee and

Innovarium Ventures