OCR negotiates and executes a license or option agreements. These agreements are contracts between the University and a company in which certain University rights to a technology are granted to a company in return for financial and other benefits. Most startups request an exclusive license because they believe it is required to raise funding for the company. Typical terms for an exclusive license with a startup company include but are not limited to equity, royalties diligence milestones and fees.
YALE STARTUP LICENSE
Yale strongly encourages innovators with non-therapeutic discoveries looking to start companies to take advantage of our pre-negotiated Startup License (See “Yale Therapeutic Licenses” below for more information on this distinction). This license is intended to greatly speed up and streamline the licensing process. The Startup License is based on transparency and fairness, offering the exact same, very favorable terms to all Yale startups. It has been designed in consultation with attorneys that represent startups, seasoned entrepreneurs, and investors to be a “no negotiation” license that any of them can encourage Yale entrepreneurs to sign without reservation. By reducing the time and legal expense to get a license done, entrepreneurs can focus their efforts on developing their businesses. Further, by reducing all uncertainty as to the terms of the license, startups can comfortably take an option to license the technology, thus deferring the need to sign the license until such time that they feel ready to assume the responsibilities of a licensee.
While Yale’s primary mission in licensing technology to startups is to promote the development of products or services that benefit society based upon Yale research, Yale does seek a reasonable financial return from its licensees so that it can reinvest in its education and research missions. Understanding that startups need to carefully ration their precious equity and cash in its early phases, Yale has adopted a new approach: the typical upfront “payment” for the license has been replaced with a “liquidity event” payment, due only if, and when, the company achieves an IPO or becomes acquired. No cash or equity is due to the university upon signing the license. The “liquidity event” payment is 1% of the company’s value upon sale or IPO, but can be significantly reduced if companies have paid patent expenses and other bills on time.
STARTUP LICENSE PROCESS
For Yale entrepreneurs demonstrating a diligent effort to start a company based on Yale technology that includes one or more Principal Investigators as founders of the company, the process of getting a Startup license is very simple. Entrepreneurs receive an option to the technology while they develop their ideas for a business. The option is a promise by Yale not to license the technology to anyone else for a period of time. The entrepreneur or team is required to work through an OCR/YEI program to develop a mutually agreed upon business plan. The business plan development and review process is intended to partially substitute for the more rigorous commercial due diligence obligations in typical license agreements. The process also provides entrepreneurs with the opportunity to access assistance from YEI and one of the many other entrepreneurial initiatives on campus. Throughout this process, the team will receive access to YEI resources such as the Corporate Partners, Venture Mentor Network, Entrepreneurs in Residence, Venture Creation Consultants and Advisors to support the development of the new venture. Once a mutually agreed upon plan is in place, the option will be updated to include a promise to provide the license under the Startup License terms. Entrepreneurs may then execute the Startup License immediately, or, if still in the formative stage, extend their option as they seek to raise financing or other sources of cash that will allow them to make the payments required once the license is executed.
Benefits to Startups and to Yale Community:
• Reduces the time and legal expense to get a license done, freeing time and resources to focus on developing business
• Offers predictable, consistent, and fair license terms to all startups
• Raises visibility and attractiveness of partnering with Yale researchers to entrepreneurs and investors
• Frees OCR staff time to spend even more time supporting Yale researchers developing inventions
• Provides reasonable chance for Yale to recoup its investment in patents and generate revenue to reinvest in Yale’s educational and research missions
More information on the Yale’s Startup License can be found here.
YALE THERAPEUTICS LICENSES
Therapeutic startups are not eligible for the Yale Startup License. To ensure that Yale discoveries for new medicines get to patients in need, Yale requires that licensees to therapeutic technologies commit to significant financial and non-financial milestones that are highly tailored to the drug discovery and clinical development programs required. These typically require the commitment of tens of millions of dollars to very high-risk ventures, and our licenses are tailored to meet both the investors and Yale’s needs. Yale, like any university offering such a license, reserves the right to terminate licenses for failure to make progress towards these development milestones. But rather than letting an adversarial situation develop after years of startup underperformance, OCR works hard to be strong partners to the startups, providing significant support and assistance over a period of months to years to get biotech companies launched.
NIH-funded research in the biosciences represents the bulk of funded research at Yale, and as a consequence, almost all of the most significant startups with licenses from Yale are for drug discovery technologies and/or for therapeutic agents themselves. The entire licensing staff at OCR has significant prior experience in the pharmaceutical and biotechnology industries, as well as significant experience assisting Yale faculty in every aspect of developing plans and launching biotech startups. The staff arranges for hundreds of introductions every year between faculty seeking to start companies and prospective startup business executives and venture investors. In addition to these meetings, we also actively seek meetings with pharmaceutical companies that may be interested in licensing technologies directly. Rather than view large companies as lesser-preferred alternatives to a startup, many of our startups have been launched with the participation of pharmaceutical companies, either with license to a very limited field, research collaboration or sponsorship, and/or investment from their corporate venture group.
Finally, when Yale inventors are involved in a startup company, licensing to that company raises concerns about conflicts of commitment and interest. The University needs to maintain an arms-length relationship in all its business transactions (including license negotiations). The final license agreement must fall within the normal range of terms and conditions of similar licenses to non-inventor-associated companies (taking into consideration the unique circumstances of each technology and transaction).
Inventors must disclose their financial interest in any outside entities to the University’s Conflict of Interest office. Additional information about negotiations and conflict issues can be found in the FAQs and Yale Policies sections of this guide.