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OTL Start-Up Guide

This PDF guide is intended for Stanford faculty, staff, and students interested in launching a start-up company based on intellectual property that is owned by the University. It is a broad overview of the start-up process and provides background on resources available for Stanford entrepreneurs.


Stanford Start-ups

The world thinks of Silicon Valley as one of the biggest centers of start-up activity and that the Stanford community plays an important role. This is true. Most "Stanford" start-ups are created by Stanford alumni who graduate and become entrepreneurs; the vast majority of these companies are formed without involving Stanford or Stanford technology. On the other hand, many companies have been spun-out of the University by faculty and students, based on technology created at Stanford; these companies have licenses through the University.

Stanford has the luxury of being in a very entrepreneurial environment so that the University does not need to encourage entrepreneurial activity by faculty or students for such activity to happen. In addition, because the University has excellent relationships with companies of all sizes and at many levels of interaction (sponsored research, gifts, affiliate programs, technology licensing), Stanford is committed to fostering good relations with industry at all levels.

With that said, OTL has taken equity in over 170 companies over its lifetime and has received approximately $360 Million (as of 5/09) in liquidated equity. Stanford Management Company manages the equity, which is generally sold as soon as a public market exists. OTL's return on equity has been much lower than cash royalties to date. However, as we acquire more equity positions in licensees, there is a greater opportunity for significant return from equity in the future. Equity liquidation (e.g., initial public offering or acquisition) is unpredictable, depending on a company financial positions and economic cycles so that OTL cannot rely on equity cash-outs for its budgetary needs (e.g., some stock becomes worthless, IPO's are sporadic etc.) However, they will play an increasingly important role in OTL's revenue picture as our portfolio of companies increases.

For the new companies started by Stanford faculty, staff, or students, where the business idea or technology was created at Stanford and under Stanford policy, ownership of Intellectual Property Rights (IPR) will generally be with the university. The policy for IPR can be found at http://otl.stanford.edu/inventors/policies.html#patent, "Patent, Copyright or Tangible Research Policy." If ownership of IPR is with Stanford, then the start-up company will normally require a license to the IPR. Such a license is obtained through negotiation with Stanford's Office of Technology Licensing (OTL).

Information about obtaining a license for a start-up company:

1. Students - For matriculated students, the university strongly prefers that the license be granted after graduation, although entering into discussion about a license with the OTL can be done prior to graduation.

2. Faculty and Staff - For faculty and staff, a conflict of interest review will normally be required before the license can be granted. Information on such a review can be found at http://otl.stanford.edu/inventors/inventors_policies.html#links, "Links to University Policies on Conflict of Interest."

3. Marketing - Before a license can be granted, the invention must be "marketed" (see Particular COI Issues), which means it must be shown to others who may have an interest in commercializing it. This process normally will take at least three months to complete, and fulfills the OTL responsibility to identify the best source or sources for commercialization. From a technology transfer perspective, the start-up company with an entrepreneur committed to developing a particular technology may be the best licensee, but the start-up company must offer a viable plan to commercialize an invention in order to receive a license.

4. Negotiations - The license terms are negotiated, but the starting point will be a draft license agreement based on a template used for the licensing of start-up companies. (We strongly encourage faculty entrepreneurs especially to engage a businessperson to negotiate the license, rather than negotiating the license personally.) The license usually includes field of use restrictions, since a start-up company often cannot develop all the applications of an invention. The license agreement must contain diligence terms to ensure reasonable progress in the growth of the company and commercialization of the invention. The template can be found at http://otl.stanford.edu/industry/industry_res.html#forms, "Sample Documents." We encourage Stanford faculty not to negotiate the terms of a license agreement (it is awkward for both sides from a conflict of interest standpoint) but to have a separate businessperson from the company negotiate with OTL.

5. Entrepreneurial Resources - Campus organizations that are involved with entrepreneurship and that may be a source of information and/or assistance in starting a company can be found at http://otl.stanford.edu/inventors/resources/inventors_addinfo.html#ent, "Entrepreneurial Resources."


Survey: Top 10 Reasons For Failure Of University Start-Up Companies

Partial list of licensees whose license involved equity


Best practices for Student Start-Ups
Both Stanford and its entrepreneurs have responsibilities to optimize technology transfer and mitigate conflict of interest (COI) when licensing Stanford intellectual property to a start-up is considered. Stanford has a rich history of translating inventions, and these practices (PDF) are designed to build on that strong base.

Best practices for Faculty Start-Ups
Stanford is committed to avoiding either perceived or actual conflict of interest issues with respect to faculty start-ups. Both Stanford and faculty have responsibilities (PDF) to optimize technology transfer and mitigate COI when licensing Stanford IP to a faculty start-up is considered.