Speaker: Tom Corr, DBA, MBA, ADipC, Director of Commercialization, IT and Communications, at Innovations at the University of Toronto An audio presentation can be accessed by going to http://www.marsdd.com/ent101 and clicking on the October 17, 2006 session: "Entrepreneurship 101 - An Introduction to Commercializing University/Hospital Technologies"

1. ENTREPRENEURSHIP 101
ONTARIO RESEARCH INSTITUTION
COMMERCIALIZATION
October 17, 2006
Dr. Tom Corr
Director of Commercialization
IT and Communications
Innovations at University of Toronto
tom.corr@utoronto.ca

2. TOPICS
• Institutional Research
• Commercialization Options
• Dealing with VCs
• Outcomes of Commercialization Efforts

3. PERFORMANCE OF RESEARCHERS
Science Watch Study: Bulletin October 11th, 2005*
• Publications*
- U of T published 25,883 papers between
2000 & 2004.
- UBC - 14,819
- McGill - 13,996
Citations
- U of T leads in citations
*http://www.sciencewatch.com/sept-oct2005/sw_sept-oct2005_page1.htm

4. INNOVATIONS AT THE UNIVERSITY OF TORONTO
MaRS Centre
MANDATE: To commercialize the
inventions generated from the $2
million per day that the university
spends on research
RESOURCES:
- 11 Tech Transfer professionals in
LS/PS/IT areas
- Review ~200 DISCLOSURES per year
from researchers and take on ~20 –
this is not an unusual ratio for
universities in Canada

5. What does Innovations at the UofT do in the
commercialization process?
• Pay to Protect IP – patents, trademarks,
copyrights.
• Develop Business Plan and commercialization
strategy.
• Assist in getting additional grant funding to
further develop IP (sometimes mandatory that
Innovations is involved NSERC –i2i).
• Create start-up company when appropriate
vehicle for commercialization.
• Raise financing for company.
• Negotiate agreements with licensees.

6. Why do some research institutions only
commercialize ~10% of their Disclosures?
• Intellectual Property (IP or Invention) is pure
research with no market potential.
• Market is too small to bother going after.
• Existing patents may not allow for the IP to be
practiced.
• Researchers have unrealistic expectations that
the institution cannot meet.
However, researchers can take ownership of
their IP and commercialize it themselves
should they choose.

7. IP Ownership Policies
• At research institutions in Canada - typically the
researchers own the IP, or the institution owns the IP,
or some combination of the two.
• Institution owned: York, McMaster, St Michael’s
Hospital
• Researcher owned: Waterloo
• Joint Ownership: UHN (1/3 to researchers, 1/3 to UHN,
and 1/3 to researchers department)
• U of T - Joint Ownership (researcher/UofT) until
Disclosed, and then Researcher has the option to
own. Therefore either University or Researcher
Own (or both).

8. IP Ownership is a HUGE issue when it
comes to commercialization….
Who owns what…future development
• Researchers are typically obligated to DISCLOSE their research to
the institution with the institution keeping rights for further research
and teaching only.
• Many times disagreements between researchers as to who invented
what, and the % of any proceeds from commercialization that should
go to each– especially difficult to deal with when researchers include
profs and their students.
• Clear ownership is needed before investors will fund.
• Future development of same IP is also a big issue as some
researchers (students) may come and go, which may result in
issues about assigning interest in new but related IP at a future
date.

9. Research Funding
• Where does the funding come from (OCE, NSERC,
CIHR, etc.).
• Governments spread around the $ (federal and
provincial) usually based upon competitive applications.
• Range from $20K POP grants to multi-year, multi-million
long term funding.
• Most researchers spend a lot of time applying for grant
$ to fund their research (i.e. pay for equipment, students,
and conferences).

10. What are a lot of professors focused on?
• Younger profs concerned about getting tenure.
• How do they get it:
- Publishing papers
- Doing more research
- Teaching
Commercialization of IP is not always high on
their list – has implications for businesses who
want to license/buy the IP and move the IP
forward in conjunction with the researchers.

11. What’s in it for the researchers?
- Royalties (At UofT 75% of royalties go to the researchers
and 25% to the UofT. If Innovations at UofT is managing
the commercialization, then 60% of royalties go to the
researchers and 40% to UofT).
- Equity in start-up
- More $ to do research
- Peer recognition
Does little to get tenure other than as a result of the
papers that may be published on the on-going research,
and sometimes publishing in itself is a contentious issue.

12. Commercialization Options:
Spin-Off’s versus Licensing
Pros and Cons

13. Licensing
Typical Agreement Terms and Conditions:
• Licensing (to start-ups or large corporations):
- royalty paid to researchers/university based
upon sales attributable to IP – typically around
5% of sales.
• Milestones – if license is exclusive then
minimum royalties typically apply as well as
development milestones (especially in drug
development).

14. Spin-Off Company
New Company Created to:
• License researchers technology.
• Fund research at research institution with
the aim of developing technologies for
license by the company.

15. SPIN-OFF’s
- Company formed in which researchers may be a
shareholder.
- Typically key researcher will be acting head of
R&D (most researchers don’t want to leave the
university except temporarily on paid sabbatical).
- Given priorities of researchers it is sometimes
problematic to get them on the critical path to
commercialization – they sometimes get in the
way and slow the commercialization process.

16. Spin-Off’s
• Until mid-1990s most research institutions IP
was licensed to large companies (i.e. not spin-
offs) that were in business related to the IP.
• Some research institutions still have policy not to
license IP to spin-offs.
• Created when difficult to find licensees amongst
existing companies or when more value can be
created by commercializing in a spin-off
company.

17. Industry Need
• Some large established companies not
well suited to generating new lines of
business and divisions.
• Large companies look to M&A (Mergers
and Acquisitions) as an alternative.
• Companies will pay premium for small
companies that are synergistic with their
business mission.

18. Characteristics of Established
versus Spin-Off Company
Characteristics Established Spin-Off
Adaptability Easily adopt new IP closely Take advantage of lead
aligned with existing mktg. times with early stage
plan and products companies and grows
them in time for market
entry.
Flexibility Fixed operating procedures Ability to change direction
and are not adept at quickly.
developing early stage
technologies

19. Characteristics of Established
versus Spin-Off Company
Characteristics Established Spin-Off
Focus Hindered due to Focus on developing
company preoccupation single technology
with existing products opportunity &
and revenue streams concentrate on moving it to
the market.
Relationship May be located far Inventors typically become IP
from university with champions and perform ongoing
implications for R&D sometimes vital to
on-going support by successful technology transfer
inventors

20. What to consider when looking at the
Spin-Off alternative to licensing?
• Lack of suitable receptor capacity (licensee) for IP.
• Is IP a solid foundation for a new company and potential platform
for additional synergistic IP.
• Potential to be a $50 million+ public company?
• Can funding and management be attracted to spin-off.
• Potential return to inventors, research institution, and investors.

21. Other Factors
• Spin-offs may create more value quicker, as the
potential value of shares may have more upside
than licensing.
• Royalties may flow sooner on licensing deals.
• Licensing will have lot of up-front work but less
than spin-off once agreements negotiated.
Bottom Line – Spin-offs take more effort than
licensing, but have the potential for bigger upside in
the long term.

22. Research Institutions Potential Role in
Spin-Offs (e.g. Innovations at UofT)
• Impetus may come from the research institution,
inventors, or investors to create spin-off.
• If formed by research institution, there is the need for a
“champion” to be identified to look after everyone’s
interest. Must have the skills to deal with start-up
companies.
• Provide patent and legal financing until costs recovered.
• Research Institutions role may range from very little, to
creation and on-going management of company -
especially until funding and management in place.

23. Research Institutions Potential Role in Spin-Offs
• Manage matters related to protection of IP and
transfer of IP to spin-off.
• Build Business Plan.
• Assist in finding management team & advisory
board.

24. Research Institutions Potential Role in Spin-
Offs
• Determine financing alternatives and pursue
them (government, angels, VCs).
• Promote the spin-off and potentially look for
other IP.
• Continuously consider the value of its
shareholding, the impact of decisions on its
share value, and look to maximize value and for
exit strategy (IPO or company sale).

25. Cross Cultural Issues
Investors need to understand:
• IP requires time and investment before ready to
market.
• Likely a requirement to fund on-going
commercially relevant IP research and
development.
• Researchers want freedom of research and
control over their IP.
• Researchers need to publish results.

26. Cross Cultural Issues
Researchers need to understand:
• Focus on marketing and market related issues is
essential.
• Market considerations require attention when R&D is
underway.
• Significant funds need to be raised and invested to
develop products and to market them.
• Companies need to operate at an accelerated time scale
compared to academia.

27. Spin-Offs vs. Licensing - Summary
• Spin-Off’s are time consuming, risky, and take
up a lot of time that may or may not, be better
spent on licensing the IP if that option available.
• Have potential for big upside under right
circumstances.
• Decision to do spin-off needs careful
consideration and commitment from all parties
involved.

28. It takes 10 times more time to
manage a spin-off than it does a
licensing transaction

29. Investors – what do they think?
• Attitude is everything…unless the
company is paramount in mind of
entrepreneurs and researchers - don’t
invest.
• Getting customers and learning from them
is the best way to guide commercialization
– not just doing more research without
industry input.

30. Investors – What do they think?
• Close governance is extremely important
to force focus.
• Dilution is forgotten if successful and
irrelevant if a failure.
• While plans change (and so they should),
having one is helpful.

31. Recurring pitfalls and themes
• Overestimating the science/technology and one’s
capabilities
– Lack of realism regarding the actual stage of development of the
science/technology
• Poor understanding of the customer and his/her value
chain
– Proactive ignorance of challenges involved in developing and
realizing value
• Disconnect between business and the science
– Underweighting of importance of demonstrating progressive
commercial achievement

32. Where does the money come from at this
EARLY stage?
• Late stage grants (OCE, NSERC).
• Some granting agencies getting wiser and some of them fund the
companies licensing the IP – not funding the researchers as they
want to see commercialization of the IP nor more research done.
• Angel Investors – typically invest in start-ups where they have had
prior experience with their marketplace (www.tvg.org). Valuation
issues – convertible debt.
• Funding also comes from start-ups and large corporations.
• Spin-offs – funding from shareholders/early stage investors

33. Later Stage VC Funding
- typically look to make minimum investment of $1
- $5 million (over time) iand want to do later
stage deals (revenues, customers)
- Looking for a 60% IRR per year and to get out in
3 to 8 years
- Fund based upon milestones and future
valuations based upon milestones (beware the
ratchet)

34. Later Stage VC Funding
- Initial valuations based upon all the classic
models (e.g. sales multiples, DCFs.
earnings multiples, etc). However forget all
that as most start-ups are worth $1.5 - $2
million to VCs – very rarely do you see
exceptions.
- Important that expectations are agreed to
by both sides – you have both got a new
partner in our life.

35. Deal and Negotiation - steps/process/documentation
• Business plan development
• Who to take to
• Negotiations
• Term Sheet
• More Negotiations
• Close
REMEMBER – 1 deal in 100 that looks for VC funding
actually gets funding.
Try bootstrapping – read ART OF THE START by GUY
KAWSAKI.

36. Why deals fall apart
- Investors don’t have comfort in IP
ownership
- Investors don’t realize that they are
dealing with research – as opposed to
detailed business plans and products that
are ready to go.
- Long time to market which equates to lots
of investment – especially for life sciences
deals – regulatory issues.

37. Why deals fall apart
- Researchers don’t invest time that is required.
- Researchers lose interest in the research and
move on to other areas of research interest or
move to other institutions.
- Patents get rejected (more important in
institutional research than in typical IT deals).
- Expectations that grant $ will fund operations
which it seldom does

38. SUMMARY
- Most Canadian research institutions have a researcher friendly
policy which allows the researcher to gain most of the financial
upside from their inventions.
- There is a lot of commercialization assistance available for
researchers who are coach-able (MARS, IUT, OCE, etc).
- The investment community is always looking for good IP to invest in.
- Successful research typically leads to more funding for on-going
research.
- More funding is being put into Canadian research and
commercialization than ever before.
There has never been a better time for commercialization
in terms of the support and funding available.

39. QUESTIONS