DAN: As a Life Sciences Companies, you want to
get all fields of use. And the reason being is,
you know, any bad data. Is going to be bad across
the board.
TREVOR: Hello, and welcome to the Founders' Shares
Podcast, brought to you by Hutchison PLLC, a law
firm in Raleigh, North Carolina, that helps founders
and entrepreneurs in technology and life science
companies start up, operate, get funded, and exit.
So whether you're already an entrepreneur or want
to be one someday or are just fascinated by the
stories of how business goes from idea to success
or not such a success, this podcast is for you.
Today's guest is my law partner, Dan O'Korn. He's
an experienced life sciences attorney with a focus
on licensing and development transactions within
the pharmaceutical and biotech sectors. Dan's
expertise includes licensing, regulatory matters,
and strategic alliances. On today's episode, we
take a deep dive into one particular aspect of
dance practice, and that is The University license.
Many great companies on the life science and technology
side get their start as research within a university.
How this technology goes from academia to the
marketplace and how to set your business up for
success is what we discussed today. Dan underscores
The pivotal role of involving an attorney early
in the University licensing process. Waiting to
involve an attorney until the drafting may be
too late.
DAN: New clients will come to me and say, well,
I have this term sheet we already negotiated,
right? And Now we're going to put it into a license
and, you know, they'll send over the term sheet.
And just some of the terms are not market. In
their mind, they're thinking, well, I'm not gonna
spend money on a lawyer until we get to the license
agreement, but you may end up spending more. If
you have to walk back some of these things.
TREVOR: With so many critical terms to consider,
it's important for the startup to have the benefit
of counsel who's walked this path before and can
help streamline the process. This early engagement
also helps as the company grows to know you have
a partner who's been with you from the beginning.
DAN: That's one of the great things about our
practice is that, you know, particularly as it
relates to university licenses, we see these things
from the ground floor. I mean, these are. These
are untested. These are most of the time patented
technologies. So there's some sort of proof of
concept. You know, we're on the ground floor.
And so, you know, seeing those things from that
perspective is pretty neat.
TREVOR: I think this is something that maybe not
a lot of people think about or may not be familiar
with, but the idea of a university license or
a spin-out license. Talk to us a little bit about
that. What is it and why would somebody need that?
DAN: Yeah, so when you break it all down, a University
license is basically a license of technology that
is developed within The university, so it's owned
by the university. And in order to get it out
of the academic setting, it needs to go to an
entity that can continue to develop it outside
the constraints of an academic setting. Right.
TREVOR: And so who needs to be thinking about
these types of licenses? Yeah.
DAN: So typically, it's The professors within
the University. Most of our startups are founded
by The folks that are instrumental in developing
the technology within the University, usually
professors. So we see a lot of that. But there
are also licenses out of technology to business
folks who aren't associated. So we see a lot of
that. And so we're trying to work with The University.
For example, some universities will post on their
Tech Transfer Process & Its Origins websites available technology.
Okay. Because they see. An opportunity to monetize
the assets. And sometimes, you know, the Professor
is just not interested in that. So they look for
other folks to partner with to take the technology
out and further.
TREVOR: I think that's helpful because talk a
little bit about the different stakeholders. Because
you mentioned the fact that you've got a Professor
who's maybe done some research and has some valuable
technology. You've got The University. You've
got The potential for business, but why is the
University interested in it? Why are the professors
interested in it? Talk through some of the stakeholders
there.
DAN: Yeah, so I guess for the last, I don't know,
30 to 50, 40, 50 years, universities saw a way
to monetize The assets that are coming out of
the University. I think, you know, dating way
back to Gatorade, right? You know, that's one
of the examples of how, you know, University of
Florida, you know, monetized Gatorade and, of
course, did very well with that. And so. That
kind of snowballed within that university and
others where they saw an opportunity to be a profit
center eventually for their technology.
TREVOR: And I guess that's it. For The University,
is that the primary goal, is to find another revenue
source to kind of support the research?
DAN: Well, I mean, they will tell you it's in
order to foster the development of technology.
But I think universities are given a mandate.
They're expected, the Tech Transfer Process & Its Origins offices are expected
to make money for The University. So it's become
a little bit of a business. And so it's not just
sort of the pursuit of education and research.
It's really to use those assets to bring in money
to fund other things.
TREVOR: Right. And you mentioned the Tech Transfer Process & Its Origins office.
Talk a little bit about that. What is that? How
does that work?
DAN: Yeah, most universities have a Tech Transfer Process & Its Origins office.
They'll call it different names. But essentially
what happens, is if a Professor has technology
that they believe, at least in the life science
area, that they believe is patentable, they'll
take it to the Tech Transfer Process & Its Origins office.
They'll take a look at it. They will decide whether
or not to pursue. File a patent application on
it. Okay.
TREVOR: That The University will.
DAN: Yeah. But it's within the Tech Transfer Process & Its Origins area.
So, you know, the, the inventor will provide a
disclosure statement. And then the Tech Transfer Process & Its Origins has professionals that know what is and is not patentable and what the business case might be for it.
And so they'll invest resources up front, too.
You know, initiate the patent application process.
TREVOR: And do you see a lot of this driven by
the professors themselves, or is a lot of it driven
kind of in balance with the Tech Transfer Process & Its Origins office?
DAN: I think there's a little bit of balance,
and it depends on the Professor. You know, as
I said, some professors aren't, you know, that
interested in the commercial aspect of technology.
So they're more interested in publishing, right?
Right. And so, you know, in those instances, you
know, they have to disclose to The University.
So it gets to The University. But whether a Professor
pushes it to a commercial direction depends on
the Professor. Right. Because a lot of these technologies
are dependent on. The Professor. You know, they
invented it. They've got the know-how. You know,
it's difficult to go forward without them. Right.
TREVOR: Now, We've talked about it kind of from
the professor's perspective. If I'm a grad student
or kind of like a student in somebody's lab, is
this something that I have to worry about at all?
Is this something that is really just a part of
whatever lab I'm working out of?
DAN: Yeah, so typically if you're working with
a lab, it's within the professor's... Gamut so
so anything through there is is created and owned
by The University There are opportunities for
students and grad students to develop technologies
within The University and also. Transfer the technology.
TREVOR: And is the Tech Transfer Process & Its Origins office...
I don't know. Not a relatively new concept, but
is it something that has... Grown kind of in the
course of your career? It has.
DAN: It has. It's grown to each university has
a, well, not each, but the ones that are focused
on this. Have pretty robust groups. And there's
a trade association called AUTUMN. And I've drawn
a blank on what that stands for, but basically
it's an association of Tech Transfer Process & Its Origins professionals.
And so that, I think, has fostered the growth
from within those groups too.
TREVOR: So as you think about it, because I know
you do university licenses and you do kind of
just general business to business licenses. How
does a university license differ from kind of
the other licenses that you work on?
DAN: Yeah, I guess a couple of ways. You know,
universities try to license out the technology
sort of as is, right? You know, they don't want
to make any representations or warranties. They
want to disclaim almost all liability. And so
those are sort of the things that you don't see
in an industry license. And when we talk about
industry licenses, it's usually between, you know,
biotech and pharma companies, you know, opposite
each other. And there you have, you know, a lot
more reps and warranties. You have a lot of allocation
of liability. You know, in The University license,
and I'm sure we'll get to this, you know, the
university usually takes some sort of equity,
whether it be in common share or exit fee, whereas
you don't typically see that in an industry license.
TREVOR: Okay. And I guess it gets back to it,
but... What is the university's goal kind of setting
up these licenses and the protections here? I
mean. I guess what I'm getting at is here, there's
got to be some alignment of interest between whatever
company is being formed and The University and
making it so. A business can be made out of it.
How do you think about that?
DAN: Yeah, so at the outset, as I mentioned, the
universities want to... Limit their liability
almost entirely. And so, you know, that's from
a, from a business perspective, you know, that.
That starts the company off on not a bad footing,
but a limited footing. Right. And so. With these
technologies. It takes a lot of money, right?
So once the company starts raising money. I think
then The interest between the company and the
University become a little bit more aligned because
they see something a little bit more real. Okay.
A little bit more advanced. And so at that point,
they can become more lenient on certain terms.
TREVOR: So aside from kind of like the liability.
Exclusion? Are there other kind of non-negotiables
that you see from The University standpoint?
DAN: Yeah, I think, you know... In terms of what
we talked about, the liability, the... Lack of
representations and warranties sort of as is.
I think the scope of the license in terms of,
you know, what the... If there's know-how involved,
what does that mean in terms of this particular
asset? You get in discussions about what is and
is not included in sort of sub-licensing revenue,
and we can get to that later. So those are some
things.
TREVOR: Okay. So... As you think about it, and
people will roll their eyes at this a little bit,
asking the lawyer when they should. Invite, you
know, involvement of a lawyer, but are there negotiations
that the Professor can have kind of with the Tech Transfer Process & Its Origins office versus having outside assistance? Or is it
something that you really kind of encourage people
early, earlier than later?
DAN: Yeah, I mean, again, you know. Advertisement
for lawyers, as you mentioned. Right. But, you
know, the sooner they get us involved, the better.
You know, sometimes... Clients, new clients will
come to me and say, well, I have this term sheet
we already negotiated, right? And Now we're going
to put it into a license. And, you know, they'll
send over the term sheet. And some of the terms
are not market. Right. And it's always hard to
walk those back, even though the term sheet's
not binding. But I encourage our folks or our
clients to get us involved at the term sheet stage
before they agree to a term sheet. That actually
helps the client because it streamlines the license
process. So in their mind, they're thinking, well,
I'm not going to spend money on a lawyer until
we get to the license agreement. But you may end
up spending more. If you have to walk back some
of these things.
TREVOR: Well, and I think we've said it on the
show before, your terms never get better from
the term sheet stage to the license stage. It
may actually get worse. So, I mean, if you're
really thinking about when you want to involve
an attorney. Yeah, the term sheet stage is really
where you need to start thinking about that. So
are there issues or kind of... Is it safe for
the Professor to talk to the Tech Transfer Process & Its Origins office
as an outset? How do you think about that?
DAN: Yeah, I think... I think it's normal and
customary for them to start the dialogue. Yeah.
And start talking about a term sheet. I think
where we want to make sure we're getting involved
and where the sort of the point of no return is.
When they actually receive the term sheet. I think
that's where, if we're not involved by then, then
it can cause. You know. Heartache later. Right.
TREVOR: Well, so as we're talking about a term
sheet, what are some of the terms that you see
negotiated and where you can really kind of add
some value as the attorney, as the business folk
to kind of contribute? So maybe start with some
of the financial consideration levers.
DAN: Yeah, and these term sheets are heavily financial
terms, right? The legalese. Is not necessarily
a part, although some of it is. Some of the terms
are in there. But a startup company can expect
sort of buckets of financial terms. The first
is a license fee. What's the upfront fee to get
into the game? What's the ante? It's usually very
modest, you know, between $1,000 to $5,000, right?
Just to make sure The University wants to know
that they're serious.
TREVOR: Right.
DAN: You know, the next probably bucket to be
aware of is, and some people don't think about
this, but it's the reimbursement of patent expenses.
All The patent expenses that the University incurs
up until the effective date of the license, they
expect the company to pay for. And one of the
things that, you know. We can add value is, you
know, the term sheet almost always is going to
say, upon signing the agreement, you're going
to pay all these fees. Right. Well, sometimes
the fees are... Can get pretty high.
TREVOR: Right, yeah. I mean, I don't think a lot
of people appreciate some of the patent prosecution
expenses that can be associated with significant
technologies, life sciences. Yep, exactly.
DAN: And so we can negotiate payment plans on
that. And that's very helpful for the startup
company because the startup companies don't have
cash, right? The next bucket is going to be the
royalty rate. And universities are typically very
reasonable on their rates. We're talking... For
a life science product, 4% to 6%. Those sometimes
are tiered. And when I say tiered, I mean based
on annual net sales. So typically the more...
You sell, the higher the rate goes up. So it can
be reverse in certain circumstances, but sometimes
universities will look at that. Next bucket. Is
milestone payments. So if, you know, and I'm talking
in the terms of regulated products. So say, for
example, it's a drug, The University might want.
X amount upon completion of a phase one clinical
study. And those are always tough because... What
The University is asking investors to do is pay
for those milestones as opposed to using that
money for further development. That's when we
talked about maybe the alignment later on. You
know, can change and The University might be.
More amenable to working with the company on those.
Sub-licensing fees. So The University will want
a percentage of all proceeds from a sub-license.
This protects The University because, you know,
if... If I take a license as a startup, and then
turn around and sub-license it for $10 million.
The University doesn't see any money that any
of that money. Right. Those are always hotly negotiated,
especially in the regulated areas, because. You
want to have a percentage based on how far the
development is. So in other words, if you sub-license
it early on, the sub-license fee would be higher.
Right. As you put more money into the development
and then sub-license, it makes sense that the
fee would be less.
TREVOR: So talk through a little bit about what
counts or would qualify as a sub-license that
is subject to this kind of additional fee. You
know, is it... I sub-license out some manufacturing
rights and they go out and sell that. Is that
going to be included within that? Or is that kind
of more standard to the typical, the normal royalty?
DAN: Yeah, so again, in the life science context,
it's... It could be a couple different forms.
It could be, so let's say the technology has application
in cardiovascular. And. I don't know, immunology.
But we're a cardiovascular company. So we may
license the technology to a company who is specialized
in that. Indication. Okay. And so they would basically
have all the rights we would have except for that.
In that field. The other way we would typically
see it is territorial license, sub licenses. So
if we're a US-based company and we don't have
any... Development or commercial capabilities
in Asia, then we might sub-license it. To a company
in Asia. And then any of those proceeds that the
startup gets, a percentage of that would have
to be paid to The University. Right.
TREVOR: Now, do you typically see The University
relying on kind of the company to do that sub-licensing,
or do you ever see The University kind of itself
break up those rights? We're going to do one to
cardiovascular, we'll do one to immunology, we'll
do one in Asia and U.S.
DAN: Yeah, so I'm glad you brought that up because
that is usually one of the hotly... You know,
discuss topics is the field of use. As a Life
Sciences Companies, you want to get all fields
of use. And the reason being is, you know, what
someone else does with the technology in clinical
trials can have a serious adverse. Effect on your
clinical trial because any bad data It's going
to be bad across the board. Yep. So, you know,
as the startup, you want to, as much as you can,
control who has those fields. The University,
of course, wants the opposite. Right. They want
to make sure that. Get the full extent of the
value of the asset. So they may try to license
it in a specific field, or usually a field, rarely
territory, but in a specific field. And then some
of the licenses have provisions in there that...
Would say if someone came knocking on the university's
door and said, hey, that technology, we want that
for... Use and, you know. Some other indications.
There are provisions that are sometimes in there
that would require the startup to either start
developing that indication or sub-license it to
that third party. Yeah.
TREVOR: Because again, it's this idea of not wanting
to sleep on those rides, making sure that it's
used to its fullest extent, making sure that...
Yeah, somebody doesn't shelve it. Keep it from
living up to its full potential. Right. So any
other kind of financial buckets that you think
of?
DAN: Well, I think we'll probably get into sort
of the equity piece.
TREVOR: Do you see annual fees?
DAN: Yeah. Yes. So some universities call it annual
licensee fees. Some folks call it minimum royalties.
But it's an annual minimum that needs to be paid.
It usually starts in... In life science context,
you know. Three, four, five years down the road.
Okay. You know, recognizing that it takes a long
time for preclinical work and so forth. So we
try to stretch that out as far as we can. Yeah.
TREVOR: Well... I'm interested to hear kind of
your thoughts on this because, you know, when
we do these spin-out licenses on the tech side,
you know, we see a lot of people trying to move
the financial pieces around. Like, I don't, you
know, this is too much. I don't want to pay that
much. This, we're not gonna be able to run a business
with these amounts. And typically what we see
is that you can change timing, you can move a
lever here, but often cases that results in kind
of an additional payment in some other place.
The University tends to at least argue that they
have... Bucket that they have to fill. So it's
either going to be from the minimums, it's going
to be from the royalty rates, it's going to be
from the upfront payments or milestone payments.
And you can change the timing of those, but you're
not really going to change the overall financial
picture that much.
DAN: Yeah. And for our licenses, what we try to
do is push as much to the future as possible.
And we'd be willing to pay. You know, a higher
phase three, you know, milestone, because at that
point we've. Probably got something. And by that
point, it's probably in the hands of Big Pharma.
And they don't care. So we try to push those down
as much as we can. But you're right. I mean, you
can negotiate those things. But at The end of
the day, the University is going to get its
TREVOR: due. So we've touched around a bit, a
little bit. But let's talk about the equity piece
or the exit fee.
DAN: Yeah, so when I started, it was... It was
almost exclusively equity based, right? So. In
exchange for The license, as part of the consideration,
the University would say get 5% common stock of
the company. Then you got into anti-dilution.
The University always wanted to be protected to
a certain extent from being diluted from that
5%. And so that had always been sort of a negotiation
point as to when that sun sets. In other words,
at some point after you've raised a certain amount
of money, anti-dilution goes away. Those are discussions
that you don't have with an exit fee. And I'll
get in that in a second. But the other thing equity
brings with it is universities want participation
rights. And so they want to be able to participate
in future financings, at least to their pro rata
share of the shares. And, you know, again, that's
something that investors may or may not like.
And so another negotiated point, maybe down the
road, as I say, you know, we take these licenses
as far as we can get them. Um, knowing that Maybe
we have a second bite at the apple later on. Right.
TREVOR: Yeah.
DAN: So the exit fee. Is in lieu of equity. And
what it says is that The University gets a certain
percent. Of the exit. Consideration for the sale
of the business. So it's usually a smaller percent,
you know, between one and two and a half percent,
but it's not equity and it's not dilutable. So.
When the company sells they get that right off
the top. And, you know, some universities use
equity, some use exit fee. Some universities give
the startup a choice, whatever they want to do.
From a negotiation standpoint, the exit fee is
always simpler to negotiate.
TREVOR: And that may be your answer, but as you
advise clients on that, how do you help them think
through which is more beneficial for them, the
equity or the exit fee?
DAN: Yeah, I think from a negotiation standpoint,
as I said, it's easier on the exit fee. The other
consideration for equity is that the University
is a shareholder, and so shareholders have certain
rights in the company. Some startups don't like
that. They want to be free of The University as
much as they can for a myriad of reasons. In the
exit fee context, they're not shareholders, and
all they're entitled to is the fee at the end
of the day.
TREVOR: Do you ever see universities asking for
a board seat or any sort of?
DAN: Usually observation. Okay. Yeah, usually
observation when it comes to equity. So you typically
don't see observation rights with an exit fee.
TREVOR: And how common is that, do you think,
of observation rights?
DAN: It's fairly common, but it also sunsets.
It usually sunsets after the first X million dollars
of financing.
TREVOR: And is the intent with the sun setting
just to... Not be a roadblock for future investment
or what?
DAN: Yeah, I think so. Yeah. Yeah.
TREVOR: What are some of these other provisions
that are going to be addressed at the term sheet
stage? I think we touched on it some as far as
the scope of the license rights, whether it's
exclusive, whether it's field limited, you know,
territory. What other kind of... I guess as it
relates to the specifically licensed rights, what
are some of the other terms that are negotiated
there?
DAN: Yeah, so how long you're going to pay royalties.
You want to make sure that you're not paying royalties
forever. So usually it's tied to the patent, although
most universities now want to at least get 10
years of royalties out of it.
TREVOR: And will they tie that to the know-how
then?
DAN: They would tie that to the know-how, and
then you get into a step-down royalty. And so
those things... Usually are not in the term sheet
stage, but get fleshed out in the agreement stage.
But a lot of the defined terms, what are the license
patents? What is the know-how? University wants
to make sure that the know-how is a snapshot and
very specific. Whereas the company wants anything
that's related to the license patents. And so
that's usually fleshed out in the term sheet stage.
Right.
TREVOR: And is there something magical? You mentioned
10 years. Is there something magical about that
length of time?
DAN: It's just become kind of market. Okay. Yeah.
I mean, some will stretch it to 12, but 10 or
12 is usually what I see lately.
TREVOR: That's an interesting question. So are
you starting to see kind of, I don't want to say
uniformity, but more consistency across universities?
So if you're negotiating with... You know, somebody
local, UNC, Duke, something like that versus Florida
versus Carnegie Mellon. Are you seeing similar
terms?
DAN: Yes and no. Okay. So, you know, UF, for example,
has a template that's pretty much their own. I
mean, some of the same similar terms and those
things. But, you know, other universities will
piggyback off forms that probably Autumn circulates.
So definitely similar, but each one has their
own different nuances to it.
TREVOR: Well, and again, it goes back to that
point about involving an attorney. You know, you
see hundreds of these licenses, whereas the company
is going to see one of these, two of these, maybe
at most. Especially when you're working opposite
a Tech Transfer Process & Its Origins office, that's what they do day in and day out.
They're looking at these licenses. So having somebody
else who's kind of... Again, walk this road with
somebody else before can be so useful.
DAN: Yeah, and to add to that, a university might
say, well, these are... You know, These are market
terms, right? Right. And, and. I had the benefit
of seeing, you know, I think. At Hutchison PLLC, we've negotiated with over 100 universities.
And nonprofit institutions. So we have a pretty
good idea of what market is. We can sort of keep
them honest.
TREVOR: This is your market. It's not consistent
with the rest of the market.
DAN: Yeah. I always joke that, you know, this
autumn that I mentioned before that Um, you know,
they all... Collect at this. Convention and someone
says, yeah, I got 20% equity out of this startup.
And all of a sudden, that's standard. Then all
of a sudden, that becomes the goal.
TREVOR: Got to keep them from going to those meetings.
So how about kind of other terms? Like, do you
see specific milestones? You mentioned some of
them related to kind of regulatory stages. Are
there other milestones you typically see or specific
obligations that the company has to adhere to?
DAN: Yeah, so milestones come into play in two
different ways. We talked a little bit about the
milestone payments, right? So when you meet a
certain milestone. You make a payment. The other
are development milestones. And those are sort
of date-specific targets for achieving certain
events. And, you know, I always challenge our,
particularly our Professor founders, you know,
they sort of want to say, I can get that done.
I can get that done easy by them. I'm like, you
know, these should be easily attainable, not stretch
goals. You know, you're not, you know, what we
try to do with those is put in some sort of savings
clause. In other words, you know, especially in
this regulated industry. Things can happen. And
so we don't want an automatic breach if we don't
meet that particular milestone.
TREVOR: Well, I think that's useful because the
consequence of not meeting the milestone is university
can terminate the license and your business is
gone.
DAN: Right, after spending millions of dollars.
Right.
TREVOR: So I imagine these licenses, you're negotiating
this before investors are at the table. Correct.
Is that right?
DAN: Most of the time.
TREVOR: Okay.
DAN: Yeah. I've had license agreements where...
The founders have already set, you know, found
investors. And so that complicates things. Right.
Because they want to be part of the negotiations
too. So it. It doesn't happen often, but it does
happen.
TREVOR: And you mentioned at this that there's
sometimes a chance to kind of get a second bite
at the apple. Talk through that a bit, because
I imagine that comes in when the investors come
into play or you're further down the road. Talk
about when. It may be appropriate to talk about
or when it might normally happen that you come
back and revisit this license.
DAN: Yeah, it typically happens when an investor
is ready to stroke a really large check. At that
point, if the investor doesn't like certain terms,
The interests of the University and the startup
become more aligned in the sense that if we want
this project to go further. Then we're going to
have to give a little. Right. And so that's typically,
you typically don't see it on seed rounds. You
typically see it in. You know, series A and beyond.
TREVOR: And what, in your experience, has been
some of like, what are the terms the investor
doesn't like or where they're most likely to push
back on?
DAN: Could be the exit fee, could be the amount
of the exit fee. It could be the royalties. It's
usually financial terms. Yeah. Usually financial
terms. Although, you know, I don't know that I've
seen this, but I could see where the development
milestones we just talked about, you know, where.
Hey, we're going to invest this money. But there's
no way we're going to meet that January 2026.
Deadline. So let's talk about that.
TREVOR: Even short of kind of an investment, do
you see... Do you see The University willing to
have a conversation if the financial terms or
whatever other term in the license isn't? Really
working out. Because at the end of the day, I
think there is some alignment where The University
wants to see a successful business. Business wants
to see a successful business so do you ever see
a situation where come back and be like hey we
tried to do it at these levels but we can't make
a workable business out of it Or do you really
need that strong arm of the investor to come and
say?
DAN: You really need the strong arm of the investor.
And primarily because, you know. Before the investment
comes in, you've not really... Done anything that
causes the company to have to make payments, right?
Other than patent fees. They may have done a proof
of concept, a preclinical trial, but they haven't
done a clinical trial. And that's where you start
needing the money. So I typically see it with
investors. Commitment.
TREVOR: And I guess in your experience, have you
seen a point where you just couldn't reach terms?
The University wasn't willing to have that conversation
and be like, no, this is what we negotiated?
DAN: I have not. As I say, I think interests are
aligned at that point. Right.
TREVOR: Easier to have that conversation when
there's money on the table, right? So what do
you see as some of the biggest pitfalls in this
process for a spin-out company? And what should
they be thinking to kind of avoid those pitfalls?
DAN: You mean in general or just with relation?
TREVOR: Just in general with spin-out licenses.
DAN: I think one of the pitfalls is Founders should
know what they're good at and what they're not
good at. What they're good at, do. What you're
not good at, don't. Outsource. Um, I think one
of the other things that... Particularly the professors,
they underestimate how difficult it is to raise
money. Right. You know, all these things that
we're talking about in the life science area cost,
you know, millions upon millions of dollars. Develop
and so they need to have an understanding that
You know, this is not going to happen. Right away
right and they still have to do their day job.
So this is on the side to make sure that they...
Make a clear delineation of when they're working
for The company and when they're working with
the University. Because, you know, if to the extent
they're on university time and using university
resources. That's not company work product. That's
university work product. That's a fascinating
point.
TREVOR: Talk through that a little bit as you
are straddling that line as a Professor. You've
still got your responsibilities to The University.
You're still trying to build out this business.
What are some good practices to keep those things
separate?
DAN: One is to, you know, if labs are involved,
to... Secure labs that are off-site, to find ways
to hire, whether employees or consultants, to
do the work on their time. And just be very vigilant
about record keeping. Okay.
TREVOR: And do you see, is there ever a scenario
where like a business will hire The University
back to do some of the more other research? Or
is there ever kind of a continued relationship
in that respect?
DAN: There is sometimes. Right. Um, So, um, For
example, one of the – spin-outs I'm working with
now. The actual clinical trials are being done
by the University. Okay. So, you know, they have
an arrangement about data and ownership. So you
can have a relationship. With The University.
It just needs to be really well documented. Right.
TREVOR: Now I want to go back to kind of your
first point is about being circumspect about what
you're good at, what you're not. Do you see kind
of a common path for like how far a Professor
can take a business per se versus having to involve?
Maybe a business lead versus being able to do
it all themselves.
DAN: Yeah, you know, it depends on the Professor.
You know, some professors are very business savvy.
They could take it further than others. I will
say that typically, when you get investors involved
is sort of the pivot point.
TREVOR: Okay. And is that driven by the investor?
The investor wants to have more of a... Yeah.
DAN: They want to have more of a business person
CEO. That's not just a technical person. That's
the inflection point that you typically see. Some
professors realize, hey, I'm not a business guy.
So they partner. So they bring in a founder who's
a business guy. To act as CEO. And that can start
from day one. Yeah.
TREVOR: And I was going to say, how common do
you think that is to have kind of a business founder
along with the scientific founder at the very
beginning of the business?
DAN: I would say about half and half. Okay. Yeah.
TREVOR: And do you see a lot of repeat players?
In this space?
DAN: There are repeat, yes. There are definitely
repeat players. We always joke that, you know...
Folks that have a startup and... Have an exit
and think they're going to retire, come back in
a few years and say, I can only play so much golf.
Right. I need to do something else. And so those
folks are very valuable to universities. Sure.
Because they're the folks that can partner with.
You know, a Professor that has new technology
to guide them. So yes, that happens.
TREVOR: Now, this is kind of... Changing gears
completely, but I was sitting here thinking, you
know, when you were in house at a pharma company,
What was your perspective of kind of like a university
spin-out coming to you kind of with the developed
technology? Did that make a difference kind of
as you evaluated the business versus kind of something
else?
DAN: No, I think it's all about the technology.
It's about the technology and the execution on
the technology. You know, pharma companies won't
touch startups until they have data, a lot of
data. And so that's part of the process of a...
You know, building a startup to exit is. Got to
take it at least through phase two. To get the
data that makes it attractive to a pharma company.
I mean, there are outliers on that. But it's typically
at that stage after phase two or even phase three.
TREVOR: And at what point in time are these companies
taking on investment, you know, to kind of get
to that point, to get to phase two?
DAN: Sometimes the startup can fund bootstrap
preclinical trials.
TREVOR: Okay.
DAN: But when you're talking... Any clinical trial,
they're going to have to most likely get investors.
Yeah.
TREVOR: That makes sense. So, you know, Dan, we
are the Founder Shares Podcast. And so I like
to ask my guests, if you had one piece of advice
that you wanted to share with a new founder or
someone thinking about starting a company, or
in this case, someone thinking about kind of taking
on your type of a career path, what kind of advice
would you offer?
DAN: I would say in terms of, and we touched on
it a little bit, but in terms of the founders.
You know, engage with counsel as soon as possible.
And that doesn't necessarily mean, you know. You
know, racking up huge legal bills. I mean, it
could be a simple half-hour conversation. But
just to sort of get grounded on, you know, especially
those who haven't done it before, right, or don't
know the process. Get an attorney involved or
at least a licensing expert, whether that be,
you know, business development kind of guy. Or
girl involved early so that you just, you don't
make mistakes from the get-go.
TREVOR: No, that's helpful. How about from the
legal side? Any advice for future young Danes
out there?
DAN: Yeah, so... I personally just kind of fell
into this. I was in general practice in Indianapolis.
Applied for in-house job at Eli Lilly and Company,
which is a large pharmaceutical company and got
the job and sort of. You know, fell in love with
the life sciences area. But there are opportunities.
You know, one of the things someone in a younger
me could have done was, you know. Make some inroads
to the Tech Transfer Process & Its Origins offices.
Right. You know, kind of get to know those folks
and what they do. And let them know you're available
for. These touch things. That's great.
TREVOR: So what's the best way for our listeners
to get in touch with you, reach out, ask for the
questions.
DAN: You can email me at D O corn D O K O R N
at HutchLaw.com or call me at 919-829-2644. Fantastic.
TREVOR: Thanks so much, Dan.
DAN: Thank you.
TREVOR: That was Dan O'Korn. If you'd like to
reach out to Dan or learn more about his practice,
you can email him at D-O-K-O-R-N at HutchLaw.com.
That's D-O-K-O-R-N at HutchLaw.com. Or call him
at 919-829-2644. Thanks for listening to this
episode of the Founder Shares Podcast. If you're
a founder or business owner and need legal advice,
be sure to check out our team at HutchLaw.com.
That's HutchLaw.com. We have the capacity to help
you out with just about any legal need your company
may be facing. We're passionate about the innovation
economy and ready to help you on your entrepreneurial
journey. The show was edited and produced by Earfluence.
I'm Trevor Schmidt, and thanks for listening to
the Founder Shares Podcast.