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Chapter 6Launching a High-Technology Venture

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Learning Outcomes

• Differentiate between disruptive and sustaining technologies

• Discuss the innovation and commercialization• Explain the distinct characteristics of biotech and

biomedical ventures• Describe the technology adoption and diffusion

cycle• Explain the purpose and method for licensing

technology

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Chapter Outline

• The Innovation And Commercialization Process

• Understanding Biotech And Bio-medical Ventures

• The Technology Adoption And Diffusion Cycle

• Licensing Technology Getty Images

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THE INNOVATION AND COMMERCIALIZATION PROCESS

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THE INNOVATION AND COMMERCIALIZATION PROCESS • Phase 1: Research and Invention • The discovery of something completely new generally

consists of four activities: • connection, • discovery,• invention, and • application.

Phase

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Connection

• The recognition of a relationship that no one has seen before;

• the eureka moment that leads to the discovery of something new.

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Opportunity

• The intersection of an idea and a market need

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THE INNOVATION AND COMMERCIALIZATION PROCESS • Phase 2: Initial Technical and Market Feasibility Analysis

Phase

2

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The Valley of Death

• The space between discovery and identification of a market has been referred to as the “Valley of Death,” because it is the area where most new product ideas fail due to a disconnect between the laboratory and the market.

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Do You Need a Patent?

• Does the technology have a useful purpose?• Is a patent required for the successful commercialization

of the product?• Does the technology meet the U.S. Patent and

Trademark Office’s (PTO) requirements for patenting?

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Do You Need a Patent?

• Does the technology meet the U.S. Patent and Trademark Office’s (PTO) requirements for patenting?

• It must have utility; that is, it must be useful, not whimsical.

• There must be no prior art or knowledge publicly available or published about the invention prior to one year before the date of patent application.

• The invention cannot be obvious to someone with ordinary skills in the field of invention.

• The invention must fit into one of five categories established by the U.S. Congress

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Five Categories of Invention

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Five Categories of Invention

• Machine or something with moving parts or circuitry (e.g., fax, rocket, photocopier, laser, electronic circuit)

• Process or method for producing a useful and tangible result (e.g., chemical reaction, method for producing products, business model)

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Five Categories of Invention

• Article of manufacture (e.g., furniture, transistor, diskette, toy)

• Composition of matter (e.g., gasoline, food additive, drug, genetically altered life-form)

• A new use or improvement of something from the first four categories

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THE INNOVATION AND COMMERCIALIZATION PROCESS• Phase 3: Platform Prototyping, • Production Process, and Testing• The most expensive stage of the

commercialization process because, as a general rule, prototypes cost about 10 times as much as the final production product costs.

• Furthermore, as the technology is tested, it faces redesign of components to reflect new information, and redesign is one of the most costly aspects of product development.

Phase

3

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THE INNOVATION AND COMMERCIALIZATION PROCESS• Phase 4: • Testing the Business Opportunity • Research points to the benefits of considering

technology and market factors simultaneously

Phase

4

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How to Distribute the Product

• The entrepreneur must determine whether to license the rights to manufacture and market the technology to another company, sell the technology outright to another company, or create a company to produce and sell the technology.

• There are no hard and fast rules as to which avenue to choose under specific conditions; however, in general, technologies that take significant additional development beyond the capabilities and resources of the entrepreneur are licensed to a larger company so that the entrepreneur can reap the rewards of discovery through a royalty stream from the licensee.

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THE INNOVATION AND COMMERCIALIZATION PROCESS• Phase 5: Business Development

Phase

5

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BIOTECH AND BIO-MEDICAL VENTURES • The Clinical Trial Process

requires both– Pre-Clinical Testing and– Clinical Trials

• Medical Devices – One of the most fundable

areas of new product development

– Devices evaluated by finite element analysis (FEA) which looks a t design, economic life, FDA requirement, and the ability to shorten the design cycle.

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TECHNOLOGY ADOPTION AND DIFFUSION CYCLE

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LICENSING TECHNOLOGY

• Because licensing a technology carries with it significant responsibility, entrepreneurs should make certain that the following elements are in place.– The technology works the way the licensor claims– The licensor can provide performance data from a

working prototype, which typically is superior to laboratory performance

– The licensor can guarantee some appropriate level of performance

– The technology is owned completely by the licensor

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Determining What Can be Licensed

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The License Agreement

• The following are some of the clauses commonly found in a license agreement

• Grant Clause• Performance Clause• Secrecy Clause• Payment Clause• Grant back Clause• Agreement Term

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Valuing the Agreement

• Factors that Affect the Value of the Agreement

• The economic life of the technology or how long it can provide revenues to the company.

• The probability of competitors designing around a patent, if there is one.

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Valuing the Agreement

• More Factors that Affect the Value of the Agreement

• The potential for government regulation that might adversely affect the marketability of the technology

• The probability of changes in market conditions that might render the technology useless or obsolete.

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