Establishing a Startup

The Startup Process

The Entrepreneurial Spirit Is Alive and Well at Caltech

The Caltech entrepreneur may be a faculty member, JPL technologist, post-doc, student, or investigator. OTT looks for passion, commitment, and desire to make a difference in the entrepreneur. Before creating a Caltech startup, OTT suggests that the entrepreneur write a business plan or at least an executive summary. Drafting of the business plan is an extremely useful exercise in providing focus, recognizing strengths and weaknesses, and identifying the key elements necessary to be successful. The key elements are management, markets, technology, and intellectual property; probably in that order.

To acquire intellectual property rights from Caltech, the entrepreneur should incorporate and then negotiate an option to the rights for the company. The criteria established by OTT to acquire an option is first and foremost support of the inventor who has developed the technology, typically over many years in his/her lab. The technology should be a platform for which many fields and/or applications are possible and which address large markets. A strong proprietary IP position is critical for initially raising funds.

What does the Caltech option look like? The consideration is modest, and the option period is normally 12 months. The optionee has the right to exercise the option upon providing OTT with an acceptable business plan and raising the necessary funds, in an amount that is negotiable but commensurate with the company’s requirements to get to a next fundable milestone. A term sheet which sets forth all the business terms in the license (e.g., royalty rates, Caltech equity share, provisions for reimbursement of patent costs) is attached to the option.

Caltech prefers starting with an option rather than going straight to a license because an option can be negotiated more quickly than a full license, yet is sufficient to allow the entrepreneur to raise funds. If the entrepreneur is not successful in fundraising, the technology has been tied up only for the duration of the option. Upon request, OTT provides varying degrees of assistance such as introductions to investors (e.g,. VCs, angels, strategic investors) and professional service providers (e.g., CPAs, IP law firms). OTT can also help critique business plans and provide opportunities for the entrepreneur to showcase his/her venture and attract funding or management expertise. During the option period, Caltech continues to cover the costs of prosecution of any optioned patent applications.

Over the years, our strong entrepreneurial culture has resulted in an average of eight startups per year in which Caltech has an equity stake, many of which have had successful exits via acquisition or IPO. The entrepreneurial program at Caltech is based upon a long term perspective that hopefully can be a catalyst for philanthropic activity by Caltech entrepreneurs for the benefit of Caltech's educational and research activities.

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