HARVARD UNIVERSITY OFFICE OF TECHNOLOGY DEVELOPMENT Startup Guide An entrepreneur’s guide for Harvard University faculty, graduate students, and postdoctoral fellows TABLE OF CONTENTS Why Start a Company? 2 Key Considerations 5 Startup Process 6 Funding Sources 7 Presenting to Investors 8 Financing Terminology 10 Company Considerations 13 Equity Considerations 14 Some Resources for Entrepreneurs 15 Key Factors for Success 16 We have created this handbook to serve as a high-level guide and overview of some key questions and issues that may confront you, the aspiring entrepreneur, as you begin your quest to start a new company around innovations emanating from your lab. Its purpose is not to supply all the answers, but rather to provide a starting point for engaging you in a conversation with the Office of Technology Development (OTD) about your entrepreneurial journey. OTD works closely with Harvard faculty, graduate students, and postdoctoral fellows to explore the potential of forming startup companies around new inventions and platform technologies arising from their research. Creating a startup company, also known as a NewCo, is a viable and often attractive alternative to working with an established company. A NewCo can expedite the development and commercialization of nascent technologies that satisfy unmet market needs and benefit the public good. OTD has the entrepreneurial expertise to guide Harvard investigators through the challenging process of organizing and starting a new company. Our team members have extensive experience catalyzing and forming early-stage startup ventures, having founded and secured funding for such companies, and have participated in successful company exits. I hope that you will make OTD your partner in pursuing your entrepreneurial vision: we are eager to be your sounding board, to address your questions, and to guide you through the process of launching a new company. Please take the next step and stop by OTD anytime to discuss your startup ideas. We encourage you to explore the potential of entrepreneurship and become part of Harvard’s expanding startup ecosystem. Isaac T. Kohlberg Senior Associate Provost Chief Technology Development Officer 1 Why Start a Company? When launching a new company, there are a • Licensing: Likelihood of interest from number of factors to take into consideration. existing companies in licensing the The reality is that only some inventions may technology. be suitable for the creation of a startup • Funding: Availability of capital to build company. Innovations may progress more and grow the business, together with quickly in a focused startup than in an the interest, capabilities, and track record academic lab or a large company. Along with of likely investors. the invention team, OTD helps in analyzing several factors to determine whether a • Commitment: Level of commitment and startup is the most appropriate path to involvement of the inventors. commercialization: • Support: Presence of a true business • Demand: Potential of the core technology champion for both the technology and to provide a solid platform for multiple the new venture. markets or product opportunities. • Management: Experience, passion, and • Competition: Identification of other drive of the startup’s executive team. companies that offer similar solutions. OFFICE OF TECHNOLOGY DEVELOPMENT OUR MISSION OTD’s mission is to make the fruits of Harvard research more accessible outside the University, including underserved communities, and to ensure that society benefits from Harvard innovations by fostering their swift, professional, and effective development and commercialization. To this end, OTD seeks to foster a spirit of innovation and entrepreneurship among the faculty, harness the power of Harvard’s substantive intellectual property, and advance the development of new discoveries made by the faculty for the good of society. Aspects of our mission relevant to starting new companies include: Promoting Innovation and Entrepreneurship Encouraging innovation and accelerating technology transfer in a manner consistent with Harvard’s tradition of academic independence, public service, and commitment to the community. Protecting and Harnessing Intellectual Property Evaluating, patenting, licensing, and, when appropriate, creating startup companies around new inventions and discoveries made by Harvard’s faculty. 2 “OTD’s knowledge of what it takes to start a company is based on firsthand experience and was vital to our ability to get our NewCo off the ground. They were with us every step of the way, offering valuable guidance and feedback.” — GÖKHAN S. HotaMISLIGIL J.S. Simmons Professor of Genetics and Metabolism Chair, Department of Genetics and Complex Diseases Harvard School of Public Health 3 “OTD was masterful in the initiation phase of the licensing process. Even more important, as our research progressed, they developed packages for a follow-on license that enabled the company to secure a major strategic corporate partnership.” — GRegoRY L. VERDINE Erving Professor of Chemistry Department of Stem Cell and Regenerative Biology Harvard Faculty of Arts and Sciences 4 Key Considerations Below are items to consider when deciding whether or not to start a NewCo: 1 Is the invention a disruptive technology? The valuations are based on several If not, how would it be categorized? factors, including: 2 How soon can a commercial product • In what stage of development is the come to market? technology? 3 What is the level of risk associated with • Is there proof-of-concept lab data? this startup? • Is there a working prototype? 4 Does the technology have clear • Are there paying customers? applications and a definable market? OTD can help navigate these considerations. 5 Who owns the intellectual property However, we strongly recommend speaking (IP)? For more information, refer with external advisors or mentors who can to OTD’s Inventor’s Handbook and provide additional perspectives and guidance. Harvard’s IP policies. Once IP protection is in place, talk about your ideas (with a confidentiality agreement 6 What will be my role in the new com- in place, when appropriate); the more pany: full–time employee, advisory board feedback you receive, the higher the likeli- member, executive, or consultant? hood of success. 7 What are the goals for the company? Talk to potential customers. The information Is it to grow the company and position it obtained by asking questions will provide for an acquisition or a possible initial critical feedback that not only will increase public offering (IPO)? Or, is it to build a confidence in the startup’s potential, but small, yet sustainable business? also will enhance the likelihood of receiving 8 Will capital from private investment funding and, ultimately, the success of companies be needed? If so, will the the venture. company eventually be sold or go • Who are your customers? public? Private investors rely on these • What do they care about? exit strategies to get a return on their investments. • Can the company’s product(s) solve their problems? 9 What is the current value of the com- pany? Pre-money valuations (valuation • How are they currently addressing of a company prior to an investment) the problems? of early-stage companies are generally • How does the technology solve their in the $1–3 million range. problems in a unique way? • How large is the market? • How much are they willing to pay for a solution? 5 Startup Process: Six Steps to Launch CONTACT OTD 1 Discuss your invention and how to protect the intellectual property to decide whether a startup company is a suitable option. PROTECT INTELLECTUAL PROPERTY 2 Work with OTD to file a patent application on the invention before it comes public. A major asset of a startup company is its intellectual property. After public disclosure, obtaining a patent, particularly outside the United States , may no longer be possible. SEEK INPUT AND NETWORK 3 Identify a mentor and work with him or her regularly, network with like-minded entrepreneurs, review ideas with potential investors, and evaluate the commercial aspects with potential customers. OTD provides the resources to get started. PLAN THE BUSINESS 4 Develop an understanding of the market potential, competition, funding needs, and path to productization and profitability. OTD’s expertise is useful in providing guidance on competitive analysis, market assessment, and business planning. NEGOTIATE THE LICENSE OR OPTION AGREEMENT 5 Obtain a license or option agreement from Harvard to demonstrate to potential investors that the company has secured the rights to the technology. OTD leads these negotiations along with an officer of the company. PURSUE FUNDING 6 Commercializing technology typically requires external capital. Introduce the company to venture capitalists, angel investors, and, perhaps, friends and family. OTD assists in making connections with entrepreneurs, angel investors, and venture capitalists. 6 Funding Sources When starting a company, generating funding Friends and Family: It may be possible to to support the business is perhaps the single secure a small amount of funding from most important task at hand. Before embark- friends and family to launch the business ing, it is necessary to determine how much while additional funding is sought. funding is required and from where it will Small Business Innovation Research come. Here are some factors to consider in (SBIR): Apply for research grants. The U.S. determining how much funding is necessary: