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Financing New Product Development

When Capital Is Not Available Or At Very High Cost

When start-up or growth capital is not available or at a very high cost, harvesting your technology early is a feasible strategy - even for high technology ventures requiring substatntial assets and working capital, a highly specialized and expensive workforce, and years to bring its first products to market.  It is often, however, a last resort - considered only after burning through many months shopping business plans to venture capital firms, lenders, or those at established corporations managing the R&D budget. Instead, consider bootstrapping and harvesting your most valuable asset - your technology - for cash, strategic customer relationships, market intelligence, application know-how and more.

Early Access Agreements

"Early Access" or strategic development agreements can immensely benefit an early stage technology company as well as their strategic partner. Deal structures vary, but fundamentally, in exchange for early and sometimes exclusive access to a company’s products or technology for a specifc application or market segment, a strategic partner may agree to purchase prototypes and engineering services, execute a license agreement with upfront payments and royalties, and/or agree to invest its marketing resources to fuel broader adoption. In addition to cash, the company gains access to market intelligence and applications know-how - often a vast chasm for early stage technology companies. The strategic partner, on the other hand, earns a competitive advantage with early access to potentially market disrupting technology without the expense of in-house R&D - often an avoided expense for an established company with shareholders’ short term profit expectations.

Collaborative development deals are especially desirable when developing product solutions that require multiple technical disciplines. Fluorescence based medical diagnostics, for example, is an area that requires optics, image processing, assay content, surface chemistry, microfluidics, molecular biology, mechanical packaging... as well as clinical labs, human samples, and regulatory resources. It is inconceivable, especially in today’s venture capital market, that an early stage company even with a seasoned management team, NIH grants, and an intellectual property portfolio could raise sufficient capital to pursue a proprietary path on all technology fronts and build the infrastructure to support all aspects of commercializing those technologies. A practical alternative is collaboration and coopetition via strategic development partnerships. 

License-Out

There is often opportunity for early stage companies to harvest elements of their technology whose commercialization is outside the scope of their business plan. Licensing deal structures vary, but fundamentally, in exchange for rights to a company’s intellectual property for a specific application or market segment, a licensor would execute an agreement with upfront payments, royalties, purchase of technology transfer services, and/or purchase of the platform components.

Licensing-out is feasible when there is clarity in the business plan as to what market opportunities will be addressed and what elements of the technology will be commercialized. For example, nanotechnologies, such as phosphor nanoparticle and quantum dot, are technologies with many, many market opportunities and product possibilities. The prescence of multiple addressable opportunities makes your commercialization strategy a difficult process, however, it may allow for additional revenue streams to license-out what is not strategic to the core business. On the downside, licensing-out constrains long term alternatives. Consider your first-to-market nanoparticle product is slated to serve the solid state lighting market. Do you round out your portfolio and license-out into medical diagnostics now or do you pass retaining the option to commercialize it later? Opportunistically deploying this tactic with uncertainty in the long term strategic direction of the company is obviously risky. Also, the upside value of licensing-out need consider the legal, business development and engineering costs. Sparse early stage business development and engineering resources dedicated to licensing out and transferring technology are at the expense of dedicating them to commercializing the technology. 

License-Out as Integral Component of Business Model

"Early Access" and license-out agreements are practical bootstrapping tactics when capital is expensive or unavailable. When strategically integrated into the company’s business model, they can cement competitive advantages that thread through your supply chain and distribution channels - capturing value.

For example, consider commercializing a nanotechnology for clinical medical diagnostics. You co-develop an imaging platform and chemistries that bind the nanoparticle to proteins, cells and tissues via "early access" agreements. You then license-out the technology to suppliers of reagents, biomarkers, and diagnostic assays as well as sell nanoparticles to these suppliers - capturing 5% of their profits in royalties alongside your profits on nanoparticles. With zero capital expenditures, you capture profits in your value chain - imaging hardware and consumable reagents - that without a licensing element in your business model, you would not realize.