Group of Eight Australia
Australia's Leading Universities
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Module 4: Intellectual property and commercialisation

2.5: Realising a return

In general, universities recognise that staff and students need incentives to create valuable IP and, when they do so, to reward their innovation. The majority of Australian universities have policies for sharing the net proceeds of commercialisation with their researchers. The university will have policies in place to ensure that the net proceeds of commercialisation are distributed to the contributors. The exact distribution will vary by university and you should contact your university commercialisation office for details as to how it works.

The amount and timing of financial returns received from a commercialisation venture depends largely on the commercialisation pathway chosen (see Table 4.2  for a quick comparison between models). The most common forms of return from a commercial venture received by researchers include the following:

  • Start-up company pathway:
    • R&D milestone payments
    • 'Product' sale
    • Dividends from shares in company
    • The sale of shares/holding in company
  • Licensing pathway:
    • Royalty revenue from the sale of a licensed product
    • Milestone payments
    • Annual licence fees
  • Consulting pathway:
    • Consulting fees

An 'exit' from a start-up company occurs when the shares in that company are sold. These shares may be held by the individuals themselves, or by the university (usually through some sort of trust) with advantages and disadvantages to each model. However, there are a range of points at which the shares in the start-up company may be sold:

  • When there is a 'liquidity event' enabling the shareholders to sell (liquidate) their shares, such as when there is a trade sale and the company is acquired by a larger company
  • When the company lists on the local or an overseas stock market.

The point at which shares can be sold may be constrained by escrow, which prevents the sale of all or a percentage of their shares for a set period of time after the company lists or is taken over. This is common practice to avoid the sale of a large number of shares adversely affecting the share price.

The timing of the exit is crucial to maximising return. For example, if the sale is too early, you can miss out on the value uplift as the company's risk profile decreases. Alternatively, there is always the risk of selling too late when a company's value is eroded. However, it is rarely possible to exit within 5 years of forming a company.

Optional activity: Read the examples of successful commercialisation ventures

Click on the following links to read about some of the most successful commercialisation ventures from universities:

Gatorade

The drink that now dominates the sporting industry was developed by physicians at Florida University to help their football players cope with the heat.
http://www.gatorade.com/history

Google

Co-founded in 1998 by two computer science PhD students at Stanford University (Stanford University was involved in licensing the technology into a start-up). http://en.wikipedia.org/wiki/History_of_Google

Other successes

The Association of University Technology Members has compiled a collection of university commercialisation success stories. "This collection of short stories, supplied through the years by AUTM member institutions, explains how products derived from academic research and technology transfer which are used in medical practice, environmental protection, agriculture, electronics, safety and many other fields." The collection, which includes stories from the U.S., Canada, and the U.K., can be searched by research discipline at the following link: http://www.betterworldproject.org/

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