FROM START-UPS TO JOINT VENTURES Tony Eastham, Matthew Yuen, Claudia Xu, Rocky Law & Shirley Woo The Hong Kong University of Science & Technology

NO OF TECHNOLOGY-BASED SMEs : LOW POPULATION : 7 MILLION NO. OF SMEs : 300,000 NO OF TECHNOLOGY-BASED SMEs : LOW HKUST

ENTREPRENEURSHIP ECONOMIC GROWTH COMPETITIVENESS HI-TECH CREATIVITY JOB CREATION INNOVATION ENTREPRENEURSHIP R&D SUSTAINABILITY VALUE-ADDED PRODUCTIVITY TECHNOLOGY

Innovation, creativity and technology play vital roles in enhancing productivity and competitiveness. Research, development and entrepreneurship are crucial factors in creating value-added jobs and sustainable long-term economic growth

UNIVERSITY THE MODERN UNIVERSITY trains human resources with the knowledge, skills, creativity and entrepreneurial attitude needed for a sustainable economy conducts world-class basic research and applied R&D attuned to the needs of (and creating opportunities for) regional industry forges collaborative linkages between academia and industry; protects and markets intellectual property; and diffuses, transfers and commercializes technology assists start-up and spin-out companies as new drivers of growth for the regional economy

RISKY BUSINESS Idea to IPO Plan to IPO VC Funded to IPO 6 in 1,000,000 Source: Saratoga Venture Finance

ENTREPRENEURIAL INITIATIVES AT HKUST ENTREPRENEURSHIP SEMINAR SERIES for all university community HIGH-TECH ENTREPRENEURSHIP COURSE for senior engineering students DUAL DEGREE PROGRAM technology and management ENTREPRENEURSHIP CENTER incubation of tech-based start-up companies VENTURE CAPITAL FUND seed funding for start-up companies

HKUST’s ENTREPRENEURSHIP PROGRAM Introduced : • July 1999 Purpose : • to assist faculty, staff and students to start-up technology-based companies Services : • furnished space, at modest cost • central office services • utilities, and Internet connectivity • Advisory Committee • introductions to potential investors • access to University facilities and resources

WHAT DOES THE START-UP COMPANY GIVE TO HKUST ? 3% of issued shares at time of entry into the Entrepreneurship Program as the company increases its share capital over three years, HKUST’s ownership position remains at 3% until the fully paid-up value of its shareholding reaches HK$300,000 additional equity for seed funding and technology transfer if tangible University-owned intellectual property is needed

MANAGEMENT ISSUES Maintain clear separation between academic / educational / research environment of the University, and its commercial / business activities Must be sensitive to issues of accountability, conflict of interest, conflict of commitment, and use of public funds for private gain Need clear policies and management practices

PRIVATE EQUITY INVESTORS FUNDING (log scale) GROWTH IPO CONSOLIDATION VCs START-UP FUNDING GAP (Dead Valley) PRIVATE EQUITY INVESTORS THINKING, PLANNING SERAP, SEED FUNDING OWN RESOURCES TIME

DEATH VALLEY Viable Opportunity Discovery UBC University-Industry Liaison Office

EXPERIENCE No. of applications 67 No. of acceptances 42 Of these 42: No. of spin-off companies 11 No. of companies in incubation facility 16 No. of companies gone quiet 15

LESSONS LEARNED not easy takes commitment people just as important as technology competitive advantage need flexibility market driven

WHAT SHOULD WE DO ? a better job at pre-screening applicants to our incubation facilities provide more seed funding need better network of early-stage investors; the right money at the right time a better job at monitoring progress, health check, assess weaknesses, and mentoring look for leading rather than lagging health indicators Joint ventures √ ? bi-annually 

“Commercializing tomorrow’s cell based therapeutics today” A Case Study SteMing Ltd. “Commercializing tomorrow’s cell based therapeutics today”

SELECTION OF JV PARTNER Not as simple as finding a licensee Long-term commitment All starts with “mutual trust” Strategic partner with synergy Not necessary to find a current market player “Not to marry” better than “Divorce because mis- understanding”

MILESTONES OF SETTING UP A JV Conception Licensing or JV? Not immediately sparkle Need time to develop Building up the team Look for CEO, COO, CFO…etc.

MILESTONES OF SETTING UP A JV Legal documents JV Agreement, Licensing Agreement Company MA, AA, Shares allotment document…etc. Operations Draft business plan Seek additional funds On-going research projects Set up more research and business collaborations

PROs and CONs PROs Greater chance of success More proactive company as expertise can function better and more efficiently and effectively Avoid jack-of-all-trades situation, professors can focus on IP creation activities and leave Management to operate the company Maintain the same IP protection and value but have potential to create more value IP is transferred through licensing not assignment. It maybe negotiated to create higher value of the JV company, upon IPO

PROs and CONs PROs More financial reward Basically by having more equity of the company, the University has a much better financial position in the future Create more bargaining power for both sides University can deal with the outside commercial world much more effectively through this JV arm. Company can reach out for funding easier, either investment from the private sector or research assistance from Government, as University active involvement provides extra credibility to the JV company

PROs and CONs CONs More commitment and responsibility From negotiation, to forming the company, then to running the company, Tech Transfer people need to provide more hands-on assistance to the whole process More gain, more risk Having a substantial portion of equity, University will be exposed to more risk and liability More complicated in all aspects Setting up a company only costs about US$1,000 and a few days, but JV document settlement takes much longer

CRUCIAL FACTORS An extensive business network A pool of potential partners Trustworthy people and build up mutual trust. Hands-on operation while building up the JV As the JV is started from ground zero, the University must provide support to train and coach the new team.

CRUCIAL FACTORS Fully utilize the strengths of the partners to create synergies Need more resources from outside, e.g. collaboration partners and funding agents. Information can be provided by University, and the actual promotion and negotiation work can be done by the JV management team, as they are in a better position to speak for preferred commercial terms Must be focused : As the JV is still, in its early stage, a one technology company, focus on commercialization of this unique technology to launch a product for revenue as soon as possible is vitally important.

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