Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. Licensing has been integral for smaller medical device companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities. Compensation to the licensor can consist of a combination of the following:
Upfront Payment
Most licensors will want some form of lump sum payment at the commencement of the license.
Milestone payments
Milestone payments are made during significant events that occur as a result of Product Development and Marketing. As a product progresses further down the commercialisation pathway, the risks associated with bringing the product to market are lessened. For example, for the development of a medical device, this may involve successfully completing human clinical studies or achieving regulatory approval from the TGA/FDA. Once these milestones have been achieved, a payment may be made to the licensor.
Royalties
Royalties might be something you associate with musicians but are equally applicable to any form of licensing agreement. The payment represents a percentage of net sales derived from the use of an asset. You will need to decide in your agreement whether the rate will be fixed or has the ability to increase/decrease with net sales or changes in circumstance, e.g. third party competition, choice of territory, patent expiry, etc.
Loans
Licensing agreements involving loans are less common. This is where Company A may make available a loan of $X million to a start-up company. The potential credit available may have more attractive interest rates and payment terms compared to traditional financing methods.
Equity Agreement
Wherein instances like these, the financial terms within the agreement may enable the waiving of cash payments, in return for an equity stake in the company.
Inner Maven has experience negotiating terms of agreements to ensure the inventor is protected, and both parties are happy with the outcome.
The Achilles heel to any great invention is obtaining sufficient levels of capital to fund different phases of commercialisation. With medical devices and therapeutics, costs can skyrocket as regulatory fees, legal fees and the most costly of all – running clinical trials, build up. How you finance your business can be the difference between success and failure. These are the most common sources of funding for entrepreneurs:
Personal Funds
This is the most obvious source for inventors, but very few of us have unlimited cash reserves. Using excessive amounts of personal funds can cause financial stress to yourself and your family. Personal funds can quickly dry up and is the least feasible long-term option. Family and friends are another option, but be prepared for tensions in relationships, if the business doesn’t go to plan.
Bank Loans
Another obvious source of financing is obtaining a bank loan. This is easier if your company has been set up as a partnership and borrowing capacity is increased. This is particularly helpful during the startup phase.
Grants
Check your state and federal government for a diverse range of government grants designed to support start-ups and SMEs. For example, in Victoria, grants range from the Accelerating Commercialisation Grant designed to support the development and implementation of new technologies, to manufacturing and travel grants. Grants are also available from many esteemed research organisations, but these may be more difficult to obtain. Inner Maven can guide you through this process and assist in grant writing.
R&D (Research and Development) Tax Incentive
At the federal level, tax incentives can be accessed if your business is conducting activities that fit the ATO’s definition of Research and Development. For eligible activities, companies that have an aggregated turnover of less than $20 million may receive a 45% refundable tax offset. If you are unsure of whether certain activities are eligible, it is best to seek the advice of an R&D tax accountant, Inner Maven can recommend people we trust.
Angel equity
Angel investing is a type of equity financing where an individual investor will invest in your company in return for a percentage of ownership. This can be a good option for inventors looking to offset their risks, but you need to be very certain to attract the right angel investor.
Venture capital
This is another type of equity financing, where venture capital firms provide seed funding to companies at the early stage with a high potential to grow.
Inner Maven has experience with resourcing many different sources of funding to raise capital and can guide you through this process.
The lack of seed funding in early technology development is a key barrier for many medical device inventors during the early stages of commercialization. This equity gap is something that only a few specialist investors have been able to bridge, but leading universities have found developing relationships with venture capitalists invaluable as a source of advice and expertise. Competition is heavy in this field, here are some tips when approaching a Venture Capitalist (VC) firm.
- Be Open Minded: The most successful entrepreneurs are open-minded and appreciate honest feedback. If you walk in being open to changes and suggestions, you are more likely to get a win or at least a referral to other investors. The worst thing to do is to walk in with an inflated ego and act defensively to feedback.
- Solid Business Plan: So you want $1 million for the development of your medical device? Inventors need to demonstrate what the funds will be specifically used for, the purpose and why. You need to have a strong business and financial plan in place. Venture capitalists will interrogate you with questions, it is important to be prepared to show you are experienced and smart.
- Speed: Your pitch should be direct and to the point. Steve Jobs hardly used any words for his presentation slides; he used his passion to communicate the message. Seeking the interest of a Venture Capitalist is like dating, you need to foster the relationship over time or they will lose interest. Provide them with ‘good news’ updates and be highly responsive. After all, there are plenty of fish in the sea.
- Choose the right Venture Capitalist Firm: Perform detailed research on the firms you are approaching. Each VC firm is different with different investment ranges, specialties and regions. Some may prefer investing in seed capital, some may prefer later stage developments. Some firms may specialise in particular industries such as medical devices. Look at the existing portfolio companies. Approach the lead investor if you can. By researching and being more selective, you can narrow your VC targets to ensure your medical device or technology is a match to their strategy and goals.
- Consider other options: VC funds are one of the hardest to obtain. In parallel, seek other sources of funding such as grants, government funding, banking loans, etc.
At Inner Maven we have assisted many firms in preparing pitches that have led to successful funding. We have also successfully raised millions of dollars in grants and shareholder funds.