IV. Starting a Company
Starting a Company
Considerations in Forming the Company
Considerations in starting a new company include business plan development, financing (government funding, venture capital funding, angel funding, and other private funding), employee personnel/human resources, site location, facilities, product development/marketing, outside advisors (e.g., legal, intellectual property, financial) and in-licensing of technology (see Step III: Licensing).
- What unmet need does the business solution provide?
- How will the solution be delivered to the end-user?
- How large is the addressable market?
- How will the company make money?
The decision to start a company is fundamentally outside the scope of any faculty member’s employment with the university but can significantly impact the mission of the university in supporting technology transfer and regional economic development. UC Davis provides limited support services to faculty, researchers, and staff interested in becoming entrepreneurs, or in increasing their involvement with the private sector more generally. These services are available through UC Davis Graduate School of Management and the Child Center for Entrepreneurship; the University’s interest in offering these services is rooted primarily in the economic development strategy contained in UC Davis’ Vision 2020 strategic plan.and other campus units such as the
Stage 1: Validate the business objective and model.
Without a business model, new technologies may never realize their commercial potential. A business model summarizes how a company intends to serve its customers, and integrates both strategy and implementation. It answers fundamental questions such as:
Stage 2: Develop a business plan.
A business plan is the single document containing a company’s statement of strategy and objectives, and sets out the operations with which the company will meet its objectives. Business plans also contain financial projections, a market analysis and discussion of marketing strategy, and a review of key personnel leading the company. For companies involved in attracting funding, a business plan is the key sales document that will persuade others of the potential that the business embodies. UC Davis InnovationAccess cannot write the business plans for faculty entrepreneurs but the group will assist the company to identify the resources needed to pull together a persuasive and professional business plan.
Stage 3: Set up a legal entity for a new business.
There are a number of legal alternatives for creating a new company including corporations, limited liability companies, and limited partnerships. UC Davis InnovationAccess recommends that faculty entrepreneurs work with outside legal counsel to choose the proper legal form for and to create the new company. While it is possible to form a company without legal advice, and numerous resources exist online to assist with this, securing outside legal advice and establishing a relationship for the company’s future needs is advised.
Stage 4: Bring business management expertise to the company.
The next stage is to bring in associates with sector-specific business expertise. Business expertise is necessary for two critical steps: financing the company, and negotiating the intellectual property license. It is not necessary to actually hire someone to join the company for this purpose – many businesses begin life with mentors, consultants, or others working for equity positions or options.
Stage 5: Negotiate intellectual property license(s).
The University of California owns certain intellectual property as stated in the UC Patent Policy, to which faculty members agree by signing the Patent Acknowledgment form as a necessary condition of their employment. Therefore, the new company will need to license university technology from the university in order to be able to commercialize it. See also Step III: Licensing.
UC Davis InnovationAccess does all technology licensing for the Davis campus. The Intellectual Property Licensing Officer who handles the Record of Invention and the patent application will normally be responsible for licensing the technology to the new company. See also Step III: Licensing.
UC Davis takes issues of conflict of commitment and conflict of interest very seriously. See Step III.A: Licensing Decision Review, and Step VI: Start-up Funding of UC Davis Research. During license negotiations, conflicts of interest can arise where a faculty member participates in the negotiations on behalf of a company with which he or she is also involved. For this reason, UC Davis recommends that a representative of the company other than the faculty entrepreneur lead the licensing process.
Stage 6: Establish a location for the business.
Generally speaking, companies are not permitted to co-locate on university property. However, space for small companies can be difficult to come by, particularly in the Davis area, and particularly where lab space is needed as well. InnovationAccess has an established network of referrals to assist in finding space near the university, whether in regional incubators or in traditional office or lab-office real estate, including opportunities to sublet where possible.
Stage 7: Develop a funding strategy.
Financing strategies differ from company to company based on many factors, including the company’s stage of development or maturity, its industry sector, and its financial needs, among others. Funding sources include grants from the government or private foundations; equity such as angel or venture capital funding; and debt from government agencies like the Small Business Administration (SBA), from banks, or from personal credit cards.
Stage 8: Develop a financing pitch for equity investors (if needed) and secure financing.
If the funding strategy anticipates equity investment, the company will need to begin work on the “pitch”, or the story used to describe the product concept, the company itself and its long-term potential to investors. Typically a pitch is prepared in varying lengths, from the “elevator pitch” (to be delivered in the space of a happenstance elevator ride with an investor), to a full-blown talk complete with presentation. The pitch is formulaic in terms of the material it is expected to communicate about the company, but also needs to be vivid, to make an impression, and to be delivered with passion.
Stage 9: Begin product development.
Finally, all the key pieces will be in place for the company’s operations to begin. Whether it is commercializing a software product in the short-term, or engaging in drug development in the long-term, product development is the foundation of the company’s future success, and raises its own operational challenges.