Great Ideas for your Small Business:
Take Advantage of an Online Technology Marketplace
Licensing new technology to other companies is a win-win scenario for everyone involved. Corporations invested $187 billion in research and development in 2001, according to the Battelle Memorial Institute, and selling licenses and collecting royalties is one way to earn back that money.
Additionally, licensing deals can create new opportunities to grow your business. One simple way to find a product to license or to expose your intellectual property to potential licensees is via an online technology marketplace.
Frank Jaksch, CEO of ChromaDex Inc., a small Laguna Hills, California–based company that sells high-purity chemicals isolated from plants to manufacturers of vitamins and supplements, saved his company time and money by looking online. Screening for bacterial contamination is important to maintaining the safety of ChromaDex’s products, which are produced using the raw materials derived from plants and flowers.
Jasch was searching for a test to detect minute amounts of bacteria in food and nutritional supplements. On a website he found information about a bioluminescent toxicity screen offered by German pharmaceutical giant Bayer AG. The test, developed by Bayer for internal use, was just what Jaksch was looking for.
“One of the ways to develop new products is to find out what other people have done, rather than creating things on your own,” said Jaksch, whose ChromaDex is a small, but growing, player in the U.S. market for nutritional and “functional” foods, which reached about $50 billion in 2001. “We worked it out so we didn’t have to outlay any cash and Bayer took a stake in our company,” he explained.
His licensing deal came with an added bonus: Bayer AG not only took a 10 percent stake in his company, but asked for a seat on his board of directors. “A company like Bayer is not going to take a deal like this lightly, so it says a lot about us and our credibility.”
Ralf Du Jardin, manager of new business development for Bayer AG, said posting information about its toxicity screen on “led us to a fast-growing innovative company, ready to extract the added-value from the R&D efforts we have pursued with our technology in the food market segment…. We agreed on an equity-based license so both of us will benefit from ChromaDex’s product development and expanding portfolio of customers,” said Du Jardin.
“Taken together, these new opportunities provide Bayer with a number of ways in which we can generate increased revenue for our shareholders.” “We look at this Bayer deal as a new method to raise capital,” said Jaksch, adding that ChromaDex hopes that sales of the test kits to customers will generate a fresh, steady source of revenue for his small firm. But, without an online intro- duction, it was unlikely that ChromaDex, with twelve employees and annual sales under $10 million, would have made a high-level contact with Bayer, which has 117,000 employees and operates 350 individual companies on all continents.
Henry Lieberman, vice chairman and president of Advanced Motion Technologies Inc. (AMT), based in Rockville, Maryland, also relied on website to complete its first major technology licensing deal. Lieberman said he relies on fourteen subcontractors to work on projects at the firm, which posted annual revenues under $5 million in 2001. “We found website shortly after they launched and thought it looked like a really fantastic way to expose major companies to what we were doing,” said Lieberman.
“For me, many of the sponsoring companies that support the site were on my hit list to approach.” AMT struck a deal with Curtiss-Wright, which has 2,600 employees and has been serving the aeronautical industry since it helped the Wright brothers with their first flight in 1903. Curtiss-Wright agreed to purchase four separate licenses from AMT related to the smaller company’s electro-magnetic actuator. The devices, which use powerful magnets to replace traditional, oil-powered hydraulic systems, are used extensively for military and commercial purposes.
Chris De Bleser and Ben DuPont, among others, founded website in 1999. The entrepreneurs raised $1.5 million in private angel funds to get started and have since raised another $45 million in several rounds. “We are dealing with intellectual property and corporate assets, the family jewels of a business,” said De Bleser, who previously worked for Polaroid and Black & Decker, helping those big firms develop new technologies. “Both of us [he and DuPont] were frustrated over how hard it was to transfer technology,” said De Bleser. “With our model, regardless of their size, companies are allowed to expose their intellectual assets to the world.”
Buyers of technology register on the site and can search without paying a fee. So far the company has 45,000 registered technology buyers. If a deal is made, buyers pay De Bleser’s firm a finder’s fee of 10 percent, with a maximum of $250,000 per deal. Small companies pay about $4,000 to post information about the technologies they have available to license. Access to many areas of the site is free, but registered companies are asked to provide a credit card.
Are you ready for a licensing deal?
BEFORE POSTING your technology on a marketplace-type website to attract interest, consider the following:
- Have you determined anything your company has developed that may have value to another company?
- Have you filed to protect your trade secret or invention with the proper federal trademark or copyright filings?
- Have you established a value for licensing the technology to others? Hire an outside consultant with expertise in your industry, if necessary.
- If you find a deal, make sure you work with an experienced intellectual property attorney to draft contracts that protect your company from harm. And, be sure to set a schedule that guarantees payments before you release the technology to the buyer.