What is a startup company?

A startup is a new business entity formed to commercialize inventions through the development and eventual sale of products or services. Penn faculty can choose to create a spinout, a type of start-up based on Penn IP, as a commercialization strategy.  Other commercialization strategies include licensing intellectual property or creating a contractual relationship with an established business.

Why choose to create a startup company vs. developing a business relationship with an existing company?

Choosing to create a startup company may present the best opportunity to advance an invention towards a commercial product or service.  For example, truly disruptive technologies in a significant commercial market may not be of interest to existing companies until the innovations have been further developed.   Forming a startup company may provide a mechanism to source alternative types of funding (e.g. investors or SBIR/STTR funding) to develop inventions towards a new product or service, particularly where such development activities may not be fundable under other types of grants applied for through Penn.  A few key factors when considering whether to form and launch a startup company or develop a business relationship with an existing company are:

  • the stage of the technology and the level of current product or service development risk;
  • the potential to develop multiple products or services from the same technology;
  • whether there is a sufficiently large and defensible competitive advantage;
  • the scope of opportunity for new entrants in the target market;
  • potential revenues or funding sources sufficient to sustain and grow a company;
  • potential investment return;
  • alignment with potential collaborators and/or acquirers; and
  • enthusiasm and bandwidth to commit to founding a company.

In partnership with Penn inventors and entrepreneurs, PCI can help to evaluate these and other factors.

Who decides whether to form a startup?

PCI is here to support the inventors in deciding whether a new company should be established to commercialize Penn-owned intellectual property and is typically a mutual decision made by PCI and the inventors of the technology in question. PCI provides a variety of new venture products and services to faculty, postdocs and students through its PCI Ventures (PCIV) group. A faculty member, postdoc or student at Penn can establish a business without the assistance of Penn as long as the faculty member, postdoc, student and the business are otherwise compliant with Penn’s policies.  A business created in partnership with Penn, or through independent means, must still take a license to any Penn-owned IP it intends to use.

When is the right time to form a startup?

There’s no “one size fits all” to this question and it can depend on many different factors.   The PCIV team can help you think through these questions through its Venture WarmUP program.  In some cases, forming a company early may make sense to secure certain forms of non-dilutive capital to demonstrate proof-of-concept and de-risk the technology and use case (e.g. SBIR or STTR funding).  In other situations, you may be able to continue to advance and de-risk a technology through your research activities at Penn.  Before seeking investor financing for a company, you should:

  • Have a clear understanding of the market problem the company will be solving.
  • Understand what new products or services would be sold by the company (or a successor entity thereof), who is the customer, and how much they will pay for it.
  • Have a reasonable understanding of the time, funding, and personnel needed to develop the new products or services.
  • Have considered the importance of intellectual property protection for your invention through discussions with PCI.
  • Understand the development pathway for turning the invention into a new product or service.
  • Have identified a viable business model for the company and the market potential for a product or service.

What role does a founder usually play in a company?

No Penn faculty member or employee is permitted to take on fiduciary roles for the companies that they help to create based on their research (e.g. board of director seats, officer positions, full-time employment arrangements, etc.), but faculty founders do typically serve as advisors or consultants for the company, often chairing or participating in the Scientific Advisory Board of the company, while also maintaining their position at Penn. In very rare instances, a faculty member may choose to leave Penn and join the startup in a full-time capacity.

How does PCI facilitate startup formation and acceleration?

There are multiple paths available for creating a company based on Penn-owned intellectual property.  These paths include working with the PCIV team and utilizing services provided through their various programs (UPstart, UPadvisors and Venture Warm-Up), or creating a company independently from Penn and securing a license to any Penn-owned IP that the company intends to use.  PCI’s licensing officers are also available to provide advice and address questions related to start-up company formation.

See the PCI Ventures website for more details: https://pci.upenn.edu/pciventures/

What assistance and resources are available to the company founder?

When a business is created working with the PCIV team, Penn (through PCI) may assist the founder in obtaining:

  • company formation services to establish a private legal entity;
  • management team recruitment;
  • template legal agreements;
  • business development (e.g. market research, marketing, IP strategy);
  • capital acquisition (including UPtheOdds, a full support grant submissions program);
  • third party service providers on a deferred fee basis (payroll, bookkeeping, insurance, etc.);
  • development of a funding strategy, making introductions to potential investors, and organizing investor showcases; and
  • business operations and mentoring services.

In addition to the extensive resources made available through PCIV, PCI administers the Penn I-Corps Site (https://pci.upenn.edu/entrepreneurs/i-corps/), an accelerator program funded by the National Science Foundation, where teams interested in starting a business can explore the feasibility of their idea before launching a company.

How much of my time and effort will it take?

Starting a company generally requires a considerable amount of time and effort, but working with PCIV can reduce the potential burden.  Until the startup team is identified and engaged, the faculty, postdoc or student will need to be deeply involved in the company formation process. After the management team is in place, faculty, postdoc or student involvement may still be required during fundraising (e.g. grant writing, partner or investor pitches and discussions), assisting the management team in transferring technology from the University to the business, and in University processes such as conflict of interest disclosure and reviews.

In many cases, the faculty advisory role is shaped with the startup investors and management team based on the founder’s expertise and interests. As the company matures, additional investment is required, and the founder’s role may change. Student founders and postdoctoral fellows may choose to join the startup upon graduation or departure from Penn In some cases, these individuals may choose to take on a leadership role in the company.

Can creating a start-up company raise conflict-of-interest issues?

It is important to recognize that a faculty member’s ownership interest in or other relationships with a startup may create a conflict of interest that may affect the faculty member’s participation in research and other activities at Penn. Faculty involvement in a startup that constitutes a significant financial interest as defined in the University of Pennsylvania Policy on Conflicts of Interest Related to Research must be disclosed as specified in the policy. The University of Pennsylvania Conflict of Interest Standing Committee (CISC) reviews potential conflict of interest in any of the faculty member’s research that is related to the financial interest.

What are the Intellectual Property considerations?

In cases where intellectual property is owned by Penn, a startup company – like any other business – must obtain a license from Penn in order to practice and utilize those intellectual property rights, regardless of whether or not the business was created with the assistance of PCI or PCIV. Utilizing Penn’s help in launching a business does not constitute an automatic license to practice University-owned intellectual property.

How is my startup company related to Penn?

Companies are private entities independent of Penn, even in cases when PCIV is involved in launching the company. Penn may be a shareholder in the business, but it does not solely control or own the business, and the startup company is not part of Penn. Conversely, a startup company does not have automatic access to the Penn research enterprise, administrative support, or other Penn facilities or resources simply because Penn is an equity holder in the business. All relationships between Penn and startup companies, such as sponsored research, lease of working space (e.g. the Pennovation Center), and/or licenses to Penn IP, must be documented in a separately negotiated agreement.

Please contact PCI Ventures or one of Penn Engineering’s PCI Licensing Officers if you have any questions or want to discuss the possibility of forming a startup company:

Terry Bray, Ph.D. – Executive Director, tbray1@upenn.edu

Pam Beatrice, Ph.D. – Director, beatricp@upenn.edu

Josh Jeanson, M.S., J.D. – Senior Associate Director, jeanson@upenn.edu

Gangotri Dey, Ph.D. – Licensing Officer, gdey6@upenn.edu