starting a company
What is a start-up
Many factors are involved in the decision company?
A new company is one way to further develop
and commercialize discoveries made at of the OTM to license a technology to an A start-up company is a new business
the University of Illinois. A start-up can be a existing company or to a start-up company. entity created to market a specific
preferred route for commercialization because Considerations include optimization of invention. It is an alternative to
it can provide the professional guidance stakeholder positions (University, faculty, etc.), licensing an invention to another,
improving the probability that the technology
starting a company
and development needed to demonstrate already existing company.
commercial viability, and thus improve the reaches market and how best to accomplish
chances that an early-stage technology will get further commercial development outside the
to market. research laboratory. The licensing or optioning What role does the
process begins with somewhat standardized inventor play in the
Numerous resources exist within the templates that tend to provide both equity start-up company?
University system to support the development and royalty consideration to the University
of new businesses commercializing in exchange for commercial rights to the The inventor usually serves as a
University intellectual property. For example, technology. consultant or adviser to the new
IllinoisVentures is a premier seed and early- company. That role may change as the
stage technology investment firm focused on When a start-up includes one or more University company develops. However, much
research-derived companies that was conceived faculty members, a “conflict of interest more time is required early in the
and launched by the University, and has been management plan” will be required. That plan process of establishing the company.
consistently named by Entrepreneur magazine outlines the relationship between a faculty
to its national list of the top 100 venture member’s activities with the company and
capital firms. IllinoisVentures’ professionals his/her research and teaching responsibility. What support does the
often collaborate with OTM professionals to The plan identifies and mitigates possible areas university provide to
assess the viability of a start-up path and are of conflict, such as those related to conflict of start-ups?
available to consult with faculty and students commitment and/or conflict of interest and lays
on topics related to business launch and out a plan for disclosure and management of The University provides resources and
entrepreneurship. In addition, research park and these conflicts. To initiate a conflict of interest services that make start-up formation
incubation facilities on both campuses provide management plan, contact the Office of the Vice easier, such as IllinoisVentures and
physical space and the environment to foster Chancellor for Research. incubation facilities.
University licenses to start-ups are
structured so as not to overburden the
company financially during the first years.
Start-Up Company Formation Guide and Checklist
Below is a guide to the process of forming a start-up company to
license University technology.
• Review the company’s business model with • Negotiate license deal framework with the
professionals to determine whether a viable OTM. The deal terms represent a package whose
business case is possible. IllinoisVENTURES and value depends upon the type and significance
the Offices of Technology Management can help of the technology being licensed and external
with the review. market factors. Components of the package
include exclusivity, field of use, equity, royalty
• Let your Office of Technology Management rates, sublicense sharing, diligence milestones,
know you are interested in forming a start- minimums and other payments. The terms are
up. You may then want to enter into a standstill interrelated, and there is trade-off among terms
or option agreement to ensure the University in arriving at the entire deal. Equity is typically
won’t license the technology to any third party. taken in start-up company deals in exchange for
This allows time for an individual or a company lessening the cash burden on the company in the
to develop a business plan and satisfy other early years.
• Conflict of interest management plan
• Develop a preliminary business plan and approval. When a start-up company involves a
submit to your OTM. The business plan should University faculty member, a plan is developed
identify product(s), business model, markets describing the relationship between the
(size, competition, fields), management, company and the faculty’s University research
development process and timeline, financial and students. This plan identifies and mitigates
costs, capitalization or funding required and potential conflicts of interest and should be
financial projections for five years. The plan initiated as early as possible with the Office of
should also identify what technologies are the Vice Chancellor for Research.
needed and their benefits to the company. The
business plan needs to be specific enough that
the OTM and the company can begin to negotiate
the deal framework and to identify meaningful
milestones for the license.
conflict of interest
• Obtain prior written approval to
engage in non-University income-
• Establish company as a legal entity. A • Have experienced management on board
license for a technology will only be granted at the time of signing the license agreement. If
• Disclose such activities annually,
starting a company
to a company demonstrating the capability of that management is on an interim basis, specify
whenever a substantial change
developing the technology into a commercial assembly of a qualified management team
occurs or when required by
product. Documentation needed includes within a period of time after execution of the
Articles of Incorporation, by-laws and founders license agreement.
agreements or the equivalent.
• Refrain from spending so much
• Provide a capitalization plan and
time on external activities that
• Finalize the license agreement. License capitalization table. A start-up must disclose
they interfere with University
drafts are exchanged and the final deal terms the current levels of financing, equity value or
and contract language is negotiated and agreed capitalization at the time of license signing and
upon. must reach specified levels of such financing
• Refrain from advancing one’s
within an agreed-upon time.
own interest or the interest of
• Complete a business plan acceptable to the
family members to the detriment
University. • Sign license and investment agreements
of the University’s interest
and provide stock certificate.
• Finalize the investment agreements.
• Disclose involvement of
Investment documentation and agreements are • Monitor agreements. The company, the
University students or employees
reviewed and approved by the University and University and the investors monitor company
in one’s external activities
should be ready for signing: progress toward commercialization obligations
Charter (Articles/Certificate of Incorporation) and milestones.
• Work with the department head to
Purchase Agreement identify and evaluate potential
conflicts, and manage or
Investor Rights Agreement/Registration
The Board of Trustees of the University of To date, IllinoisVentures has formed and
Illinois created IllinoisVentures, which was supported an array of companies in multiple
launched in 2002, to catalyze the creation and business domains throughout the region, which
development of research-derived companies have attracted substantial third-party co-
in information technologies, physical sciences, investment from leading investment firms across
life sciences and clean technology, particularly the nation. The long-standing collaborative
those deriving from the University of Illinois experience of the team working together in early-
and other Midwestern Universities and federal stage new enterprise formation is the basis of
laboratories. Under the guidance of a world-class that success.
board comprised of leaders from all phases of
the investment community as well as academia, With offices in Champaign and Chicago,
IllinoisVentures has created a state-of-the-art IllinoisVentures professionals are available
environment for new company formation via to consult and advise researchers and
a unique public/private partnership that is a entrepreneurs in entrepreneurship and
valuable resource for those interested in starting business development, and to help mold
up a company. In 2004 IllinoisVentures raised concepts, vision, intellectual property, sweat
their first venture fund, the Illinois Emerging and passion into breakthrough, high-growth
Technologies Fund, in recognition of the limited companies. IllinoisVentures professionals
presence of seed and early-stage technology provide guidance to faculty in early market
investors actively committing capital in Illinois. assessment, competitive analysis, business
strategy and other activities necessary to create
high potential, venture-ready businesses. The
firm also provides funding through all stages of
business creation and development.
Research Parks and Incubator Facilities enterpriseWorks
In addition to the support from the Offices of Technology Management and IllinoisVentures, the
University of Illinois Research Park and the Chicago Technology Park are operated in partnership
• Entrepreneur in Residence
with the University of Illinois to nurture start-up companies and catalyze commercialization of
• Start-up Café events with successful
• University-associated research parks and • EnterpriseWorks is a technology business • Tenant forum educational events
incubators at Urbana-Champaign and Chicago incubator in the University of Illinois Research
support and nurture the growth of these Park and has been the launching pad for more • Allied agency status for companies
early-stage companies, encourage research than 70 start-up companies since it opened in with the University
and development collaboration between the 2003. EnterpriseWorks provides an affordable,
• Research support services from the
University, private industry and public agencies high-tech environment with lab and office space
Vice Chancellor for Research
and attract established companies that benefit as well as access to business development
from close working relationships with University services. EnterpriseWorks can house as many • CEO roundtable dinners for
faculty and students. These research parks as 30 companies at any given time and offers networking and peer-to-peer support
provide critical infrastructure space for early- short-term flexible leasing options.
stage companies that require wet and dry
laboratory capacity for product research and • The Chicago Technology Park has supported
development. companies involving drug discovery and delivery, the chicago technology
medical devices and testing, genomics and park provides resources
• The Research Park at the University of nanotechnology. The 56-acre Research Park including:
Illinois in Urbana-Champaign provides an on- is located within the Illinois Medical District. It
campus environment where technology-based has graduated more than 25 firms into the local • Job bank program
businesses can collaborate on research and economy, with an average growth rate of 200
• Internship programs
development with faculty and students and percent in the past four years.
enjoy access to the campus’ vast intellectual • Informal networking sessions
resources and research infrastructure. The
• Bioinformatics program
Research Park is now home to a range of
companies employing many people in high • Access to UIC library and to UIC
technology careers. facilities and resources
What federal agencies
participate in the sbir
program? SBIR/STTR Program
Each year, 11 federal departments
The Small Business Innovation Research (SBIR) Phase I. The objective of Phase I is to determine
and agencies reserve a portion of their
and Small Business Technology Transfer (STTR) the scientific or technical merit and feasibility of
R&D funds for award to small business
programs provide qualified small businesses, the proposed R/R&D efforts. The Phase I period
through the SBIR program. These
including faculty start-ups, with opportunities to concentrates on the R&D efforts that prove the
propose innovative projects that meet specific scientific or technical feasibility of the approach
• Department of Agriculture federal needs. These programs offer more or concept and that which are a prerequisite for
than $2 billion dollars annually to support the further support in Phase II. Phase I awards are
• Department of Commerce
research and development of technology by for periods up to six months in amounts up to
• Department of Defense small businesses across the nation. Awards are $100,000.
based on small business qualifications, degree
• Department of Education
of innovation, technical merit and future market Phase II. The objective of Phase II is to continue
• Department of Energy potential. the research or R&D effort initiated in Phase
I with approaches that appear sufficiently
• Department of Health and Human
SBIR funds support research by a business with promising because of Phase I. Phase II awards
or without an academic partner. STTR funds are for periods up to two years in amounts up to
• Department of Homeland Security are also awarded to a business but recipients $750,000.
must have a U.S. research institution as a
• Department of Transportation
collaborative research partner. The SBIR/STTR Phase III. An objective of the SBIR/STTR
• Environmental Protection Agency programs are structured in three phases, the program is to increase private sector
first two of which are supported by SBIR/STTR commercialization of innovations derived from
• National Aeronautics and Space
funds. Federal R/R&D. During Phase III, the small
business concern is to pursue commercialization
• National Science Foundation with non-SBIR/STTR funds.
May a portion of an SBIR award be
used to pay for outside services or
assistance from a university or other
nonprofit research institution?
Yes: Phase I, up to one-third of
the award can be used for outside
assistance, and in Phase II, up to one-
half of the award.
What federal agencies
participate in the sttr
Both the SBIR and STTR programs have specific eligibility criteria for participation.
Each year, five federal departments
Small businesses must fulfill the following Small businesses must fulfill the following and agencies reserve a portion of
criteria to participate in the SBIR program. criteria to participate in the STTR Program. their R&D funds for award to small
business/nonprofit research institution
partnerships. These agencies include:
• American-owned and independently • American-owned and independently • Department of Defense
• For-profit • For-profit • Department of Energy
• Principal researcher employed by business • Principal researcher need not be employed • Department of Health and Human
• Company size limited to 500 employees by small business Services
• Company size limited to 500 employees
• National Aeronautics and Space
• National Science Foundation
While there is no size limit for a nonprofit research institution, the nonprofit research institution must
also meet certain eligibility criteria.
• Located in the U.S. A competitive program supported by the state of For STTR awards, what is the minimum
• Nonprofit college or university or Illinois Department of Commerce and Economic percentage of research that can
• Domestic nonprofit research organization Opportunity is available to technology-based be conducted by the small firm and
or entrepreneurs including faculty members institution receiving an award?
• Federally funded R&D center interested in submitting an SBIR/STTR grant.
Small business must perform at least
Those supported through the program receive
40 percent of the work and research
The agencies participating in the SBIR/STTR approximately 30 hours of assistance with
institutions must perform at least
programs have differing requirements for identifying, advancing, preparing and/or
program involvement, and it is very important reviewing SBIR/STTR Phase I proposals from
to understand and comply with these individual experienced grant-writing consultants. Contact
requirements. Each agency publishes a proposal your Office of Technology Management for more
solicitation at least annually. These solicitations information. When are the proposal deadlines?
can be viewed on their individual Websites They vary depending on the agency.
accessible at: Information on solicitations and
http://www.zyn.com/sbir/ proposal deadlines can be found at: