Ip Valuation Template

							Licensing 102
FLC MC and FW
September 2004


  Dr. Walter G. Copan
NREL Technology Transfer
                  Agenda

• NREL Context
    – Tech Transfer Interactions
•   Developing Licensing Strategy
•   Identifying Partners
•   Marketing IP
•   Preparing for Negotiations
•   Delivering a Compelling Value Story
           NREL Organization View
     M&O Contractors
                                   Director
      MRI & Battelle
                                                             Legal


                    Planning and
   Laboratory                         Science and     Communications
                     Technology
   Operations                          Technology   Stakeholder Relations
                    Management




  Contracts &
                     Technology
Business Services
                       Transfer
            Licensing Process
• Licenses
   – Are between MRI and Licensee
   – Subject to certain requirements in our DOE contract
   – Contain market-based compensation
• Starts with due diligence
• Can include access to NREL resources and expertise to
  assist in the commercialization process
       Value to NREL includes
   • Successful commercialization of
     technology
   • Future collaboration opportunities
   • Recognition
   • Royalty income reinvested at NREL
             Fertilizing NREL
                Invention                             KEY PLAYERS
                                                                 Inventors
                                                     S&T Centers/Programs
   KEY INPUTS
                                                       Technology Transfer
                                                                     Legal
DOE / Programs
                                                                 Contracts

NREL IP Teams            Idea!       Concept
                        Capture     Development
Market Needs                                          NREL Invention
                                                                (ROI)
Corporations

Partners                                          IP Use Plan
                              IP Protection       •Identify Use Potential
                                                  •Partners / Strategy
Scientific Insight                                •Collaboration Opportunities
                                                       • WFO/CRADA …

Industry Associations
       NREL Technology Transfer
       Incubating Invention Into Innovation



           NREL
         Invention
                         Opportunity
                        Communication
•Opportunity and
Market Assessment                              Partnership
                                                Review
•IP Use Strategy     •Web
                     •Conferences                                  Business
•Linkage with DOE
                     •FBO             •Review Partners              Terms
Program Objectives
                     •Presentations   •Assess
•Potential Partner   •Publications    Commercialization    •Negotiations        Relationship
Identification       •Targeted        Options              •Term Sheet          Management
                     Market Contact   •Complete Due        •Executed
                                      Diligence            Agreement          •Deal Administration
                                      •Select and Engage   •Engage Partner    •Collaboration
                                      with Partner(s)      Relationship
                                                                              •NREL Support
                                                                              •Tracking / Reporting
       Assemble Strategy

• Identify Key IP Portfolios for Focus
• Key Players
  – Target Partners
  – Market and Company Assessment
• Marketing & Communications
  – General
  – Targeted
• Follow-Through
  – Timely
  – Sell the Value Proposition
            Forward Citations
             Company / Partner Connections
US 4572864 Composite Materials for Thermal Energy Storage
          Text-Mining
Support Identification of Targets, Licensees
Expanding Market Impact
New IPC Evolution, Applications, Players
    Understand Your Partner
        and Their Business World
• Market dynamics, Key players
• Competitive Forces, Barriers to Entry
  – Switching Costs
• Industry Cost Structure
• Decision makers, Thought leaders
• Business Strategies
  Technology leadership, Low cost producer, Supply
    chain leadership & Fit, Brand value
• Role of M&A / Alliances
• Opportunities for Start-ups / Entrepreneurship
        Corporate Growth
       A Challenging Environment
• Creating and sustaining innovation
  – R&D investment pressure
• Balancing Organic Growth, business
  development, M&A
  – While focusing on current businesses
• Corporate immune systems react to “foreign
  materials”
• Shareholder views of risks / rewards vs
  quarterly financials
 Shifts in strategy, loss of commitment / key
  players
       Cash Flow Valley of Death
 Between Technology Creation and Commercialization

                                        Market Focused
Primary Focus              Technology    Biz & Product               Early
                            Creation     Development             Commercialization



                                        “Cash Flow Valley of
                                              Death”
               Cash Flow




                                                                                   T ime




                                                                     Buyout / IPO / or
                                        Entrepreneur                   other exit
                                         and seed/
    Typical,
                            DOE/NREL       angel        Venture              Stock
    primary
                                         investors     capitalists          owners
   investors

                             Public                            Private
                             sector                            sector

  2/22/2011
The Public Sector is a very good early stage investor
It’s NOT Easy Making the
          Green
       Success Factors
               Due Diligence

• Solid Team – Capabilities to Execute
• Compelling Technology Story
  – IP Position / Competitive Advantage
  – Deployment Strategy
• Realistic Market Access Model
  – Customer value, Product, Strategic Partners,
    Supply chain
• Engaged funding sources with concrete plan
  bridging “Valley of Death
  – Public / Private, Broadly-based, Project Finance
        IP Valuation Principles

X The Cost approach: Principle of substitution. An
  investor will pay no more for an asset than the
  cost to develop or obtain another asset of similar
  utility.
 The Market approach: Free market will drive the
  price to a point of equilibrium. IP valued by recent
  comparable transactions.
 + The Income approach: Income stream expected
  to be earned from IP ownership. Future income
  stream is converted to a net present worth after
  analysis of risk factors impacting future income
  potential.
Income Methods of Valuation
        Approaches

1. Pure Income
2. Direct Capitalization Income
3. Probability Decision Tree
4. Royalty Income / Relief from Royalty
5. Monte Carlo
6. Real Options
     Beginning Real Options
Expanded NPV:
  ENPV = NPV + Real Option Value
Estimating option values:
  Black-Scholes / Binomial Lattices
Basic Types of Real Options
• Abandon
• Contract
• Expand
• Switching
• Sequential
• Trigger
        Financial Cycle
  Understand Technology Impact
• Speak the language of business and their
  profitability / market realities
• Respond on the timescale of business
• Understand the economics of the market and
  directions of your partner’s business
• Position your technology license as an
  investment, not a cost
• Quantify business opportunity and pathway to
  profit potential you offer
    Make the Business Case
      Communicate Impact
• Pro-Forma
  – Projection of Revenue, Expense, Margin,
    IRR and Payback period (Return on
    Investment)
  – Include “worst case” scenario
• Narrative
  – Strategic direction, Customers, Market
    factors
  – Strengths and Weaknesses
• Opportunity Summary
  – “Elevator” pitch
                      Develop Valuation Story
               Translate Business Case, Document A Fair Deal
                                                 Year Ending     12/31/2004      12/31/2005       12/31/2006     12/31/2007
risk discount rate                                                       50%               16%            16%              9%
cost of capital discount rate                                            10%               10%            10%             10%
total discount rate                                                      60%               26%            26%             19%
NPV factor                                                              0.625              .496           .394            .331

Sales                                                                       0                0              0                0
  COGS                                                                      0                0              0                0
  royalty
gross margins                                                              0                0              0                 0
  SG&A                                                                25,000           60,000         55,000            85,000
  R&D                                                                      0          452,265        520,880           848,957
  lic iss fee                                                        370,880
  min roy paymnt
  maint fee                                                                             25,000         25,000           25,000
  tot fixed exp                                                      395,880           537,265        600,880          958,957
net pre tax                                                         (395,880)         (537,265)      (600,880)        (958,957)
cum net pre tax                                                     (395,880)         (933,145)    (1,534,025)      (2,492,982)
NPV of net inc                                                      (247,425)         (266,500)      (236,552)        (317,242)
cum NPV of net                                                      (247,425)         (513,925)      (750,478)      (1,067,720)

                                                   Year Ending   12/31/2004      12/31/2005       12/31/2006     12/31/2007
tot to NREL                                                          432,772            25,000         25,000           25,000
cum tot to NREL                                                      432,772           457,772        482,772         507,772
NPV to NREL                                                          270,482            12,401          9,842            8,271
cum NPV to NREL                                                      270,482           282,883        292,725         300,996
net pre tax if roy = 0                                                                                               (933,957)
amt that should go to NREL (1/4 of above)                                                                            (233,489)
implied lic iss fee (NPV of amt that should go to NREL)                                                                (77,243)
implied royalty rate                                                                                                      0.0%

                        Summary Statistics                       in 16 years
Royalty Rate                                                              10%
License Issue Fee                                                     370,880
Tot to NREL                                                        70,640,182                                          507,772
Tot pre tax to Co.                                                330,274,276                                       (2,492,982)
NPV to NREL                                                         6,528,675                                          300,996
NPV pre tax to Co.                                                 26,995,898                                       (1,067,720)
Percent NPV to NREL                                                       19%
ROI to company                                                            44%                                    negative
Break even yr                                                             2012
positive cash year                                                        2014
          Financial Results
         Which Factors will Your
          Technology Impact?
 Net                   Contribution   Operating
 Sales      Gross                      Income
                         Income
            Profit

                          Research,
COGS       Marketing
                          Tech, G&A
           & Selling
                          Expenses
           Expenses
                                        ROCE

           Working          Fixed
           Capital          Assets
         National Labs –
      U.S. Innovation Engines
• Public sector an increasingly important
  source of technologies and enterprises
• Licensing, alliances, ventures, etc.,
  serve to complement internal R&D
  resources and market channels
• Private sector relies on the National
  Labs and universities for longer-range
  R&D pipeline
   Thanks!




Contact: walter_copan@nrel.gov 303-275-4469
     Additional Resources 1
Valuate Model (www.autm.net)
  Martha Luehrmann - University of California
Brokerage / Industry Analysts reports
  Investext (www.tfsd.com)
  FirstCall (www.firstcall.com)
  On-line brokerages (e.g., www.etrade.com)
Business & Market Research
  Intellifact (www.intellifact.com)
  NorthernLight (www.northernlight.com)
  TableBase (www.rdsinc.com/TableBase)
  OneSource (www.Globalbb.onesource.com/)
  MindBranch (www.mindbranch.com)
  Business Communications Co. (www.buscom.com)
    Additional Resources 2

Company Background
  Corporate Information
   (www.corporateinformation.com)
  Company Sleuth www.companysleuth.com
  Companies Online (www.companiesonline.com)
  CorpTech (www.corptech.com)
  CEO Online (www.ceoonline.com)
  Edgar (www.sec.gov/edgarhp.htm)
Industry Portals
  e.g., Chemical Industry (www.neis.com)
    Additional Resources 3

Market Data
 Government Sites
  Commerce (www.ita.doc.gov/tradestats)
  FEDWORLD (www.fedworld.gov)
 Industry Sites
  (e.g., www.chemindustry.com)