The Caltech entrepreneur may be a faculty member, JPL technologist, post-doc, student, or investigator. OTT looks for passion, commitment, and desire to make a difference in the entrepreneur. To create a Caltech spin-off, OTT suggests that the entrepreneur write a business plan or at least an executive summary. One of the most popular courses on campus was John Baldeschwieler's entrepreneurial course which required submission of a business plan to receive credit. Drafting of the business plan was and is an extremely useful exercise in providing focus, strengths and weaknesses, and in identifying the key elements necessary to be successful. The key elements are management, markets, technology, and intellectual property; probably in that order.
To acquire intellectual property rights from Caltech, the entrepreneur should incorporate and then negotiate an option to the rights for the company. The criteria established by OTT to acquire an option is first and foremost support of the inventor who has developed the technology-typically over many years in his/her lab. The technology should be a platform for which many fields and/or applications are possible and which address large markets. A strong proprietary position is critical for initially raising funds.
What does the Caltech option look like? The consideration is modest, typically 2K to 5K. The option period is normally 12 months. The optionee has the right to exercise the option upon raising funds, usually a minimum of $500K. Caltech expects that sufficient funds to last 18 months to 2 years will be raised at least $2M to $3M. A term sheet which sets forth all the business terms is attached to the option. Conversion to a license must be done within the period set forth in the option.
Caltech prefers an option rather than a license because it is quick, yet allows the entrepreneur to use it to raise funds. If the entrepreneur is not successful, the technology has been tied up only for the duration of the option. Upon request, the OTT provides varying degrees of assistance such as introductions to IP firms, CPA firms, angel investors, institutional investors and realtors. OTT also critiques business plans and/or provides information to aid in the drafting of business plans. Of course, OTT provides patent support.
Finally, we are confident that our strong entrepreneurial culture will continue to result in 8 startups per year on average in which Caltech will have an equity stake. OTT expects that a reasonable success rate over a 10-year period will add $50M to the Caltech general funds. In conclusion, the entrepreneurial program at Caltech is based upon a long term approach that hopefully can be a catalyst for philanthropic activity by Caltech entrepreneurs for the benefit of Caltech's educational and research activities.