Funding Your Intellectual Property (IP)
May 21, 2021
An entrepreneur has to seek funding sources for their intellectual property (IP) following the securitization in order to monetize that IP (whether that’s by commercialization or sale). Depending on the stage of the company or the IP, funding can be accomplished in a variety of different ways. Early-stage companies are categorized as preclinical (testing of a drug in non-human subjects to gather efficacy, toxicity, etc.); and Phase 1, (generally a small number of healthy volunteers for the purpose of assessing side effects and safety of the drug). These companies -- or IP in its early stages -- typically have less access to capital markets than Phase 2 or Phase 3, which involve studies in disease-affected participants to determine efficacy and safety as well as the dose required to produce the desired benefits.
Early-stage companies traditionally have several resources to tap into when funding their IP.
Pre-seed funding is commonly known as “friends and family,” which includes individuals or parties that are the owner of the IP themselves, close friends, family members, and/or other supporters of the IP.
Seed funding in the entrepreneurial landscape is startup funds, usually the first investment into a company from actual investors that aren’t necessarily friends and family. This type of funding, more often than not, comes from angel investors. Angel investors (usually high-net-worth individuals) provide capital to startups for an equity investment. Angel investors, unlike venture capitalists, understand their support is at the beginning of the life cycle of the company and don’t have the expectation for immediate returns. Angel investors can be found through websites, university contacts and other entrepreneurs.
When entrepreneurs think of support from universities, the first thing that comes to mind is resources other than capital (accelerators, incubators, labs, scientists and other various support for entrepreneurs). Many universities have now created and operate venture funds for startups as well. While initially these were more geared as not-for-profit, universities now are looking to get a piece of the pie.
There are a myriad of private and federal funding opportunities available to entrepreneurs. Several large corporations have grants available for new businesses. There are also funds set up for entrepreneurs to apply for, both from universities and not-for-profits. In addition, many entrepreneurs take advantage of the federal funding opportunities. The Small Business Administration (SBA) offers several grants and loans to small businesses. More specifically, the SBA has two programs geared toward companies in early phases: Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). The National Institute of Health (NIH) is the largest public funder of biomedical research in the world, investing more than $32 billion a year. Many in the life science community take advantage of these grant opportunities. Depending on the area of focus of the IP, there are many not-for-profit organizations that provide funding, both via grants and investments, to members of the research and medical community who help advance research and care for their cause.
Every state has some sort of incentive program to drive high growth potential companies to their locale. For example, the New Jersey Economic Development Authority (NJEDA) has several programs for the life sciences community, as well as other industries, including grants, loans and tax credits. Specifically, the Angel Investor Tax Credit provides tax credits to those angel investors who invest in qualified business. Also, the Technology Business Tax Certificate Transfer program enables qualified, unprofitable New Jersey-based technology or biotechnology companies with fewer than 225 U.S. employees including parent company and all subsidiaries to sell a percentage of net operating losses (NOL) and research and development (R&D) tax credits to unrelated profitable corporations. In New York, START-UP NY assists both new and expanding businesses through both tax-based incentives and innovative academic partnerships. They can operate tax-free for ten years or on eligible college or university campuses in the State of New York, getting access to R&D and more.
Between investors that provide pre-seed and seed funding, along with angel investors, university venture funds and federal and state grants, there are numerous avenues for entrepreneurs to fund their IP.
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