Guy Kawasaki and Commercialization

Amusing post by Guy Kawasaki on the perils of commercialization. Net conclusion: If you can, hire away one of the junior folks if they are passionate and legally clean. Full post here

The Art of Commercialization

One of the consequences of a boomlet is that organizations like research labs, defense contractors, and aerospace companies are going to want a piece of the action. Their logic will go like this:

"The technology we invented for satellite imaging can be used for amateur video, so we could have created YouTube and sold to it to Google for $1.6 billion. Let's find an investor to fund this since our budget is set for the year. How hard could it be to create a better YouTube?"

I've been on the other side of the table as these organizations try to negotiate a deal to spin out, license, or sell their technology. I can tell you that it's almost always Mission: Impossible to get a deal done because most organizations try to stipulate the following conditions:

  • The startup can't hire away any employees. It cannot talk to them because they don't want them distracted from their Department of Defense contract work.
  • The sole contribution is a CD-ROM with their research findings. They'll mail it to the startup when the deal is done. They repeat: Do not talk to the employees. Everything they think a startup needs is on the disk.
  • Their technology is so great that they aren't offering any kind of exclusivity or perpetual license. They might find a better deal, and they will take it. This is what's called vacuosity wrapped in pomposity.
  • Since their technology is the company, they want to own 80% of the spinoff. In addition, they want a 50% royalty structure with a $5 million advance. Unfortunately $5 million is twice the size of the first round of financing.
  • They want to restrict the markets that the startup can sell into because they know best who should use their technology and for what purposes. (Did you hear the story about the inventor of Novacaine who insisted that the drug be used for operations and not for dentistry because it was too important a discovery to be used for something as mundane as tooth extraction?)

Full post here

Posted on October 26, 2006 and filed under Technology.