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What are the pros and cons of a start-up licensing a technology?

Also when should an organization take the licensing route as opposed to manufacturing and selling all in house?

Our start-up, Dycap, makes camera modules that give PTZ (pan, tilt, zoom) cameras automatic tracking. Removing the need for a camera operator by leveraging machine learning and facial tracking. The two routes we can go are either outsourcing manufacturing and sell to distributors of PTZ cameras (who will couple the sell of their cameras with our module) or we can license our IP to PTZ camera manufacturers (Sony, Vaddio, Canon, Huddlecam, etc..) who sell directly and have distributors as well.

From a high level understanding of what licensing is, it sounds great. Licensing helps with distribution of your technology, marketing, manufacturing, etc... If we we're to go the licensing route we would ideally want something similar to what Microsoft did in their licensing deal with IBM and IBM's competitors when they were a start-up. However I don't know if it's the same scenario because MS-DOS was an intangible operating system, what we would license is our hardware and software. In any capacity I would think licensing would be a clear path to acquisition since potential acquirers would be using our technology.

Comments and advice would be appreciated!

3 Replies

Robert Levin
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Robert Levin Entrepreneur
General Counsel at Cybis LLC

There are too many considerations to list here, but I'll try to scratch the surface.

If you keep this in house then you need the funding to do the development, manufacturing and the distribution. You'll need a sales force or BD function. But under this model you keep control over everything and you are not reliant on third parties, except your contract manufacturers and other vendors.

If you license you cede control to thelicensee subject to the terms of the agreement with the licensee. Thelicensee theoretically has the resources to handle the development, productization, manufacturingand distribution.You need to choose your licensee carefully. Your license agreement must be very carefully drafted. It must contain milestones for all activities to be carried out by the licensee and must lay out all of the licensee's obligations. It must have termination rights and other remedies in the event that the licensee doesn't meet its obligations. Conceptually the license scenario may be a faster way to revenue, but you need to be very careful as the licensee's corporate priorities could change, its focus could change, its management or ownership could change.

This is just a start.

Timothy Llewellynn
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Timothy Llewellynn Entrepreneur
Global Entrepreneur and Software A.I. Architect, CEO and Co-founder of nViso
If you were to try and license your value added IP to camera manufacturers you might find you are marginalized very quickly and find it difficult to make a good profit. Your IP requires the camera manufacturer to add cost to his product by providing hardware to run your algorithms and hence sell that at an extra cost plus margin to his customers. Hence they need to spend marketing efforts and $$$ to make their customers aware of the value of your IP and why they are paying the extra cost as you only save cost on the end client side of the equation. If you were adding performance AND saving cost to the camera manufacturer the tables would be in your favor. I'd say you'd be better off initially directly selling hardware and software to the customers who you save cost or enable a new application. Once you had a high adoption rate, it would then be worthwhile approaching camera manufacturers about licensing.
Robert Levin
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Robert Levin Entrepreneur
General Counsel at Cybis LLC
Armand Too many considerations to list but here's a start. If you keep inhouse then you control your own destiny (which, I assume is to get to revenue to juice your valuation). To do this yourself you'll need money to complete development, handle the manufacturing, marketing, sales, distribution, service and support. If you license then presumably your licensee will handle most of these functions in return for its piece of the action. But you, the licensor, give up control to the licensee. You have to choose your licensee wisely. Your license agreement must be ironclad, and even if it is, there is no guaranty of success. The license agreement must lay out in detail everything the licensee will do, how it will do it and when it will do it. There must be commitments, termination rights and remedies. But no matter how careful you are there are risks; the licensee may have financial issues, changes in priorities, management changes, different focus, etc.
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