Guidelines, Policies and Forms
Information on Start-Up Ventures
When thinking about starting a company that is related to a Faculty member's research, a number of policy issues must be considered. As you can imagine, there is the strong potential for the public to view this entrepreneurial activity as creating conflicts of interest both for the faculty member and for the university. Both the faculty member and the university could benefit financially from ownership of stock in the company and thus the future behavior of both can be suspect in the eyes of the public and the press.
While the University and its Schools support the formation of companies that can develop Harvard technologies into useful products and move them into the market, Harvard has to manage the resulting potential for conflicts of interest. The following question and answer sections outline some of the relevant points regarding the obligations of the Office of Technology and Trademark Licensing (OTD) and of the inventor in dealing with start-up ventures.
Questions Relating to the Role of OTD in Start-Up Ventures
Questions Relating to the Inventor's Options and Obligations
Questions Relating to the Role of OTD in Start-Up Ventures
Does OTD write/help write business plans?
No. We will work with faculty interested in becoming involved with a start-up venture and with those in the venture capital community so that a well-constructed business plan can be created. It is important to us that when Harvard technology will be licensed to a start-up company, a well-thought-out business plan is in place and that adequate resources are available to enable the Harvard technology to be developed effectively.
Can OTD help me find Venture Capitalists to fund and/or manage a start-up?
Yes. OTD maintains contact with a number of local area venture capitalists, and can put faculty in touch with experts willing to fund and manage start-up companies based on Harvard technologies. The VCs generally assume the role of identifying and recruiting a management team to run the company before agreeing to fund a start-up.
What other assistance will OTD provide me?
We are also available to provide information and assistance so that faculty are aware of and address any conflict of interest issues that may arise as part of a start-up venture. Such issues often arise when faculty are involved in professional activities outside of Harvard. The Faculties have therefore issued guidelines to help faculty negotiate these issues. Some of the relevant conflict of interest issues are outlined in the section below as Questions Relating to the Inventor's Options and Obligations. An extended discussion can be found in the FAS Grey Book or in the HSPH Faculty Handbook. Those in the Faculty of Medicine should consult that Faculty's Policies on Integrity in Science.
What is OTD's role in dealing with a start-up company?
OTD has the responsibility to determine whether the start-up company has the potential of obtaining sufficient financial and management resources to be capable of vigorous development of the technology to be licensed. Once the company has sufficient financial backing and a business plan and management team in hand, OTD's role is to negotiate a fair licensing deal with the start up company. The agreement will take into account the capital resources of the company, but will also obtain value for the technology contributed.
When a company founder (who has or will have equity in the company) is also a Harvard inventor of technology to be exclusively licensed to the start-up, OTD must perform due diligence to avoid conflict of interest issues that may result from the inventor's financial relationship with the company. The due diligence process includes a review by the Committee on Patents and Copyrights (CPC), in which OTD provides a rationale for licensing to the emerging company. The CPC requires reasonable assurance that the start-up is the best mode of development for the technology, and demonstration of such may require that OTD market the technology to other companies. In lieu of marketing, OTD may at its discretion enter into a letter agreement with the emerging company which details certain requirements that must be met before an exclusive license will be granted (e.g., financing criteria and/or CPC review).
Will Harvard take equity in lieu of cash as part of a licensing agreement with a start-up company?
Yes. Since start-ups are often cash-poor, equity is seen as a reasonable means for Harvard to accept payment for its technology. Harvard's equity position will be a minority one (generally less than 15%). At the time the license agreement is executed, OTD will specify an event that will trigger the sale of Harvard's stock (e.g., the earliest date after the IPO that the stock agreement allows; when a product has reached a specified stage in regulatory approval, etc.) Any proceeds will then be distributed according to Harvard's Royalty Sharing Policy.
Questions Relating to the Inventor's Options and Obligations
Can I hold a management position in the company?
Probably not. This extent of activity is very likely to seriously divert attention from University duties, or create other conflicts of loyalty. Individuals should consult the Faculty committee that deals with conflict of interest issues before accepting any outside management position. (In FAS, this is addressed by the Committee on Professional Conduct. In some Faculties, the Dean or the Dean's representative may be designated rather than a Committee.)
Can I sit on the Board of Directors or Scientific Advisory Board of the company?
Yes. This is usually permissible without consultation with the conflict of interest committee. It is understood that as a member of a corporate board, the faculty member does not serve as a representative of Harvard University.
Some federal agencies mandate disclosure of interests in for-profit organizations that exceed a specified threshold. For example, the NSF and NIH require disclosure of interests (including stock) valued in excess of $10,000 and/or equity that exceeds 5% of company stock. The FAS and HSPH Conflict of Interest Policies outline disclosure policies to help faculty comply with agencies' regulations.
Can I consult for the company?
Yes. This is also usually permissible without consultation with the conflict of interest committee. Again, some federal agencies mandate disclosure of consultancies for which compensation exceeds a specified threshold. Further, it should be noted that no more than 20% of one's total professional effort may be directed to outside work during the academic year.
How may my students be involved in company work?
Involving students and/or post-docs in Harvard work designed to benefit the company is considered a major conflict, and is generally not allowed.
Involving students and/or post-docs more directly in the company (as employees or consultants) also raises conflict of interest issues. Consultation with the dean and/or the chair of Faculty conflict of interest committee is generally required in order to ensure that the student's/post-doc's educational experience is not compromised.
Am I able to receive equity?
Yes. Holding stock (or the promise of stock) in the start-up company is allowed, but is likely to make it impossible for the company to sponsor research in the faculty member's laboratory. When an inventor holds stock in a company it is likely that he/she will be deemed to have a Close Financial Interest in that company. Harvard recognizes that faculty often have such an interest in emerging companies and that the resulting potential for conflicts of interest requires oversight and resolution. The appropriate resolution will be tailored to each individual case. For a definition of Close Financial Interest, see the Conflict of Interest Policy.
How does equity get distributed?
There are two sources of equity that an investigator may receive as a part of his/her involvement in a start-up venture:
The investigator may receive stock as partial compensation for his/her role on the executive board of the company and/or as a founder of that company. The distribution of such equity will be determined by the investigator's contract with the start-up itself.
The investigator may benefit from stock in a company that Harvard receives as part of its compensation for the license granted to the company.
Harvard manages this stock according to current policies, as described above ("Will Harvard take equity in lieu of cash...?") and in the Equity Policy.
Am I required to report my equity holdings to Harvard?
Yes. Faculty members and other Harvard personnel who will hold stock in the start-up must report the details of their relationship with the company to their Faculty conflict of interest committee so that committee may develop an appropriate conflict management plan if that is required.