Unknown Speaker 0:06 Thank you so much, Donal and thank you so much for inviting me and my my co presenters to present on this really fascinating topic. So good morning everybody, or good afternoon, wherever you are in whichever time zone you are. My name is Alan McCoy. I'm director of Venture Development at the University of Maryland, College Park at um ventures. So in this session, experts from three different universities will share their experiences and strategies in managing startup equity. Our panelists will cover a range of topics, including how and when institutions receive startup equity, the types of equity we manage. How do we track it, compliance issues and processes and the decision making and procedures for divesting shares. So please meet our panelists. We have Dr Nadine Wong, she is managing director of licensing and strategic initiatives with Duke University. Cameron crane, venture acceleration manager at Vanderbilt University. And Nigel long, founder and senior managing director of straight straight advisors. So before we delve into today's presentation, it should be noted that today's topic of discussion will not focus on whether or not universities should take equity, since that topic has already been covered in an earlier webinar. So that's not what we will be focusing on today. We will discuss now that universities has equity, what? What's now, what's next? What? What do we do with it? So we'll talk about what type of equity universities take, how tools they use, how they manage it, and how do they dispose of equity, hopefully post IPO or post exit. So before I had hand the mic to our panelists, I would like to get to know our audience a little bit better so we can tailor the conversation. If you don't mind, if you could use the chat function at the bottom of your screen and let us know if the university you represent is public or private, and if you manage equity internally or externally, that would help us tailor the conversation after our short presentations. So I appreciate that so I see we have a good mix of public managed internally, public internally, private internally, private nonprofit, equity managed internally. So mean most of you looks like everybody, most people manage internally. That's good to know, but we have a good mix of public and private institutions. Thank you. So I mentioned earlier, I am director of Venture Development for um ventures at the University of Maryland College Park, we are a public research university with a 1.2 billion in combined research expenditures with University of Maryland, Baltimore. So our office um ventures, we previously had a more traditional name, Office of Technology Commercialization. However, we changed our name and now and how we communicate about what we do in order to be more inclusive of the non stem side of campus. So our venture development team within um ventures works very closely on launch and startups works on lunch, and startups based on innovations developed at UMD. And we are a small team work very closely with many partners on campus to achieve that. So our office takes equity in companies via IP licenses. We work with many other partners across campus, and there are other partners who take equity in addition to IP through other means, and Nigel will talk about that, we manage 58 active startups, out of total 139, startups created. Not all of them succeeded or survived. Last year, we launched 10 new startups, and so far, we've had two IPOs and three exits. And that's when we realized we didn't really know what to do with how to manage the especially the IPOs and the exits, and we brought in Nigel long and his firm Trade Street advisors to help us do. That. Nigel, thank you all so much for doing that. Yeah, Unknown Speaker 5:06 yeah, absolutely. Thank you all. And good afternoon everyone. And I'll just want to thank you for convening this panel. I think this is just such an important topic, and I think all of us will have an opportunity to learn something, and it'll be value added for everyone, just a little bit about myself. As Paula mentioned, I'm the founder and senior managing director of Trade Street advisors based here in Charlotte. I've been in the private investment markets for over 25 years, involved in quite a few complex transactions, investing over $2 billion worth of private equity, private debt and real estate transactions. And currently I serve on the Board of Directors of the UNC Chapel Hill Foundation, which holds the startup equity investments on behalf of that university. So just very entrenched in the whole university ecosystem and managing startup equity, we go to the next slide, and as olive mentioned, Trade Street, my firm was engaged by UMD to support the university in managing its portfolio of investments in startups. That portfolio of investments is comprised of equity both common and preferred, as well as securities that are convertible into equity. So that's your convertible bridge notes and safes. And the way the university gathers equity or receives equity is through three channels. Primarily, one is through the university's tech transfer office, and in that capacity, securities are received really just as partial compensation for the IP license, and there's not a direct typically, there's not a direct investment of cash in those companies, then the university also has a university sponsored pre seed investment fund called Discovery Fund, and out of that fund, the university does actually write checks and make actual investments in very early stage companies, and the university is also in a pretty unique position to manage a state sponsored seed stage fund called the Chesapeake Bay Seed Capital Fund. And in that capacity, the university does not have direct equity interest in those companies, but does have an indirect equity interest via what's called a carried interest, which is a term that I think you may be hearing in the news over the last few days, because that's a target of change in taxation laws. So with that, I look forward to any questions that you might have, and looking forward to the discussion. Unknown Speaker 7:40 Thank you. Nigel, Unknown Speaker 7:47 yeah, sure, I can also talk about this as well. So in terms of what we do, I wanted to save a little bit of it for the discussion, but so just to kind of maybe provide some framing for our conversation. So we, as ALA, mentioned, we support the university and managing its equity, and typically we're involved end to end, meaning that we're involved pre investment on the due diligence and negotiation front, as well as post IPO, where we're monitoring and managing the liquidation process. So we're literally involved in every step from again, pre investment through post IPO. And if we look at the types of of functions that we perform, they fall into three kind of broad categories. So one is just record keeping and reporting. And when we look at record keeping and reporting, what we're really doing there is we're just kind of aligning the university's record keeping practices with best practices in the private investment management space, and we do that to facilitate not just portfolio tracking and monitoring, but also financial reporting as we report up To the CFO and the university's controller. This also facilitates CIO COI reporting. It facilitates internal and external audits, as well as just key stakeholder communications. One of the things that we did, we can talk more about this later within the session, is that we basically, we streamline the university's record keeping processes by migrating all of the university's portfolio company records to just kind of an an all a user friendly, online, cloud based platform that's easy to access, easy to access, easy to to to access and understand, and we leverage smart sheet for that, and we also support other reporting functions within the university. Then kind of the second broad category of you know, processes falls into what we call portfolio management, which encompasses both tracking and execution and. And in that capacity, what we're doing is, you know, we're tracking Corporate Actions impacting the shareholders, which the university would be. We monitor, start our performance and valuations. We essentially, these are functions that help the university make decisions about, you know, the assets that are currently in the portfolio, as well as, you know, new assets coming into the portfolio, so we might review transaction documents for new and follow on investment activities. We're always involved in the disposition or sale of the equity and other actions needed for shareholder consent. Very importantly, we're involved in portfolio company outreach, which we can talk more about that later, and importance of that. And we also exercise the university's Board observer rights, and in one instance, we're actually a full voting member on behalf of the university. And then the third bucket is just kind of advisory and investment analysis, and this is just kind of a broad set of activities related to investment policy and strategy and processes as relates to just general investment related analysis, we might perform a function such as providing just important benchmarking. So for example, the university has transitioned to an express license program where the university receives a post money valuation safe. So one of the things that we do is quarterly provide benchmarks for the relevant valuation, for fair valuation caps to use in those those safes. So again, again, happy to speak more about this in the Q and A and as we get further into the discussion. Thank you. Unknown Speaker 11:38 Good Nigel. Applause. So Unknown Speaker 11:48 Nadine, would you like to provide an overview of the Duke process? Unknown Speaker 11:53 Yes, of course, yeah, and you can, as I skip to the second and third slide, maybe the third slide. So I'm with the Duke office of translation and commercialization and and really, if you move to the next slide, please, really, our office, in many ways, is a very traditional office, right? So we do cradle to grave management of IP coming out of Duke with, you know, the traditional services in green. And in recent years, we've kind of expanded our resources with respect to translational funding, and we have different kind of programs. And I'll give a little overview the next slide on kind of funding projects. And then we have a new ventures team. So while we have kind of started or we invest in technologies through translational funding, through various mechanism, really, we don't take equity as part of that invest. It's not investment, it's a funding opportunity. So through our translational chaperone program, our partnership with dear field, our Google accelerator fund, and our culture partnership program, this is more funding the research, while still is within the university, and we receive consideration, equity consideration only as part of a license agreement. We do have our Duke Capital Partners, which is a Duke alumni invested network, who actually do investment in Duke affiliated startups. So kind of the Beyond autumn definition of what is a startup, and they are manage their equity separately from from our office. Next step, next slide, please. So this kind of just gives you a snapshot of our kind of startup activity, or new ventures activity over the last fiscal year, we have over 125 startups. And, you know, we through the years, we've had several IPOs acquisition and so we're familiar, we've kind of gone down the road, and we're familiar with the challenges and kind of roadblocks of managing equity. I'll kind of end by saying so we do not manage our equity internally. So as the OTC office, we're responsible for negotiating the license, you know, kind of negotiating the equity position in the company. We hold the board position, the board observer position, we we kind of, you know, execute transactional agreement for equity transfer, all of that. But the moment the equity arrives in our office, and bear with me, I have to read my post it, because it is a multi step process. So the moment it goes in our office, we have to send it to our office of Treasury. I do who then send it to our Investment Office at Duke, who then send it to their third party investment manager company, who then send it to another third party, who a company who specifically manages the equity, and that last party is the one who will make the the trade i. The end of the day after we have IPOs, and I think the last slide just give you a snapshot of various IPOs and acquisition where we've had like kind of transaction related to our equity position in in in our companies over the last couple years. I Unknown Speaker 15:26 thank you, Nadine, now we will go to Cam and for the audience, as you are listening to these presentations and introductions as a question pops into your head, please use the Q and A function at the bottom of your screen to type up that question, and then we'll go into the Q and A and discussion right after these presentations. Kim, the mic is yours, alright? Unknown Speaker 15:54 Thank you. ALA, I appreciate this opportunity to share what we do here at new ventures in tech transfer at Vanderbilt. And if we head to the next slide, happy to share a little bit about what's going on at Vanderbilt. As you will see, we are a very dynamic ecosystem here in Nashville and here specifically at Vanderbilt, where we're really the heart of deep technology and research, in the middle of the state and throughout the southeast, we're a private institution. We're small, but if you look at the numbers, we're very, very dynamic. 1.2 billion in research expenditures in FY 2321 point 7 million in revenue. We have a very, very active tech, tech transfer office, and we work very, closely together with our licensing team, with industry collaborations, and then new ventures, which is where I work primarily. If you look at our portfolio, 118 startups facilitated, and we have equity in 40 of those startups. So let's go to the next slide, please. This is our new ventures team. I mean, if you, if you look at leadership, it all starts at the top. We have the legendary Alan Bentley leading us. He's been very, very active in autumn. I see you shaking your head. A lot of you know who Alan is. He sets the tone. You saw a change with Chancellor dearmeyer coming in here about five years ago, where we wanted to go from being very, very focused on research to focused on research and innovation. We've been anchored during those years, also by George Wilson, our assistant director, Heather kachenko, who's also on the team I joined about three years ago, Allah and I came from industry, and I had some notions around tech transfer. And one of the things I was concerned about is, Could we move at the speed of industry? And I was happy to see that Vanderbilt does, do indeed move its speed of industry, especially when it comes to working with startups. Last year we brought in Stephen Miller from Colorado, and we were thrilled to welcome him, because he's helping really expand the reach of what we do with startups and helping found the southeast venture showcase, which we'll share more about at the autumn conference. And then there's a newest addition to our team, Cameron Russ, yes, another cam. She's coming from our partner organization over at the wondery, where they do a great job of working with founders and customer discovery, and she will be joining the team here in March. My focus ALA, is really on post launch activity. So in the past, George and Heather have done the primary tracking, and now I'm working with them directly. So we head on to the next slide. I thought this would be fun to show, and I can cover it just an overview. We can come back to it later if we end up talking about tracking tools, but how we do it internally is through a combinations of methods. Our Trello board is really active these days. It's very, very important for us to understand what's going on with startups and founders early on and track their progress as they go through our diligence process. But they also work with our medical we work very closely with our medical center as well as the university, so we need to have visibility onto all of these projects and keep track of them as they go through the diligence stage. Then into staging where we're looking at making bets on them, where we're looking at investing in them, perhaps, and then through company formation, and then post launch, where they become a portfolio company with a license. Unknown Speaker 19:34 This one will probably get a lot of questions about, and I'm happy to field those later as they come in. But we don't really think of it this way, we have three flavors of equity, like a traditional tech transfer office. Licensing is the main way we get revenue again. We work very closely with our licensing partners and our team. Those licenses usually have small digits of equity, single digits of equity, they are negotiable. We have eight. Anti dilution protection, typically up to 2 million or up to a Series A round. More recently, we have become founders. At times, there are projects that need help, that need talent, specifically and capital, so we rolled up our sleeves, and we've gotten involved. And for that, we'll take a little bit of equity. As you see, it's usually 5% or if it's a program specifically that is built around supporting that startup, it's probably more like 10% it still falls in the tech transfer purview. And as you as you'll notice the difference there. It's fully dilutable, where there's protections on the licensing piece, and the last piece, which is newer to Vanderbilt is working directly with the finance office on what's what's like a seed fund, and we use a lot of safe vehicles for that. We often work with what, what instrument the founder has, and we have made four investments on that today. So I'm happy to talk a little bit more about that in the Q Unknown Speaker 21:04 and A thank you so this. Thank you so much. This was a great introduction of of the topic, and now we can move into, into the discussion. That's the fun part of of of this so cam, thank you. You gave an overview of and some of you gave an overview of what type of tools that your office uses, what type of equity the university takes. And why don't we start by talking about what type of tools do other universities use? Have you discovered anything that has been particularly useful, interesting, and if so, if you could please share? Unknown Speaker 21:56 Yeah, I'm happy to build on that, you know. So we started with showing the Trello slide that's really just getting the activity going. We use minuet. I would assume a lot of the folks who are on the call here use minuet. It's really that we see it as the IP record of truth in terms of tracking disclosures and awards and patents and then options and licenses. So we keep our eyes on that Meanwhile, as they go into poach post launch activity, we're on PitchBook a lot, or independent verification. It's been very, very helpful. It's not perfect, but they try very, very hard. We have a commercial license, so we make sure, we try to get the most out of that, and we start our own tracking of all our portfolio companies in there, and then we cross reference that with the annual report. And Heather in our office, does a great job working on that, specifically with the founders. Unknown Speaker 22:50 Sure Let me chime in here. Thank you. Cam so our relationship with the university is set up through the CFOs organization. So we report to the controller, and because of that, we track equity, and we use systems that are in parallel but essentially distinct from an independent of the licensing or the tech transfer office. So the tech transfer office, they have their set of tools that they're using. We use a set of tools that apply to the kind of the broader universe of startups that the university has equity in. So there are three primary tools that that we utilize and that the university has access to. So first, I mentioned earlier, we leverage Smartsheet, which is just kind of a very user friendly, you know, cloud based platform where we create a company profile, and in that company profile, it has all of the documentation that you know we would have on file, so it could have, if there's, if it's there's a license, it'll have the license, it'll have the investment documents, it'll have updated cap tables and other information. And the profile itself is fairly comprehensive. And individuals with any university can add, take away, they can add edit, they can access it at any time. And so Smartsheet is just kind of just a great record keeping tool that kind of brings everything together in one place, we also leverage Carter. In fact, one of the things that we were involved in is helping the university set up a partnership with Carter, where Carter provides an investment portal, and again, you know, and we manage that account, but anyone and numerous people at the university can actually access that account at any time. And by the way, we strongly encourage the startups to actually manage their cap tables within Carter. That really is just a best practice, emerging best practice. And then, thirdly, pitch book. So again, we leverage pitch book. Book, not just for tracking information in getting updates, but we actually work with pitch book to actually make sure that the profiles of the companies within the portfolio are fully up to date, which is also kind of an important thing to do. So those are in terms just pure equity management. Those are kind of the three systems that we primarily leverage. Unknown Speaker 25:24 Yeah, and I'll jump in, you know, so pitch book. We use pitch book as a way to track our equity, similar to what cam was saying. And I think, you know, there's a question that comes down later, is about, how do we track anti dilution provision, right? Like, so I think that's where pitch book comes in handy with the multiple parties involved. It. Managing equity is cumbersome for us, you know, so we have our IP kind of invention platform where we track it from the perspective of compliance with the license agreement. You need to give us this percent of share, this percent of equity that talks that kind of amounts to this much equity, and so we can run a report from that. We do compliance tracking on that part. But once you know that leaves our our office Treasury has their own tracking and reporting, and all of the third parties have their own. So we do have a monthly reconciliation kind of series of Excel spreadsheet that is cumbersome for us to kind of track, but, and this is a challenge that we're working right now, but, yeah, so, so I'm kind of excited to hear about smart sheet. We use it for other program management. And, you know, I think cam said that just us, me three meaning for this webinar, we've kind of learned a lot from each of us. So, so, so hopefully that's helpful to others too. Unknown Speaker 26:51 Yeah, that sounds like an exciting tool. Love to Learn more about that. And Nigel, thank you for bringing up Carter. That's been a newer tool that we've been working with as well. And the transparency of it's fantastic, especially if we have multiple forms of equity, like I mentioned, if we had licensing equity and co founder equity, very helpful to then see the different differences in that, in that system. Yeah, absolutely, yeah, yeah. Unknown Speaker 27:12 Thank you. And a question that naturally flows from this one is, what is your management What is your compliance management process? I know the tools that is a big portion of it, but how do you use those tools in the in the bigger picture? So if you could comment on that please, Unknown Speaker 27:33 yeah, I can start. So we view equity as license consideration, right? So the way we track it is similar to any other kind of, you know, reporting diligence for a license. So we for the equity, especially if they are due at the time of license or shortly thereafter. At the time of license, we try to the best of our ability to look for it, whether we receive or not. We receive it or not in a timely fashion. That's a different story. But you know, our way of tracking is our annual report, right? So like everybody else, we need some sort of annual report, updated cap table requirement again, you know, we try to assume that our licensee will abide by whatever compliance requirement they do. We all know that's not always the case. Then we move to the proactive every on a maybe semi annual basis, we will kind of try to go and chase down those who do not have a reporting compliance our new ventures team, separately will do an annual survey of our active startups. So, so with, you know, we're in the business of reconciling, that's, that's what we do. So we're trying to get data from as many sources as possible. And I think, you know, first, the biggest challenge with compliance is compliance for startups who are pretty new, pretty young, right? I think once you know there's a professional investor, a Series A investor, you know compliance is kind of like the daily kind of best practice for those companies. So the biggest challenge is those young three series a pre institutional investors, companies was, Unknown Speaker 29:22 we're very similar to what Nadine is describing. You know, focused on the license. We work very, very closely with our licensing team. They do a great job of articulating that in the negotiations and setting out the milestones. We've also found it very, very helpful that we join a board seat as an observer when we can just gives us visibility, gives us connectivity to the founders and and really helps them see that we're, we're with them, you know, we're working with them specifically we we can have more empathy for the challenges they're going through, and can keep sharing that back to All right, how's this team doing? Well, they're working on their fundraise. That investor didn't come in, but they're, you know, they're going for this. Next one. And just building those, building those really close relationships are very, very valuable. That helps. Then when we, you know, ask them for an annual report, we're much more likely to be successful there. Unknown Speaker 30:12 Yeah. So, so one of the questions I know is, what kind of the lessons learned? And so one of our lessons learned kind of ties in with Cam just said, and Nadine and I just saw a comment in the chat about equity participation rights. So just taking a step back, one of the things that we do is, on the front end, let's make it as easy as possible to work with this company throughout the life of this investment. So a key thing to do is to have certain, what we call preferred rights built into the agreement to begin with. And so that's information rights, of course, voting rights, equity participation rights tag along, rights which are very important. And you know, you know, board observer rights are important as well. It's better to have more rights than fewer rights, even if you don't actually exercise those rights. And the things that help us stay abreast of what's going on with the company is having particularly information rights, board observer rights, things that actually give us the contractual opportunity to engage with these companies. And then second, and this was kind of also on my lessons learned list as well, and Cam touched on this is portfolio company outreach. It's very important to consistently dialog with these companies, interact with them, whether it's formal, informal, formal, what I call hard touches, or even informal, warm touches, where you're just reaching out and just asking you a question and providing some some information that might be helpful to that company, and that builds trust, that facilitates timely communication, that allows you to spot red flags early. It allows you to when you need information, you can get it much faster when the company already has a pre established relationship with you. And, you know, recognizing the fact these are, these are, you know, these are startups. They're very busy. They've got a lot going on, so you can't talk to them every week, but you can establish a routine cadence that does build trust with them. And so that's, you know, just, that's just so vitally important in this whole process. Unknown Speaker 32:24 Yeah, to do that, Nigel, what we'll often find ourselves doing is quarterly check ins, you know? We'll go back to the Trello board and look in the launch category. Hey, we haven't talked to this team for a minute. You know what's what's going on and and our licensing team is so talented. Also, they have relationships with a lot of those PIs and they have information. So we do, you know, every every meeting we have, you know, Chris, our licensing director, will have us go around, wait, what's going on? What's going on with this this team, what's going on with that team? We always get a chance to communicate. So communicating with the broader team, and having check and balances is super important. Unknown Speaker 32:58 Yeah, absolutely, absolutely another tool that's very helpful, and this is something that actually Smartsheet helps us with, believe it or not, is what we call a portfolio events calendar. And so what we include milestones in their milestone deadlines. We include exclusivity, option deadlines. We include that because all of those things give us another opportunity to interact with the company and and reach out to them and have a touch point with them as well. So you know, again, the any tool that we can use to help facilitate timely and frequent communication, we make it a point to to use that. Unknown Speaker 33:39 Yep. Thank you, and to that point as well. So do you do your universities? Do you assign value to your startup portfolio? And if so, how do you do that? And I know there are several questions to that effect in the audience, so we can address all those questions in this conversation, Unknown Speaker 34:05 we assign $1 so that's my short answer. I mean, Nigel has a much longer answer, a much better answer. Unknown Speaker 34:12 So all of your startups are $1 Okay, yeah, our treasury Unknown Speaker 34:16 office assigns $1 okay? For most of them? Unknown Speaker 34:21 Yes, okay, it's easy, Unknown Speaker 34:24 sure. Okay, so, yeah, I'll take this one. So there are actually two periods of time when you establish some sort of valuation. The first, and this is very important, because it's for re financial reporting, is to just establish a carrying value in the carrying value is, in our case, is what we reported through the controller. And that would go, that's what goes on the books of the university. That's this is what this position is worth. And those are relatively straightforward in the case of the University of Maryland, because it's a public. Institution, we just kind of use GASB guidance and for the carrying value, unless it's a security, that's a publicly traded security, where you know what the fair market value is at any given moment, we just simply go by what we call the cost method, and that is what was actual cost of the investment, if it was a unit, let's say Discovery Fund, where they wrote a check of 150 to invest in the company. The carrying value is 150 in the case of a a tech license, where you're not writing a check, you're receiving, you know the equity as partial compensation. If we can't determine some sort of method for determining the fair value of that equity when it's received. Then what we try to do is go through a process where we try to understand, how much cost would you allocate to this how much of the cost of bringing this license to a place where you could actually license the IP, how much cost Did you incur, and how much of it would you allocate towards the actual value of this license? So that is that part is just very straightforward. But then there's a second part of valuation that's extremely important, just for portfolio management, from a portfolio management perspective, and that is just your ongoing valuation updates, and we use a market based approach for that, and which means that we we look at actual transactions and try to, you know, come up with some sort of indication of what this is worth. The results are not what we call a fair value, which has a very technical term, technical meaning rather, but it's an investment value, which means this is the value specific to us, based on these based on these assumptions. And the you know, first thing always look at was, was there a transaction in the company securities? In other words, did the company sell shares that have they're so much similar to ours, and if so, we can use that transaction to kind of back into well, here's what our shares might be worth. The second piece might be, is that third party valuation, you know, typically a 409, age, a very conservative valuation of common equity. And so we can kind of look at that and back into okay, this is what we think our position is worth today. And then we also look at comparable company transactions as well, to get some sense of, hey, is this company worth more or less relative to this other company? And this is not important just for, you know, good housekeeping, but these frequent updates and valuation actually, you know, provide important signals and insights about the market. It gives us an idea of industry verticals, innovations that are gaining traction in the market, basically improving we call them improving marks. But when valuations are increasing, that is a form of validation in the market, and then it also helps us narrow in what we call a key holdings list. And these are the companies in your portfolio that you kind of want to focus resources and time on, because these are the companies that are most likely to exit. Some have successful exit sometime soon. And so you really want to do everything that you possibly can to to assist the company in doing that, and also make sure that you have all the information you need when they do successfully exit. And you know, if there any, there any questions here, but this is typically what we what we the process that we take. So it's kind of a two stage process. One, a fair value that's for financial reporting, and then updated marks, which are strictly for portfolio management purposes. Unknown Speaker 38:41 Kim, do you have anything to add? Unknown Speaker 38:43 What i Those are great responses too, and very similar. What I might add there is a lot of our technology, you know, takes a while to find revenue. I'll put it that way. So we work with safes a lot on the investment side. And the easiest part about evaluation is going to happen when they do go to series A and they want to price the round on that side, if we're looking at Deep tech specifically, we will look at the patent costs. How much are we incurring on our side to invest and protect the technology, and then follow it through and follow it with with royalties as well. And that will help us get a gage. And ultimately, we will be working with our finance office, and they're very astute on figuring those things out. Unknown Speaker 39:27 Thank you. So thank you that this is a great discussion, and I know we have a lot of questions, I will ask one more question before we turn and some of these. Some of these are asked already in in your chat, in the chat and in the Q and A. So let's move on to the the best part of what we do is, so now that you have an IPO or there's an exit, what is the process? How do you what is the process to divest? Sell or not sell of those shares. Unknown Speaker 40:06 Yeah, sorry, I'll start, and then I'll kind of hand it to Nigel so because we use with a third party. So traditionally, Duke used to manage its equity and decision about when to sell internally and and, you know, in recent years, we are now in this multi, third party process and and so our third party invest investor management, investment management will do the tracking for us. In a lot of ways. We will have periodic update of where they see things trending for the ones that are IPOs and, and I know some institutions tend to sell all of the shares, all of the kind of stocks at once as soon as the IPO happens. And we have done that in the past, and we're kind of more of a tranching base on market position and kind of stock prices. So we had a recent one where we stole the share one day and then the next day the share was 45% there, right? So we got really lucky. The opposite could also be true, right? Like when I'm the business of predicting the market. Otherwise, you know, I'd be on the beach somewhere, but, but so, so we really rely on our third party. And I think there's a question in the chat as to who's the decision maker, so they will send us their analysis of where they think things are going, and their suggestion, suggestion, the proposed kind of timing we do need to approve it and and you know, more often than not, we tend to agree with their very detailed analysis. Well, Unknown Speaker 41:45 that's a wonderful challenge to have when you do get an IPO. From what I understand, our fearless leader, Alan, has a voice in how that will happen, what will happen with that, and works directly with finance, and we have a very talented endowment team, and they will make that decision, most likely, what Nadine is describing, as soon as they're available, sell them. Unknown Speaker 42:07 You know, I kind of chuckled when they Dean talked about the selling the shares before the price tanked 45% we're that same company, so that that was we were in a similar situation as well. Interesting enough. Nadine is kind of recovered in value now, just to show you how volatile those shares can be, so I'll talk a little bit about the how and who are involved in what happens in post IPO. So first, we've developed what we call a liquidation matrix, and that liquidation matrix is based on the level of the university's continuing strategic involvement and its financial exposure to the company. So if it's a company where there's no or very limited involvement, ongoing involvement, with the company that's gone public, there's limited financial exposure, then you know, we'll likely just sell 100% of the shares. If there's a company where there is limited strategic involvement but significant financial exposure, say, we received a tremendous number of shares. Then there's going to be some combination of a trading plan that that calls for selling share, some portion of shares immediately, and some over pre defined period of time. And then we'll have a scenario where there's both a continuing strategic relationship with the company and their significant financial exposure. So the trading plan that we would use there, and have used, would be to sell some percentage of the shares immediately, sell some percentage over a longer period of time, but maintain a relatively substantial percentage of the shares indefinitely in order to just kind of benefit from the success of that company, if we still believe in the technology and the management and the market opportunity, and we're then engaged and involved, we want to be able to take advantage of some of the the upside. And you know who's involved with this decision. So at the University of Maryland, the president of the university, Darryl pines, convened an investment committee, and that investment committee is composed of the CFO VPR Chief of Staff, General Counsel, controller, Chief Innovation Officer, and our team supports that committee with recommendations and data and information. And so, you know, the IC meets quarterly or upon some sort of triggering event and and makes a decision, and typically will make a recommendation. And you know, the company that Nadine referenced earlier, that was a situation where there was a triggering event that was a stock that was, you know, traded up from what's $10 a share to like, 40 plus dollars a share within a matter of a few days or weeks. And so obviously that triggered, that was a triggering event that was something where we needed to meet and decide what to do. And so we sold some of the. Shares to take advantage of that windfall. So, you know, that's the process that we have there's In other words, it's not a one size fits all, but the trading plan is just based on, again, continuing strategic involvement with the company, as well as just the level of financial exposure that the institution has to that company. So Unknown Speaker 45:24 yeah, thank you. So there are a lot of questions, and I'm going to thank you so much for submitting all those questions and comments. I'm going to try to combine. Some of the questions have already been answered, but I'm going to go ahead and try to combine. So there's several questions about, How do you manage, how do you manage exercise of board observation rights for a large portfolio, how many people on your team to do that? That's a good question. And a follow up question is, who sits on the board? When you I can, Unknown Speaker 46:01 I can jump on that one. Since I've just been working with a team on this, in the case of us being a co founder, I was a founding board member on behalf of Vanderbilt because it was what was in the best interest of the company. At that time, we have now transitioned me to an observer role, and we like that a lot better for many, many reasons, because, you know, it then puts more responsibility back onto the team that's working with the startup, and then frees us from liability, but we still have visibility. We like that very much. It is hard to do when you're a small team. You saw how big our team was, and you saw that we have over 2000 faculty that we're serving. So we see a lot of deals and a lot of startup companies, we try to spread that around to whoever is working the closest with that startup. So right now, currently, I think we have a handful of members from the licensing team that are on those boards, and reporting back Alan himself, I believe, is on one of those boards, all in observer roles. I believe, and going forward, we might have more of our new ventures team in those roles as well, when we when we can, Unknown Speaker 47:07 yeah, and for us, it's, it's the same, it's a member of our licensing team. So traditionally, the person who did the license, who handles or manages the faculty portfolio, would be the person who sits on the board. In the case Unknown Speaker 47:20 of the University of Maryland, we exercise the university's Board observer rights and their one company full voting member rights as well on the board. But the key takeaway that I hope people get from this is that it's important to ask for board observer rights. If you can, you don't have to exercise them. If it's not feasible for you to exercise the observer rights, you just can't, but at least you will have it, and it's better to have more rights than fewer rights when it comes to investing in these startups Unknown Speaker 47:54 and to follow up is who sits on boards of companies at your respective universities. So I think Cameron, you already answered that question. Nigel, did you want to comment? Unknown Speaker 48:10 Yeah, sure, in our case, you know, typically I will sit on the board. So far, we've had six companies where there's been board observer rights for the university so it's manageable, and then if it gets beyond that, then someone else on our team would would actually exercise those rights. Okay, thank you. Unknown Speaker 48:32 Thank you. We have a question from a small university. So a representative of a small university that has never held equity, and they don't have any established processes. So on a high level, what are the some steps, actions and processes that I need to consider to get ready to hold and manage equity? If any of you would like to Unknown Speaker 48:56 comment on that, yeah, I think a lot of it would be kind of coordinating with your finance or your CFO for the institution, right, like because ultimately, our office is not the holder of the equity, it's the university that is the holder of the university. So it is an asset of the university. So whether it's through their treasury department or their presumably, their CFO office will be, will be the first step to have that conversation. Unknown Speaker 49:28 Yeah, thank you. Right. I'm sorry, if you're a public university, I think it's also to consider the state laws. So for example, University of Maryland has, you know, the ability to actually hold shares in the university's name, and it does. But if you look at University of North Carolina, Chapel Hill, they're not able to hold shares in the company. It has to be held by a foundation which manages it. So those are important considerations as well. Unknown Speaker 49:58 I would add on there. Those are. Both great answers and talk to legal. Get legal involved early and probably COI, if you don't have a COI, figure out who would handle conflict of interest. Unknown Speaker 50:10 Yeah, and I'll add to that, to point that, to also add that conflict of interest policy for the university, intellectual property policy, if your university has one, and if not, how would that be handled? Depending on what type of equity you are planning to take. So if it's based on university IP, then you would need to have a way to manage the IP policy. And yeah, so it's good luck to you. I hope that you are able to that you have help, and if not, please reach out to us. We can see what we can do to help. Let's see. We have lots of additional questions. So Kim, here's a question for you, how to distribute revenue coming from equity within a license agreement that is not done according to the university's IP policy. Unknown Speaker 51:06 Oh, well, it would be done in accordance with the IP policy. That would be, that would be the fast answer, or it wouldn't be done seriously that. You know, it's a very, very rigorous process in terms of working and scrutinizing those deals, and you want, you want to get that right. You want to make sure the royalty rate is very clear, the milestones are very clear, and any equity that you're getting is very, very clear. Clarity. Clarity is the key. To be unclear is to be unkind. Unknown Speaker 51:39 Here's another great question for OTCs that receive equity under a license agreement, does the inventor get equity upfront too, or at what point does the inventor receive equity or their related share of the value of the equity? Unknown Speaker 51:58 We do it when we we don't distribute equity to inventors do call so equity until it's monetized, and then for us, because all of our monetization that we receive as part of the license is distributed according to our revenue distribution policy. I know cam has different buckets of money of equity and how they distribute it. And I think also to that they might have your question the chat, we our, our, if our inventor is a founder or has a role in the startup, they can hold equity personally in in the startup, and they still benefit from Duke's portion of the equity upon monetization. Unknown Speaker 52:44 Yeah, that's very similar here. So for example, let's say an inventor is going to get a share of the royalty rate. We know that, and they want to join the company as a co founder, and they have flexibility on our side to consult with the company, so they might want to be the chief science officer and be vested, over time, with equity in a portion of the company that they can agree with the other founders to set that amount. So we've seen that happen a lot, and when both those things happen, going through the conflict of interest office early is always a good idea. We work very, very closely with ours, so it's not a surprise to anyone, so it's all really, really clear. Unknown Speaker 53:27 Yeah, and at the University of Maryland, historically, many years back, we used to have in the license agreement, we used to have companies issue equity directly to co inventors. We went away from that, and then the university was taking equity and then distributing that equity according to the IP distribution policy. But we further went away from that as the university adopted new conflict of interest policy that is now not allowing for inventors to double dip, so they have to make a choice whether or not they want to participate on the university side or on the company side. So they choose to participate in the company side, which happens more often, simply because they're able to get a larger share of the company that way. Then they have to waive their portion of the inventor revenue that would come to us through from equity proceeds. So we've had, like an evolution of the process. Nigel, do you have anything to add to that? Unknown Speaker 54:35 No, I think you covered it. Okay? Thank you. Unknown Speaker 54:42 Would we have five minutes left? Would any of you care to share any mistakes that you would like people to avoid, anything that you would like to tell people don't Unknown Speaker 54:57 do that. Ooh, I'll start. I. Uh, fail forward, yes. Uh, one thing that we were looking at early on, when I was joining the team, was, you know, what form of company should the inventor take? And we had one inventor that was just, you know, focused on, oh, it's gotta be an LLC. It's gotta be an LLC. And we were trying to be kind and like, oh, okay, if you really want to do an LLC, you can do an LLC. However. We should have pushed back harder, knowing that he wanted to go after venture financing, because venture investors do not typically want an LLC. Maybe an angel investor would a specific kind. So we then had to work with them on the pain of converting to a dela RC. And I would just, I would share that like, be very clear with your founders when, when you think they want to build a rocket ship and get rocket fuel from venture capital to build the right kind of vehicle. But it's also okay to know that you want to have a small business and an LLC could be perfect for that. Unknown Speaker 55:57 Thank you. Great advice. Yeah. Yeah. I mean, I'd say, you know, I don't know whether we figured out our mistakes, but I think some of the things that we're realizing, and have been discussed earlier, is having this very strong relationship with your startup is very important, right? Because unlike royalty and sales and things like that. Equity is a little bit is very confidential, so and fundraising is very confidential. So it's hard for us to get information, extract information from databases. We do the best that we can from pitch book, but it's not an exact science. So the more we can build the trust with the with the new ventures, and have that open communication, the better it makes for tracking. I would say, the other thing you know, and we're still working through this, is we've been we track, we think about equity as a license consideration. It is a compliance item, but it is a very different there's not an invoicing, billing kind of cycle that goes with that, right? So there's not $1 amount that goes with that. So, so I think all of this is built into building the trust with the with the new CO, making sure you're meeting with them regularly when leadership changes, kind of you're on top of it. And one of the challenge that we have is, when do we know when they die, when they go out of business? Right? So that's a big we have a lot of startups. How many of them are still active is a different is also very hard for us to track. So those are more kind of pitfalls and things that we're trying to figure out ourselves. Unknown Speaker 57:39 So three lessons learned. I've already shared two of them. So the first again was just make sure to get the preferred rights in those specifically information rights, voting rights, equity participation rights, tag along rights, board observer rights, and if you're a public institution, the sovereign immunity protections that you actually need. And then the second, which Nadine just talked about, was just consistent portfolio outreach. That's so critical. But then the third is another thing that I think a lot of people don't think about sometimes, and that is, you know, be willing to ask for something in exchange for off market terms. Often these startups particularly kind of more sophisticated folks who are most sophisticated with negotiation, they'll ask for you for things that are off market, a below market license fee or no license fee, which we've had, but be willing to quantify that. You know, it's not automatic yes or an automatic No, but quantify it, and be willing to ask for something else in exchange, whether it's more equity or something that's non economic, like, hey, you know, you got to take X number of interns, or something, I don't know, something that's important to the mission of the organization. So, you know, I would encourage people to be able to kind of horse trade a little bit when these things arise, and not just automatically say yes or no, Unknown Speaker 58:58 yeah, thank you. Really important lessons. So, Danielle, I see that we are at time. Unknown Speaker 59:06 On behalf of autumn, I would like to thank our panelists for the informative presentation today, and thank you again to our online sponsor, Marshall Gerstein. You. Transcribed by https://otter.ai