Upload
leonard-golden
View
214
Download
0
Embed Size (px)
Citation preview
STRATEGIC PARTNERSHIPS Session III: April 7, 2001
White & Lee’s White & Lee’s Soup to Nuts 2001Soup to Nuts 2001
Road MapRoad Map
– What are “Strategic Partnerships”?– Why enter into Strategic Partnerships?– Trends in Technology Strategic Partnerships– Keys to a Successful Partnership– The Strategic Partnering Process – Selected Key Issues in Strategic Partnering
What are Strategic Partnerships?What are Strategic Partnerships?
Many Forms– Joint Ventures– Virtual Alliances – JV without co-locating– Joint Development Agreements – R&D– Distribution and Marketing Agreements– Mergers & Acquisitions
Our Focus: – Licensing/Distribution/Equity– BigCo/SmallCo
Why Enter a Strategic Why Enter a Strategic Partnership?Partnership?
Big Co Access to Technology
and Expertise Competitive Advantage Decrease “Time to
Market” Access to Innovation Prevent Competition
(cheaper acquisition)
Small Co Funding Reputation Distribution Channel Access Market Validation Critical Mass BigCo Plans
– )
Trends in Strategic PartnershipsTrends in Strategic Partnerships Partners key to securing financing
– Reference customers– Partner strategy in business plan
Mutuality requirements (e.g., Sprint)– Both parties must produce and promote to keep
partnership status Increase in cross-boarder partnerships Increase in early-stage partnerships (market
consolidation/market share/time to market)
Trends in Strategic PartnershipsTrends in Strategic Partnerships
“Not Invented Here” Less of an Issue– SmallCo partners “competing” with internal development efforts (build vs. buy decisions)
BigCo partners judged by quality of their strategic partners
Corporate investment funds continue to be active – 20 to 30% of equity investment ’00 and ‘01– Compaq, HP, Oracle, Intel, Nokia, etc.
Co-petitors– e.g., Palm and Handspring
Keys to Successful Strategic Keys to Successful Strategic Partnerships Partnerships
Pick the right partner – alliance strategy, rather than strategic alliance
Commitment– Management Buy-in cited as a top reason for
successful partnerships
Clear roles and goals
The Strategic Partnering The Strategic Partnering ProcessProcess
The Alliance StrategyInitial Discussions – NDANext Steps – LOI’s, MOU’s, Heads of
AgreementDefinitive Agreements
– Equity– Distribution– Licensing
The Alliance StrategyThe Alliance Strategy
Make a list of strategic objectives and acceptable risks– This should be revisited throughout negotiations– Avoids tendency to “give away the farm” and lose sight
of original objectives Carefully define your business
– - Know your core competencies– - Foresee competitive threats– - Prioritize related businesses
The Alliance StrategyThe Alliance Strategy
Profile your Partner- Identify partners who have what you need
- Ask if you fill a niche or a missing link on BigCo’s strategic path
Classic case: missing piece for end-to-end solution Riskier approach: anticipate need and build to it
- Consider how to approach them
The Alliance StrategyThe Alliance Strategy
How do you know needs of partners?- Industry resources – trade publications, (e.g.
Red Herring, The Industry Standard, Business 2.0), Partner Web Pages, analyst reports.
- Speak with attorneys, accountants and other advisors
- If Partner is public, go to EDGAR http://www.sec.gov/edgar.shtml
- Personal contacts
The Alliance StrategyThe Alliance Strategy
Other Factors:- Perception
Investors want verification without dominance Public – you are in BigCo’s pocket
- When to seek partnerships Typically better in early rounds
- If Equity: Amount of investment Limit to 10 to 20% Consolidated reporting affects BigCo
The Alliance StrategyThe Alliance Strategy
How to Approach Perspective Partners- Fearlessly
BigCo’s actively seeking partners – all have biz dev officers
Introductions not necessary – like a financing – use email!
People WANT to talk – partnering is the new currency – use it
- Remember, your goal is to get an audience
Initial DiscussionsInitial Discussions
Non-Disclosure Agreements- ALWAYS ask partner to sign- Expect Mutuality- Open the Kimono slowly- Don’t Expect complete protection
If violated, enforceability is very expensive and time consuming (proof: define trade secrets, how disclosed, and clearly confidential at time of disclosure)
Build trust first, then disclose information
Next Steps – the LOINext Steps – the LOI
Carefully outline details of agreements– Get professional assistance
Familiarity with other deals. Knows key issues and how to draft them Clear terms means less time on Definitive
Agreement.Not typically binding
– Except confidentiality, and perhaps, feesRisk of binding LOI is incomplete termsCareful: Can be “binding,” even if not
– conduct of parties and reliance (Pennzoil vs. Texaco)
Definitive AgreementDefinitive Agreement
Dispute Resolution
Exit Strategy
Equity Issues
Distribution Issues
Licensing Issues
Other IP Issues
Dispute ResolutionDispute Resolution
Create incentives to work out issues- Require management involvement, moving up
chain-of-command
- For performance issues, tie to fees or scope E.g., exclusive to non-exclusive
- Use outside “neutrals” only after internal system fails to resolve dispute
Exit StrategyExit Strategy
Critical to SmallCo- Left with people, equipment and facilities can’t support
- Taint of abandonment – difficult to do other deals
CYA – Cover your assets- Termination for “convenience”
Notice period Cover salaries and/or other expenses Buy-out inventory
Exit StrategyExit Strategy
CYA - Agree up front on who can terminate, and
under what circumstances (e.g., partial termination)
- Agree on ownership of IP on termination. - Agree on continuing obligations.
Use of TM on completed, but not shipped products. Confidentiality.
Exit StrategyExit Strategy
Damage control- Mutual press release
- Mutual non-disparagement clause
- Equity – take away: Board observer rights Right of first refusal Information rights
• Board Participation– Limit to observer status; exclude during “executive
sessions” and/or conflict situations
– Tie observer rights to % ownership (e.g., 25% of originally-purchased stock)
• % Ownership– “strategic” investment without jeopardizing
opportunity to pursue other partners
– 10% for pooling and 20% for consolidated reporting
Equity Issues
• Board Participation– Limit to observer status; exclude during “executive
sessions” and/or conflict situations
– Tie observer rights to % ownership (e.g., 25% of originally-purchased stock)
• % Ownership– “strategic” investment without jeopardizing
opportunity to pursue other partners
– 10% for pooling and 20% for consolidated reporting
Equity IssuesEquity IssuesEquity Issues If partnership is terminated
– - Ask for “call” right
– - Risk BigCo seeking a “put” in exchange Contra: Put under note payable over time
Right of First Refusal– - Generally not good idea
Taint if not exercised Discourages competitors
– - Better: Notice and opportunity to bid
Equity IssuesEquity Issues
If partnership is terminated– - Ask for “call” right
– - Risk BigCo seeking a “put” in exchange Contra: Put under note payable over time
Right of First Refusal– - Generally not good idea
Taint if not exercised Discourages competitors
– - Better: Notice and opportunity to bid
Distribution IssuesDistribution Issues
Audit Rights- Trust, but verify
- Annual are typical
- Check for injunctive relief or other enforcement rights where distributing
EU – careful- Exhaustion Doctrine – can’t carve up Europe
Licensing IssuesLicensing Issues
Too many issues to cover – definitely use a skilled attorney (see outline of issues)
Scope- Use, make, distribute, sublicense, reproduce- Establish with expansion and growth in mind, as
well as downside protection if partnership fails- Field of Use
Licensing IssuesLicensing Issues
IP Ownership- Be clear as to who owns what: original technology,
improvements, jointly developed IP
- Upgrades vs. Updates (e.g., 1.X, 2.X vs. X.1, X.2)
Territory: Geography and vertical marketsStrategy: Carve up IP, territory and other
rights to preserve as much as possible
Licensing IssuesLicensing Issues
Exclusivity- Generally, not a good idea – limits value
- Negotiating Ideas: Limited term Limit to territory or product line Require minimum sales or convert to non-exclusive
Licensing IssuesLicensing Issues
Fees- Typically royalties based on sales volume (units or % of
sales)
- Joint product development – let them pay
- If Licensor: front-end fees, incremental fees for new products Include “sales” to affiliates and for demo units Request minimum volume commitment Tiered royalties – front end loaded
IP IssuesIP Issues
Privacy and Personal Information- Possible liability for partner’s disclosure
- Public relations issues
- Under increasing regulation by government
- International complications – big issue in EU
IP IssuesIP Issues
Ownership- Know who owns jointly developed IP
Ownership can be deceptive- Patents – “inventors”, must be assigned to
company under employment agreement- Assign soon – else separate consideration
required No right exists in patent until grant
- Contract for ownership if partnership breaks up before grant
IP IssuesIP Issues
– Trademark – Careful not to lose itCan’t be split up
– Create separate entity to hold name, license useCan’t assign without goodwill and other
valuable components – “Naked” failsMust register outside USDomain name is not TM
IP IssuesIP Issues
Copyright- Copyright: make, use, distribute, publicly
display/perform work AND derivatives
- Careful with “derivatives” Joint software development – get license for work
AND derivatives Otherwise – derivatives limited by scope of license
IP IssuesIP Issues
Bankruptcy – 365(n)- Licensee can continue or terminate
- Must abide by terms of license
- Right to source code for continued use
- Carve-out for non-solicitation to get key employees from licensor