Negotiating for Innovation
By Victoria Scarborough, Ph.D., The ChemQuest Group
Startup technology companies frequently ask how they should approach negotiations with larger companies who are interested in their patented technologies. Understandably, startups are nervous, excited, and extremely cautious at the prospect of licensing or selling their work to large multinational companies.
It appears to be a lopsided situation with large companies holding more leverage over companies with very small staffs. But it is important to remember that each side has something the other wants, so reaching a mutually acceptable outcome is the key to a successful negotiation. It is a dance that can be learned through practice, but it helps if you know a few steps to get you started.
Here is some advice to smaller startup negotiation teams:
Know Their Position—Do your homework. Study available information from websites, press releases, annual reports, and so forth to learn about the company’s current business position and history. Past business deals can tell you if there are areas that are sensitive to discuss. What are the biggest priorities and objectives? What are the plans for growth? Who are the decision makers? Who are the company’s customers for your technology? Is your technology the only likely solution to the challenge it addresses? What might be the company’s opening position? Attention to detail builds your confidence when you are armed with background information at the negotiating table.
Know Your Position—Understand your goals from the start. Your intellectual property (IP) is your asset. How valuable is your technology solution to the market? Is your solution unique? Are your funding partners placing any pressures on the negotiation and what are their concerns? Are you seeking to license your technology for one market or multiple markets? Is your technology a platform upon which to build a line of products? Working with IP valuation specialists to determine the fair market value of your technology can provide insight into the strength of your position going into a negotiation. From there, you can decide on your “must-haves” and your “nice-to-haves.” Create a list of questions to ask and proposals to suggest during the negotiation. For example, how willing is the company to work with you on an ongoing basis to develop the technology? Is it willing to share its commercial test data with you to help improve the technology? Is the company willing to use a brand name associated with your company? If asked, are you willing to assist in potentially time-consuming technology scale-up and implementation activities? Will the company promote your technology or kill it?
Flexibility—Check your emotions at the door. On one side of the negotiating table is you, a group of passionate entrepreneurs who have transformed an idea into a patented technology. Your startup company was built from sweat equity and its resulting IP. But it does not mean that millions of YouTube video views translate into a commercial success. On the other side of the table is a multinational company with brand awareness and customer access. But even a major player in the industry needs to stay ahead of the competition. Technology acquisition means negotiating with startup companies who can accelerate their timeframe to bring a product to market. Each side must remain flexible but respectful of their positions. Be prepared to pivot when negotiations begin to stall, which usually happens at some point. Approach the discussions with a willingness to change to get to a satisfactory arrangement. If emotion impacts your judgment, it will interfere with the outcome.
Deal or No Deal—Concessions on both sides of a negotiation can help clinch a deal without compromising your positions. It can strengthen the relationship and create goodwill going forward. Pressure tactics can force the negotiating teams into uncomfortable positions and scare either side into retreat. Negotiating fairly will eventually create a win-win arrangement. However, if you reach that predetermined line in the sand, where no deal is in sight, you must be willing to walk away. While that sounds like failure, it was likely a bad deal for you. Learn from the experience and wait for a better, more suitable arrangement. If your technology is good, they will come!
CoatingsTech | Vol. 18, No. 1 | January 2021