Societal and Economic Valuation of Technology Transfer Deals

Paper number

IAC-06-E5.1.02

Author

Mr. Joseph Holmes, Acuity Edge, Inc., United States

Year

2006

Abstract

The age of internal R\&D is giving way to an era of open innovation. Organizations increasingly look externally both to solve technical challenges and to find new markets for which their innovations apply. As a result, the perception of technology needs and solutions within an organization are shifting. Each are codified, advertised, and protected as intellectual assets--the new currency of innovation. Globalization magnifies and accelerates this activity, serving as a reminder that more needs and solutions exist beyond the walls of an organization than within. Hence, the spirit of technology transfer that was previously identifiable with universities, institutes, and government agencies is now emerging within the broader societal and economic culture. 

This broad movement towards open innovation (once limited to mergers and acquisitions and infrequent, opportunistic transactions) increases the need to value technologies and technology transfer deals. The art and science of valuation is well developed in the financial community. Income, market, and cost methods are well described in the literature using techniques including discounted cash flow, options theory, and probabilistic decision-theory models. Analogous to the valuation of a start-up versus a publicly traded firm, the valuation of technology transfer deals is nontrivial and fraught with assumptions and risk. Payments from licensee to licensor are uncertain and often hinge on future events for which forecasts are difficult. Remuneration in the form of equity is equally, if not more, problematic to value. 

The foundation of classic valuation techniques are built upon the future cash flows that can be realized by exercising an asset. Valuation techniques translated to technology transfer deals often focus on the tangible value (e.g., up-front fees, milestone payments, royalties) far more than intangible value (e.g., strategic impact to an organization). However, valuation is often limited to the perspective of value to the buyer and the seller; what is missing is the perspective of governments and society at large (e.g., lives saved, jobs created). 

Drawing from the fundamentals of valuation found in the financial and economic development literature, this paper will consider the both tangible and intangible value of technology transfer deals from the perspectives of buyers, sellers, and the greater society. A framework is presented to balance accuracy, utility, simplicity, and flexibility such that the methods would benefit a technology transfer manager, licensing specialist, product manager, or social steward. 

Note: This work is sponsored by NASA.

Abstract document

IAC-06-E5.1.02.pdf

Manuscript document

IAC-06-E5.1.02.pdf (🔒 authorized access only).

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