In early 2002, a little start-up named A123Systems was looking for a place to call home. Although the company had been formed to commercialize technology invented at MIT, the lithium-ion battery developer found the space it needed across the river at Boston University, inside what’s now called the Photonics Center Incubator. A123Systems moved in with a handful of workers in March 2002. Rather than collecting rent or fees from the young company, BU took equity. While school officials aren’t speaking publicly about the university’s holdings, A123Systems’s spectacular IPO on September 25 – share prices climbed 50% the first day – gave the university a $10 million stake, or approximately 500,000 shares, according to the calculations of Robert Buderi, founder and editor-in-chief of Xconomy. A123′s stock has continued to climb, bringing the value of BU’s holdings closer to $13 million, he adds.

BU isn’t the only university poised to reap the benefits of A123′s IPO. According to an A123 SEC filing, in December 2001 the company entered into an exclusive worldwide license agreement with a university for certain technology developed by the university. As part of the agreement, the company agreed to pay royalties for sales of products using the licensed technology. The royalty payments include minimum guaranteed payments of $50,000 per year. In addition, as payment for the license, the company issued 200,000 shares of common stock. That university is MIT, Buderi deduces, since A123 was formed around lithium-ion technology developed in the lab of MIT professor Yet-Ming Chiang. “Not a bad guess that the license yielding royalties is MIT’s,” confirms Lita Nelsen, director of MIT’s Technology Licensing Office, in an e-mail response to Buderi’s query about the filing. Without speaking directly about A123, Nelsen explains that MIT takes equity in start-ups through any or all of three possible mechanisms. First, MIT bargains in its start-up license agreements for a small — usually single digit — share of founders’ stock as part of compensation for the IP. Second, MIT’s endowment investment company sometimes invests in promising start-ups. Finally, when it does take stock as partial compensation for the IP, the school requires that it have “pre-emptive rights” to invest cash in any future rounds to maintain its percentage holdings.

The 200,000 shares of A123 stock listed in the SEC filing would now be worth about $5.2 million, Buderi points out. According to the filing, A123 already has paid the unnamed university some $636,000 in royalty payments. A Harvard Business School report on A123 says MIT’s venture fund also made an unspecified early investment in the company. If that stake was an add-on to the 200,000 shares, MIT’s stake could rival that of BU’s, Buderi concludes.

Source: Xconomy

Posted October 7th, 2009 under Tech Transfer

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