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UT takes equity in tech firm

Deal marks first time school accepts only stock

05/19/2000

By Alan Goldstein / The Dallas Morning News

The University of Texas at Austin will accept equity in a Florida start-up, rather than royalty payments, in exchange for access to technology developed by the school's researchers.

At a time when investors are increasingly interested in biotechnology companies, equity ownership in Labnetics Inc. offers the university potentially greater rewards than royalty payments.

Although other universities have made equity deals, the agreement marks the first time that UT has agreed to be compensated solely through stock for its technology, said Renee Mallett, associate director of technology licensing for the school.

Sebastian, Fla.-based Labnetics declined to reveal specific terms of the deal, but the company said the agreement stipulates that the university's ownership can't be diluted to less than 5 percent by additional investors.

Taking stakes in start-ups can be risky. "Equity can be fantasy money," said Katharine Ku, director of the Office of Technology Licensing at Stanford University in Palo Alto, Calif. "You can't run an office on it. We couldn't live on just equity deals."

Stanford, in the heart of Silicon Valley, held equity in 53 companies as of December, according to the university's licensing report. The school took in $40.1 million in royalty revenue in its last fiscal year from 339 different technologies.

Labnetics seeks to develop medical diagnostic technology based on small, disposable computer chips. According to the company, the chip can test for as many as 100 different conditions with a single sample of blood.

The technology can be used for animals and humans. Labnetics intends to release its technology first to the veterinary market, where regulatory hurdles are lower, said Michael Otworth, interim chief executive at the company.

UT-Austin was interested in the equity position in part because it has been building a strong relationship with the company, Ms. Mallett said.

Labnetics has said it intends to keep the lion's share of its business in the Austin area, offering a potential boost to the region's nascent biotechnology industry, she said.

"They like our inventors, and we like them liking our inventors," Ms. Mallett said. "And they like to keep us involved."

Indeed, the university will have a formal oversight role at the company. As part of the arrangement, the university will take a board seat at Labnetics, Mr. Otworth said.

Labnetics is being formed at XL Vision Inc., a business incubator in Florida whose shareholders include Safeguard Scientifics Inc., a technology investment company, and TL Ventures, a venture-capital firm.

As part of the agreement, XL Vision has committed $1.3 million in a sponsored research agreement with UT-Austin.

UT's Office of Technology Licensing and Intellectual Property seeks to protect, market and license rights to the work of the faculty and staff of the school. License agreements may be based solely on royalties, equity or some combination of the two.

The licensing deals are intended to sponsor continued research at the university, and to serve as an incentive to inventors who share in the income. A special committee reviews potential conflicts of interest for the university researchers.

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