Start-Ups and Licensing Agreements: An Exploratory Case Study

Licensing agreements can exist between established companies but they increasingly also give rise to start-up companies, built around the licensed technology. Licensing-out technology can represent a risk as well as an opportunity for any licensor as there is a trade-off between additional revenues that can be gained from the licensing agreement and the costs related to the transfer itself, as well as the risks of opportunism by the licensee. When licensing to a start-up, this risk is higher, as start-ups have scarce resources, high failure rates and no past performance on which to gauge the start-up’s success. For the start-up the license could also represent a risk in the form of sunk costs and constraints on their evolution path. This paper discusses under which conditions technology licensing between a licensor and a start-up can be beneficial to both parties. Through a qualitative analysis, interviewing a number of European start-ups, we will examine in particular the role of contractual clauses, the relationship between licensor and licensee, the role of the licensed technology in the final product and the role of a technology push versus demand-pull scenario in a licensing deal. For all these aspects we will reflect on their influence on the licensor and licensee.