Concluding that equity arrangements are useful tools when patents available for technology transfer are weak, an article in the Intellectual Property & Technology Forum & Journal at Boston College Law School offers a model to TTOs:
“Equity arrangements are economically preferable to royally agreements when:
reVc > rlVpWhere re is the equity stake as a percentage, Vc is the value of the company, rl is the royalty rate and Vp is the commercial value of the product.”
Knowing the path to a good analysis is helpful, but inherent in the formula is the critical need in technology transfer for valuation skill sets and information. What is the value of an early stage company? What is the appropriate royalty rate? What are the risks to commercialization of the product? Etc.