A123Systems IPO Could Bring $10M-Plus Windfall for Boston University, Sources Say. (MIT’s Stake Likely Not Too Shabby, Either.)
Robert Buderi10/2/09Comments (5)Follow @bbuderi
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A123’s big IPO. According to this 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 this agreement, the Company has 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 this license, the Company issued 200,000 shares of the Company’s common stock in December 2001.”
That university has to be MIT: 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,” Lita Nelsen, director of MIT’s Technology Licensing Office, said in an e-mail response to my query about the filing. Nelsen says she cannot speak specifically about A123. However, she says that MIT does take equity in startups through three possible mechanisms. “One is that we bargain for a small (usually single digit) share of founders’ stock as part of the compensation for the intellectual property. This is quite common for our startups, though not universal, in our startup license agreements,” she says. The second way is that MIT’s endowment investment company sometimes invests in promising startups. 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 round of funding to maintain its percentage holdings.
“Any, or all of the above may happen,” Nelsen says.
The 200,000 shares of A123 stock listed in the SEC filing would be worth about $5.2 million as of this writing. And that’s not all. According to the filing, A123 has already paid the unnamed university some $636,000 in royalty payments. Finally, the Harvard Business School report says MIT’s own venture fund also made an unspecified early investment in A123. I’m not sure if that was in addition to the 200,000 shares—but if it was, especially taking into account Nelsen’s comments, MIT’s stake could rival that of BU’s.
Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926, or follow him on Twitter at http://twitter.com/bbuderi.
Doug
10/2/09 4:41 pm
Not sure why BU has 500,000 shares and MIT only has 200,000. That’s expensive rent and cheap IP!
Wilbur Stelios
10/2/09 10:00 pm
Obviously BU didn’t get 500,000 shares for just rent. Actually both BU and MIT purchased most of their shares in A123. At least BU and MIT will try to do something worthwhile with the money.
Robert Buderi
10/3/09 10:35 am
Doug and Wilbur
You both raise good points. I have not been able to confirm how BU got its shares, or even how much it has–the 500K is just an informed guess, but I think it is very close. A university presumed to be MIT got 200,000 for the licensing–that is in the SEC document. But MIT might also have purchased more, as per Lita Nelsen’s comments. Both have under 5 percent of company stock, or their holdings would have to be listed.