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.
