Flex Technology

Abstract

After years of development, William Krause knew that 2014 was the year to “go big or go home.” His Flexible Herbert Screw, a medical device intended to support the healing of fractured collarbones (clavicles), was ready for launch, and he had accumulated the necessary cash—$1 million by his reckoning—needed to comfortably see him through the start-up phase. Although evidence in favor of the invasive device was still inconclusive, other key players were now entering the space with remarkably similar technologies.

Excerpt

UVA-QA-0811

Rev. Oct. 20, 2014

FLEX TECHNOLOGY

After years of development, William Krause knew that 2014 was the year to “go big or go home.” His Flexible Herbert Screw, a medical device intended to support the healing of fractured collarbones (clavicles), was ready for launch, and he had accumulated the necessary cash—$ 1 million by his reckoning—needed to comfortably see him through the start-up phase. Although evidence in favor of the invasive device was still inconclusive, other key players were now entering the space with remarkably similar technologies.

Complicating Krause's decision was the current state of negotiations with BioDevice, a large producer of medical devices. BioDevice was offering Krause $ 3 million for the intellectual property rights to the Herbert Screw, both for the current product and (Krause believed) for other potential applications. To help him with his decision to sell or go it alone, Krause had hired a financial consulting firm to develop an assessment of the commercial value of the Herbert Screw patent. Disappointingly, its report assessed the value of the current product at only $ 530,539 (Exhibit 1). Obviously, if this figure was correct, it made little sense for Krause to launch the venture himself. On the other hand, this valuation was far less than what BioDevice thought the intellectual property was worth. Krause was not sure if this was because of different assumptions about the market for the new device or because of the other potential uses BioDevice saw for the intellectual property. Krause prepared to dig into the financial model to see what assumptions had led to such a low assessment.

Collarbone Fractures and Forms of Treatment

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Keywords: financial assessment, property rights, commercial value, disruptive technology, new product, venture capital