Pathway Map
ACADEMIC FOUNDERS
Negotiation overview.
During the negotiation of spin-out terms, the founders are negotiating with the University. The university IP policy broadly sets the equity split, but there may be room for negotiation.
The equity position should also be considered with the IP licence terms and not in isolation. The investors may also be involved, where the spin-out will need to be valued pre-investment, and this value will affect the final equity position post-investment.
The university is unable to negotiate for the founders. At this point, it is often helpful for the founders to have a business mentor and their own legal advice.
Heads of Terms with investment
As founders, you will need to work closely with both the TTO and your investors to agree on the Heads of Terms (HoTs) for the investment deal. While the Deal Readiness Toolkit provides a template for the HoTs that will be acceptable in most cases, your lead investor may prefer to use their own standard term sheet (another name for HoTs).
The Toolkit’s template has been co-created with venture capitalists and professional service firms, meaning it reflects a common understanding of key principles. As a result, comparing and aligning an investor’s term sheet with the toolkit’s template should be relatively straightforward. Any additional terms in the investor’s document can be discussed directly with them.
Although the HoTs are not legally binding, they are critical. They outline the key terms that will later be incorporated into legally binding documents, including the licence agreement and the corporate bible. It is therefore essential to fully understand the terms you are agreeing to. We strongly advise seeking legal advice or consulting a business mentor or advisor before committing to the HoTs.
Be aware that most universities have standard licensing terms for spin-outs. The USIT Guide and the USIT Guide for Software are excellent references for understanding these typical terms.
Heads of Terms for IP
The Heads of Terms (HoTs) for IP is a document that summarises the key licensing and commercial terms of the IP licensing agreement between the University and the spin-out company.
At this early ‘Heads’ stage, as founders, it’s important to focus on two key concepts:
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IP terms – what IP is being licensed, and how access and usage rights are managed.
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Commercial terms – the payments and other commercial obligations the spin-out owes to the university for use of the IP.
As founders, you are now negotiating from the spin-out’s perspective, not the University’s. Therefore, TTO staff will no longer rely on you for advice during these negotiations.
Be aware that most universities have standard licensing terms for spin-outs. The USIT Guide and the USIT Guide for Software are excellent references for understanding these typical terms.
While most of the terms agreed upon in the HoTs will not be legally binding, they should be negotiated and agreed upon in good faith by all parties. If any term represents a significant deviation from the university’s or spin-out’s standard position, formal approval should be sought before finalising.
Corporate bible negotiations
Your TTO should brief you on all the key elements involved in the spin-out process. Importantly, establishing and agreeing on how you will work with your TTO is critical to minimising miscommunication, avoiding planning oversights, and addressing any issues that might arise during this complex phase.
Every spin-out will need a set of legal agreements to support its planned growth and development over time. This collection, known as the corporate bible, is a comprehensive suite of agreements, letters, company resolutions, and other documentation that provides assurance and protects the spin-out’s rights. Typically, the corporate bible covers agreements between key stakeholders and governs how they will work together.
Timeline and coordination
The negotiation phase of forming a new spin-out usually takes between 1.5 and 2 months to reach the point where all documentation is sufficiently developed to complete the deal. Starting with well-designed documentation and adhering to standard spin-out principles can greatly improve efficiency. However, the number of interconnected agreements and documents requires a high level of coordination to ensure every aspect is correctly covered.
Independent legal advice
It is essential that the founders, who, at this early stage, are virtually synonymous with the spin-out, obtain independent legal advice. This advice must be independent of both the university and any investors. Engaging legal professionals with experience in University spin-outs can add significant value during this critical phase and ensure that the spin-out’s interests are properly protected.
What is the corporate bible?
The corporate bible refers to the key agreements and documents that do not relate directly to the underlying intellectual property or technology. It typically includes:
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Shareholder Agreement: outlines the relationship and obligations between the shareholders.
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Subscription Agreement: details the investment terms and how shares will be issued.
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Articles of Association: sets the company’s internal governance rules.
These documents govern how all relevant parties collaborate to achieve the investment deal and how investment proceeds align with the business plan to meet the spin-out’s objectives and milestones.
Additional key documents may include:
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Employment contracts for key executives and employees.
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Facilities access agreements or tenancy agreements with the host university (for access to office, incubator, or lab spaces).
Templates and planning
Templates for the corporate bible components should have been considered and discussed during the negotiation of the Heads of Terms for investment. At this stage, all parties should already be engaged in preparatory discussions. Because many aspects are closely interconnected, rigorous planning is needed. This includes defining activities, identifying who is involved, noting required approvals, and mapping key dependencies between areas.
Collaboration is key
As founders, you will need to work closely with your TTO, who is responsible for guiding the institution through its internal processes to achieve the spin-out. You must also collaborate with your lead investor and their legal advisors, regularly reviewing and updating action plans to complete the corporate bible components and meet other spin-out prerequisites.