Pathway Map
INVESTOR
Negotiation overview.
For investors without prior experience in University spin-outs, there are a few important differences compared to typical venture deals:
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Ownership of IP: the university, not the founder, owns the IP and will act as the licensor, granting rights to the spin-out.
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Founder employment: some founders may continue to be employed by the originating University, while also participating in the spin-out as technical consultants, secondees, or part-time employees across both organisations.
These circumstances differ significantly from most venture investments, where founders are usually fully dedicated to the new company.
In addition, many Universities have their own specific practices, such as:
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When the new company is formally incorporated.
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Whether the IP licence is executed before or simultaneously with the investment deal.
To avoid surprises, it is strongly recommended that investors engage with the university’s Technology Transfer Office (TTO) early, alongside discussions with the founders, and well ahead of agreeing on final Heads of Terms (HoTs). This ensures you are fully informed about any institution-specific requirements or processes that could affect the timeline or structure of the deal.
Heads of Terms for investment
In most cases, the lead investor will use their own term sheet, often based on documents from the British Private Equity & Venture Capital Association (BVCA) suite. However, the Deal Readiness Toolkit Heads of Terms (HoTs) for Investment template has been developed with input from venture capitalists, university advisers, and investor-side law firms.
We encourage you to adopt the provisions from this Toolkit when progressing your deals, as it is designed to align the interests of all parties in a university spin-out context.
All SETsquared universities have endorsed the toolkit, making it a strong starting point for negotiations.
By reviewing the accompanying playbook, you will also be better prepared for sector-specific issues that often require detailed discussions with Universities. Examples include:
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Potential restrictions on researchers who remain University employees while engaging with the spin-out.
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Income tax reporting obligations related to the issuance of spin-out shares.
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.
Corporate bible negotiations
The lead investor will coordinate with the founders (also representing the spin-out) and the university, and the process of final negotiations for the specific spin-out investment deal. The respective HoTs documents cover the specific spin-out requirements for all the legal agreements and other documents to complete the deal.
Many universities have decades of experience managing these arrangements and the consequences of IP ownership, future employment relationships, and the template documents created should underpin these scenarios. The Deal Readiness Toolkit playbooks explain these factors in greater detail.