Founder Driven Route
The Founder Driven Route is for academics who want to take developmental responsibility for their spinout
For founders electing to take developmental responsibility with the lower level of basic support, Imperial Innovations will provide less hands-on assistance and will take only 5-10% university founding equity (to be shared equally with Imperial College on equity sale), along with a non-dilution protection on their percentage equity share up to a pre-agreed level of investment from £3m to £15m depending on the nature of the company being formed. Therefore the academic founders will retain between 90% and 95% of the initial founding equity, to be distributed among themselves.
Each founding team, on choosing this route, will agree a period of time (typically 6-12 months) to ‘test’ the market to see if customers exist, whether start-up funding can be found and professional management can be attracted. During this time Imperial Innovations will put the marketing of the IP on-hold (known as the “Standstill” period in this pilot) but maintain the patent up to an agreed cost ceiling. Following evidence of successful engagement and interest developed by the founder, the IP will then be exclusively licensed into the new founder driven company on reasonable commercial terms. This is a similar approach to that used by a number of successful US universities (though details may differ) and recognises the developing maturity of the entrepreneurial ecosystem around Imperial College and London.
The Founder Driven route follows the process below
Founders agree to Founder Driven Route and sign a Letter of Understanding (LoU)
- IP Standstill Letter for fixed period with agreed ceiling on patent & IP costs
- Founders provided with Start-up Package of template agreements and IP term-sheet
- Founders engage a law firm from the preferred supplier list
- Establish shell company (not essential)
- Founders form management team
- Founders attract investors (‘no obligation’ visibility of the spinout is provided to Touchstone Innovations)
- Founders and Imperial Innovations agree the Memorandum of Understanding (MoU) and licence term sheet then finalise investment with investor
- Spinout is formed with small, minority, non-dilutable shareholding and royalty-bearing licence to Imperial Innovations
Every spin-out proposition has its own unique circumstances, such as the characteristics of the technology sector and the obligations Imperial has to the funders of your research.
This means that the exact amount of university founding equity that Imperial Innovations takes will be decided on a case-by-case basis, but in the Founder Driven route of Founders Choice™, it will fall within the range of 5 to 10%.
This equity holding will remain unchanged throughout the initial investment rounds until a cumulative investment threshold is reached. This will also be agreed on a case-by-case basis. As you are managing the growth of the spinout, we will set no restrictions on the terms of any funding round; therefore it could take one or multiple funding rounds to reach the investment threshold.
The founding team (inventors) will therefore receive between 90% and 95% of the founding equity. Given this dramatic decrease in the university founding equity, it is also expected that any option pool you decide to set aside for incoming management will come from the founders’ equity holding.
A clause will be added to the Articles of Association of the new spinout, based on standard clauses provided by the British Venture Capital Association that will act to maintain the university founding percentage shareholding at the agreed minimum threshold (accomplished by the issue of the appropriate number of additional shares to Imperial Innovations). This will last only until the cumulative investment in the company reaches the pre-agreed amount and after this point the University equity will be subject to dilution in the same way as other shareholders.
As guidance, our approach to the agreed investment threshold will differ depending on the capital requirements of the new company. For example, with a pharmaceutical company, which may require tens of millions of pounds of investment to progress the technology, we would seek a relatively high initial threshold – say £15m. For a software company, in which the required investment may be relatively low then we would expect to agree a lower hurdle - say £5m. The precise threshold that the non-dilute will be set at will therefore be agreed on a case-by-case basis.
We will provide an equity modelling tool to founders to allow you to do your own scenario analyses of the impact of these investment ranges on your founding equity.
Suggested initial equity distribution under Founders Choice
A 50:50 split between founders and university equity is the starting point and is subject to negotation on a case by case basis.
Under the Jointly Driven route, management options are drawn pro-rata from all equity holders
Under the Founder Driven route, management options are drawn from the founders equity holding.