Fast track equity option
The University of Cambridge IP policy is unique. It provides significant freedom to our academic community and ensures a flexible and adaptable approach as our researchers commercialise their research.
This has greatly enhanced the entrepreneurial culture at Cambridge and been a notable contributor to the success of the Cambridge Cluster.
Enhancing support, accelerating journeys
The benefits of the policy for our academic entrepreneurs can be seen from recent data published by the Royal Academy of Engineering which showed over the last decade that the average stake in a Cambridge spin out was approximately 10% versus 22.8% nationally.
Although the IP policy positively differentiates Cambridge and provides the best outcomes for our research community, some frustrations have still been experienced by founders in relation to transparency, consistency and speed of process.
Following a consultation with academic staff, founders, mentors and investors, Cambridge Enterprise is suggesting some landing zones for the equity portion of an IP licence which will allow for an immediate agreement.
The offer is structured to reflect the needs of different business sectors. It is an opt-in model which we hope will significantly reduce the time taken to create a spin-out.
Critically it is important to note this is not a proposal to amend the University IP policy. This is about fast-tracking outcomes under that policy in a manner that provides greater support for University staff, researchers and students, and can enable greater impact from University research.
The opt-in fast track equity model
The model utilises the following definitions to categorise technologies:
- Therapeutic Technologies Where the licensed technology includes a possible active ingredient or device that provides therapeutic or prophylactic benefit to humans.
- Life Science Technologies Where the licensed technology (incl. software/copyright) is not a Therapeutic (as defined above) but is principally used by the spin-out to develop a product or service with a life sciences application. Life sciences applications would include but not be limited to agriculture, environmental, food sciences, healthcare, medicine, pharmaceuticals, veterinary and the study or analysis of living organisms.
- Other Technologies Any licensed technology (incl. software/copyright and other types of innovation) other than ‘Therapeutic Technologies’ and ‘Life Science Technologies’ (each as defined above).
The fast-track model will have four streams with fully dilutable founding equity stakes, immediately pre-investment:
- 5% equity for non-patented Other Technologies.
- 10% equity for patented Other Technologies and non-patented Life Sciences Technologies
- 15% equity for patented Life Sciences Technologies and non-patented Therapeutic Technologies
- 20% equity for patented Therapeutic Technologies
Under the University IP Policy, University of Cambridge founders do not require a licence to non-patented Other Technologies in certain situations. In the fast-track model, in return for 5% equity Cambridge Enterprise will confirm that the University of Cambridge has no hold over the founders’ rights to the non-patented Other Technologies and the company will be considered a University of Cambridge spin-out company. Both provisions are a real value to a company as they raise capital or face due diligence on acquisition or exit.
The range of equity stakes proposed reflects the market reality of licences in these fields, the rights of research funders and the nature of the capital level required to succeed within these industries.
These founding equity stakes (immediately pre-investment) will be fully dilutable and will constitute the equity consideration in the IP licence from Cambridge Enterprise to the spin-out. In all cases there will be a secondary discussion on royalty and other financial consideration in the licence which will be structured to ensure it does not drain investment capital from the business.
This approach builds on evidence of deals completed over the last decade and recognises the different kinds of capital required to drive business growth and the customs of different markets.
Choice, flexibility and options
All faculty will be able to choose whether to opt-in to the fast-track equity model or whether to enter a bespoke negotiation. It is hoped that this opt-in approach will be accepted as pro-faculty and will provide them with the best equity deal in the sector. The preference is that these fast-track models will become the standard choice.
In addition, we are also open to a non-dilute equity stake with a cap based on nature of the technology being licensed. This can be agreed on a case by case basis.
We believe this approach will significantly improve the experience of our academic founders, transform the time involved in getting a licence to a spin-out and further position Cambridge as the most entrepreneurial university in Europe – committed to delivering impact from our research.
