How to Spin Out of Academia & Into a Startup in 2024

How to Spin Out of Academia & Into a Startup in 2024

Before the Bayh-Dole Act was passed in 1980, the government owned the rights to publicly funded research, which did not necessarily foster innovation and entrepreneurship. It was up to the federal government to decide whether to develop and commercialize an invention or to license it to a private company.

However, once the law passed, universities, small businesses, and non-profit organizations were granted the right to own, patent, and commercialize inventions that arose from federally-funded research. In this way, universities and other institutions were incentivized to develop and commercialize their own inventions and research by giving them the right to own and license their research, encouraging the transfer of technology from academia to industry.

It’s an essential piece of legislation that decentralized technology management to the universities and businesses that invented the product and has had a lasting impact on the American economy, changing the way academia, and the scientists within those institutions, think about and use their scientific research. It has also created many familiar stories.

A group or individual working in an academic lab—it could be a mix of PhD students, postdocs, and faculty or a principal investigator—is knee deep in scientific research at an academic lab and recognizes there’s a chance the research they’re working on might be worth commercializing.

Maybe they started out with aspirations of commercializing an academic discovery, and maybe they didn’t. Either way, the research shows real promise. It might be something that can help fight climate change, stymie an infectious or rare disease, combat malnutrition and growing food shortages, or change the way we generate energy.

The scientist, who may have worked with quite a few other people along the way, is now thinking of spinning the technology out of academia and into a startup. However, spinning technology and research out of academia into a startup can be challenging. This is where the storyline can get murky.

Tech transfer and the literature explaining the process can be confusing and unclear, despite it playing an important role in the biotech ecosystem. And while starting a business in any industry is difficult, the act of spinning out creates additional hurdles for would-be founders who want to commercialize their scientific research and bring a product to market.

With many founders retaining their roles as principal investigators in academia, understanding and successfully navigating the tech transfer process is important to facilitate the PhD student’s journey into industry, helping maintain the biotech sector's overall well-being. The transfer process remains one of the trickier stepping stones in a business’s development.

Although IP transfer from academia has improved, it still has a long way to go. Negotiations with technology transfer offices (TTO) can drag on, causing founders to burn out, teams to lose momentum, and investors to withdraw their support. TTOs sometimes impose terms that negatively impact a startup’s ability to secure funding. With so many possible scenarios for things to go wrong, it can be overwhelming for the aspiring PhD founder.

Despite the inevitable roadblocks and issues, spinning out of a university to create a life sciences startup can be a valuable opportunity for an entrepreneur to turn their innovative ideas into viable businesses. With the expertise and resources available within universities, spinning out can provide access to cutting-edge technology, funding, and a strong network of potential collaborators and customers.

Some of the key advantages of spinning out from a university include access to funding. Many universities have dedicated funding programs to help you commercialize your scientific research. You can also typically tap into the university’s network of experts and resources that can help validate ideas, including specialized labs and equipment and collaboration with industry partners.

Spinning out of your academic lab also gives you the ability to leverage the institution’s credibility and reputation, since many universities are known for producing innovative and high-quality research. This can increase trust between you and potential customers, investors, and partners.

Most importantly, by creating a startup, you can focus on commercialization, which is often a challenge for researchers working within a university setting, and prioritize your efforts on developing your technology and bringing it to market as quickly as possible.

In this guide, we’ll provide advice for people who have done research within an academic lab and are interested in founding a company to commercialize that research.

We’ll talk about how to build a business plan, secure IP rights, set up a company, raise capital, and more. Hopefully, this guide can be useful as you start to spin out of university and launch a startup.

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Deciding to Spin Out a Startup

Before you go any further, we recommend asking yourself: “Should I spin out?” Your discovery and research can be exciting and show real promise, but will it translate well into a product? Will you still want to run a company based on your technology after a decade or more?

This is your part of a discovery phase, where you identify the technology or potential intellectual property (IP) that will form the basis for the startup you’re trying to spin out. We’ll jump one step ahead, however, and assume you know what technology has commercial potential. Go through the following questions:

Will Your Technology Progress More Quickly in Academia or Industry?

If you can only access the equipment and resources you need by working in an academic lab, you may want to consider continuing your work at your university.

What is the Product & Its Market?

Define what unmet need your product solves and what market it fits into. This can help you define whether your product has a place in the market, what your customers will look like, how the product will be produced, sold, and delivered, and much more.

Are There Potential Customers & What Do They Want?

Establish whether or not there are potential customers for your product and, most importantly, get a better idea of what they want, why they want it, and what they’re willing to pay for it. All products, even the best ones, need to be marketed correctly in order to sell. 

Defining if your product will have customers, what those customers are like, and where they learn about new products can help you more effectively market your company and technology to customers, pharma companies, physicians, and investors.

This may not always be the same throughout your company’s development. It’ll be helpful to initially identify and define your customer and their needs and behaviors, but iterating on your unique value propositions (and your narrative) can help you determine which approach resonates most with your audience.

How Big is the Market?

Identifying how large your target market is can help you determine how big a financial opportunity you may have. You may need to increase your scope in order for the business venture to make sense, or you may be able to work well within a smaller market.

You’ll have a better idea of the type of funding you might need as well. Building biotech partnerships and securing other licensing deals can help you fund your operations in a smaller market. So can grants, angel investors, and family and friends. However, you’ll want to consider VC funding if there is a path to making $100M or more in annual revenue.

Are There Other Companies & Founders in Your Space?

Identify if there are other companies and founders working in the space your technology will join. This can give you an idea of the type of competition you’re up against, and how those companies have fared. It will also give you an idea of what they’ve tried, in terms of applied research, manufacturing, sales, and marketing. You might be able to learn what has been tried before by others, and whether or not the approach was successful.

Can Your Product Make a Significant Change in How Things Are Done?

Chances are a solution to the problem you’re addressing already exists in one form or another. Determine whether or not your product will significantly change how that problem is solved. Making small improvements or changes to the way something is done won’t always be enough to beat competition. You’ll typically need a product that drastically improves on the solution in use.

Will Your Product & Company Make a Substantial Impact?

Knowing what type of impact you want to make, and how large that impact will be, can be a huge motivational tool. Identify how you will change peoples’ lives and use it to energize yourself, your co-founders, and your team (if you have one already). 

Envisioning the way you will impact the world around not only can help you and your team, it can get investors excited about your business as well.

Who Will You Found This Company With?

If it seems like spinning out a startup to continue working on your technology or invention will be beneficial, you’ll want to start figuring out who will spin out with you. A spinout’s team is one of the most important ingredients for success. Make sure you'll work well with your co-founders and the other people who did the research with you, and see if there are gaps you can fill in the founding team’s expertise and experience.

If the researchers who worked with you on the technology you’re spinning out aren’t interested in leaving academia, or don’t work well with you, you’ll want to find some other co-founders. You might consider friends or colleagues, or you might consider going out and recruiting from a wider network.

It’s also entirely possible to found the company by yourself. You might not always need a co-founder, but it’s important to consider the pros and cons of building the company as a solo founder. Ask yourself, “Do I need a co-founder for my startup?

Forming a Founding Team

While this step may occur at different times, it can help to establish roles and participants early on. Deciding who will join the company, if it does eventually spin out, and forming a founding team gives everyone involved an idea of who will run the company and develop the technology into something that can be commercialized.

The Scientific Founder Should be Involved Full-Time

In our experience underwriting numerous early-stage companies, it’s clear that many of the startups experiencing early success and growth are led by scientific founders who run the company full-time, typically as CEO. These are the original researchers, who developed the technology behind the company and joined full-time.

This typically means the original researcher or researchers were part of spinning out from the university and joined on as full-time founders. Sometimes an original researcher will take on an academic co-founder role and hold onto their academic position. Other times a researcher may simply take on an advisory role or board position. It can all depend.

However, the most important thing we’ve seen is that there is a full-time founder or full-time founding team who participated—either leading or playing a large role in—the original research that’s behind the startup.

It is a common misconception that founders will always be able to split their time between a growing company and an academic career. It can be argued that there are exceptions to this, and it is often a matter of timing and responsibilities, but it rings pretty true that once the company starts growing at a faster rate, you’ll want a full-time scientific founder on board who was involved in the original research, whether that was you or someone else.

If you’re not one of the original researchers, speak with them and see if they’re interested in joining the company. Their knowledge of the source domain and scientific field will play a vital role in the eventual success of the spinout.

While some may be interested in transitioning to industry, not everyone is going to want to leave academia. In some cases, it’s entirely possible to retain a role in academia and spin out a company.

It’s a tough decision to leave academia to run the company initially, but it may be difficult to juggle both an academic and industrial role. One or the other will require your attention full-time. Students, on the other hand, can usually wait to graduate to start a company.

It can also be pivotal for the original researchers and founders to step into executive roles, such as CEO and CSO. Some accelerators—Y Combinator comes to mind—do not recommend you find a CEO to run your company right away. It can be hard to find a suitable CEO at such an early stage in a company’s development.

This aligns more or less with the advice that getting original researchers on board in some capacity will be beneficial. Many scientists believe they should remain entirely in academia and find someone else to start the company around their invention, despite evidence that this can break down or impede progress.

Yes, finding a CEO right away can work, and has worked, but it may not always be putting your best foot forward. When a scientist founder steps into the role of CEO, the company’s R&D benefits from their involvement.

Scientist-founders will be far more invested in the success of the venture than any outsider. You are also far more qualified to build a company around your technology as well, since your understanding of the field is much more valuable than the general business skills an outside CEO can bring, initially.

Even if you don’t have prior business and financial experience, you don’t necessarily need either to start a company. In fact, in the first couple of years, there isn’t typically a lot of “business” to be done. It’s likely that you’ll be able to pick up the business skills you need along the way.

Simply put, maintaining a deep connection between the scientific founder and the company is important to an early-stage biotech’s successful launch and growth. Beyond the founding observations that drove the startup’s creation, the role of a scientific founder as a top advisor, manager, or research collaborator is often of enormous value.

Now, there may be other research participants that want to remain behind at the university, but they can still contribute as academic co-founders or advisors. The founders who are going to be full-time are the most important.

However, you may have worked on the research alone, which might tempt you to spin out as a solo founder. One full-time founder is entirely possible. But having a strong team around you can be beneficial, creating a solid foundation for your company and its eventual growth.

Who Else Should the Founding Team Include?

Deciding who will join the spinout is an important step early on. Several people may have worked on the research behind the company, including students, post docs, and faculty members, and it is up to you as a founder or co-founder to figure out who will join you and how to structure your founding team.

In the beginning, this might mean simply finding a co-founder if you don’t have one already, or assembling a small team whose roles are constantly evolving (and they’re okay with that).

You probably worked on the initial research with people you respect and trust, highly intelligent scientists who work quickly and effectively. These people are obvious candidates for co-founder or founding team member positions.

If you’re the only person who worked on the research, and you’re looking for a co-founder or multiple co-founders/team members, you can tap into various networks to do some recruiting. This can involve searching LinkedIn, going through your email contacts, or even passing the information along by word-of-mouth through your university and surrounding institutions or facilities.

You’ll want to look for several qualities in a person to determine if they might be a good fit for a co-founder or founding team role. You’ll want to look for these qualities in yourself as well. Consider it a personal gut check.

Being self-aware of your own strengths and weaknesses, and building around those, can help you fill in the gaps and create complimentary dynamics between you and the other founding members.

Some of the qualities and skills you should consider when looking for a co-founder include:

  • Competency and abilities: What level of competency does the individual demonstrate? Bringing someone on board who knows their stuff and has the ability to do their work efficiently and successfully will make your life much easier.
  • Field of interest: What field of interest do they specialize in? It might be enticing to bring someone on who has a lot of experience even if their expertise is in a field unrelated to your technology. It’ll serve you well to bring someone whose focus is the same field of interest as yours and your research.
  • Communication: How well does the individual communicate? Communication skills are always important, even more so when you’re building something from scratch. Coordination and collaboration should be straightforward, and both of you should be able to take feedback well.
  • Work ethic: Are they energized to work? Having a strong work ethic is critical in the startup ecosystem, and speed is often an important part of developing a new product or technology. You want co-founders who can accelerate progress and stay energized in the face of impediments and pivots.
  • Focus: This ties into work ethic and energy levels. Does the individual’s focus wane easily? Do they have enough time to dedicate to focusing entirely on the company? You want someone who can devote an enormous amount of time to building the startup and keep up their level of focus despite the long hours.
  • Values: What are the individual’s values? Do those values match yours? Part of building a company is creating a set of values that inform the startup’s overall “culture.” It’s important that you and your co-founders share the same values and see the same value in the product you’re trying to create.

That said, many of these questions may already be answered if you’ve worked with the person or persons on the initial research. And, in the end, you’ll likely have a much deeper sense of the person’s capabilities. Trust your gut on this one. If they seem like a good fit, it doesn’t hurt to give it a shot, especially in the early-stages of spinning out a company.

Splitting Equity

Part of spinning out a new company is deciding how to split up the company’s equity. But discussing equity splits between the founding team can sometimes lead to disagreements, typically when a founder believes they’re getting an unequal share.

Despite the possibility of a tense discussion, it’s an important conversation that needs to be had, and is usually a conversation that’s easiest when equity is being split equally among full-time co-founders.

For founders who work with the company part-time and stay on in their academic role, it usually makes more sense that they receive less than the full-time founders, who will undoubtedly put in years and years of their lives exclusively into the company’s success. Having a fair representation of ownership makes that type of commitment make sense.

According to Jared Friedman, a partner at Y Combinator, founding teams sometimes believe the "purpose of allocating equity is to reward past contributions, when actually it’s mainly to anticipate future ones."

He goes on to state that a founder may feel like they're halfway finished after spinning out your company, but you're actually only a few miles into a full marathon. "The academic founders may have been instrumental in the first mile, but it is the full-time founders who will be primarily taking you the other 25," says Jared.

The equity split between full-time and part-time founders should reflect the anticipated contributions over the full marathon.

When full-time co-founders share equity equally, it also ensures that everyone maintains the same level of investment in the startup. If you are unwilling to give your co-founders an equal share, you may have chosen the wrong people to build a company alongside. Y Combinator offers excellent advice on splitting equity between co-founders and emphasizes that unequal equity splits are often due to wrong reasons.

In startups, execution is crucial, and most of the value is created after several years of execution, technical de-risking, team building, products, and commercial traction. Considering the most value is often made between the first 2-10 years of a company being in business, minor differences that are contributed in the first year do not justify massive differences in founder equity splits. Unequal equity splits that feel justified in the first year may not feel justified in the long run and can affect working relationships and commitment levels.

Unequal equity can also lead to resentment eventually, even if the relationship between co-founders is strong and their commitment is unwavering. It is easy to feel wronged when both parties work long days, but one is vesting more equity with each hour. Rebalancing equity down the road can be challenging and may have severe tax implications, making it better to split equity equally upfront.

Knowing When to Spin Out

Deciding when to spin out of an academic lab can be hard to determine. Staying within academia in the beginning often makes a lot of sense, as universities provide significant value to early-stage companies developing new technologies. This is due to the various resources available within these institutions, including lab space, equipment, training programs, and networking and funding opportunities.

It’s an ideal setting for conducting initial experiments and testing the market demand for new products, and leaving a university’s resources behind can feel silly, especially when you might not have access to the lab equipment or space you need. (When you do decide to leave academia to continue building your spinout, leasing can come in very handy.)

Staying at your university longer can also reduce your need for capital, it saves you from having to touch your personal savings. It just might not make sense to stay for too long.

Despite an abundance of resources, the university environment can become a hindrance rather than a help as you advance your technology. Not all universities are well-equipped for commercializing technologies.

Considering the benefits of staying within your university, many founders tend to delay leaving the academic lab behind. While there are significant hurdles to building a biotech on your own, delaying the move can be harmful. You don’t necessarily want to wait to perfect your technology before leaving the university, but you do want to confirm that your product will actually work.

As you advance your technology, the university environment can sometimes hinder your growth, as universities are not always well-equipped for commercializing technologies. You will also have to share the resources available, or split time between other responsibilities, which makes it harder to move quickly and build your startup.

Leaving academia can be a hard decision to make, and the comfort of the academic setting can make it challenging to take the necessary risks. However, the far more common mistake is waiting too long.

Once founders do leave, they often realize that they could have accelerated months of work by spinning out earlier. They also discover that some of their assumptions about the market needed to be corrected and that they wasted time and effort pursuing the "wrong" path.

Ultimately, it can make sense to stay within your university while you spend time running initial de-risking experiments and conduct more initial research. But when it’s time to move quickly and start building a company, you will want to spin out.

With more time to focus on your startup, you can secure the space and equipment you need, build the team you didn’t have within your academic lab, start creating a culture, and begin the search for customers, partners, and investors in earnest.

Understanding Technology Ownership

It’s important to understand the policies of ownership within your university, as ownership will ultimately ensure a startup has the necessary rights to commercialize a technology or product. Without the rights to your technology, your company won’t have anything to its name.

Working closely with the university’s technology transfer office, and seeking legal advice when necessary, can help you navigate the rules of ownership within the institution. There are some key points you can review on your own to gain a better understanding, including the university’s IP policy, the research’s funding sources, invention disclosure information, patent filing information, and previous licensing agreement terms and conditions.

For example, your university’s intellectual property policy, which governs the ownership and commercialization of inventions created by faculty, staff, and students, will generally include information about “ownership of and right to use the IP; procedures for identification, evaluation, protection and management of IP; procedures for cooperation with third parties; guidelines on the sharing of profits from successful commercialization; [and] mechanisms to ensure respect for third-party IP rights,” according to the World Intellectual Property Organization (WIPO).

Reviewing the policy can give you an idea of what your position is in relation to the ownership of the technology or invention you’re working on.

You can also review the terms of external funding agreements, such as government grants, contracts, or industry collaborations, to understand whether they impact the ownership of the technology.

Remember that ownership of the patent may differ from ownership of the underlying technology, so it’s important to review the terms and conditions of patent applications as well. It can also help to review previous licensing agreements carefully to learn more about the terms and conditions.

IP Protection & Why It’s Important

Protecting intellectual property through patents, trademarks, and copyrights is critical for a biotech startup spinning out of academia for numerous reasons. Strong IP protection can give a startup a competitive advantage in a highly competitive industry like biotechnology. Most importantly, it can prevent competitors from copying or stealing the startup’s technology, undermining its ability to succeed in the market.

Investors are often hesitant to invest in a startup that does not have strong IP protection. They will want to see that the startup has taken the necessary steps to protect its technology and has a clear market path. With solid IP protection, the startup may be able to secure funding more easily, keep itself operational, and increase its ability to grow.

Additionally, without strong IP protection, the startup may struggle to bring its technology to market, as potential partners or investors may be more hesitant to invest in a poorly protected technology.

Strong IP protection also provides legal protection against infringement. If a competitor attempts to infringe on the startup’s technology, the startup can take legal action to protect its IP, seeking damages for any losses incurred.

Taking the necessary steps to protect your IP early with the help of your university will make the process of spinning out possible and increase your chances of securing funding and commercialization.

If you want to learn more about IP and how to build an “IP fortress", Russ Wilcox and the team at Pillar VC break down six sections to answer questions about protecting your IP and building a portfolio, from a primer on patents to handling IP disasters.

You can also listen to one of our podcast episodes with Steve Visco, Ph.D., in which Steve discusses patents and the importance of IP. Steve is the co-founder, CEO, and CTO, of PolyPlus, a leading company in the development of next-generation battery technology. Dr. Visco currently holds more than 100 U.S. patents and over 200 international patents, and has authored close to 100 journal articles.

Securing Intellectual Property Rights & Working With the Tech Transfer Office

Securing intellectual property rights is at the heart of spinning out from an academic lab. If you’re going to commercialize your scientific research, you’re going to need to work with the university to patent your technology and negotiate for the rights to license the IP back from the university.

Technology transfer offices, also known as TTOs, handle the tech transfer process, which involves patenting and licensing the technology, as well as negotiating the licensing agreement.

When you joined your university, it’s possible you likely signed an agreement that transfers all rights to the work you do at the university to the university itself.

It’s something that many graduate students, postdocs, and faculty members are used to, and they understand that any intellectual property developed during their tenure may belong to the university rather than to them personally. Nonetheless, it can be a tough pill to swallow, because your research or invention will feel like your own (you put in the work, right?). It’s important to recognize right away that the university probably has ownership rights.

You will face legal trouble if you try to commercialize the product without some sort of agreement in place that transfers the rights from the university to you personally. But thankfully, the technology transfer process exists for this exact reason, and plays a critical role in translating academic research into real-world products and services, driving economic growth and innovation and bridging the gap between academic research and commercialization.

Technology transfer, or tech transfer, refers to transferring new inventions and innovations created within research institutions, such as universities or national laboratories, into products that can be commercialized.

The tech transfer process generally involves two main approaches. The first involves an academic lab licensing a patented intellectual property to a corporation, allowing the company to utilize the technology for a specified period while paying royalties to the research institution. This approach is often used when the technology still needs to mature enough for commercialization or the institution needs more resources to bring the technology to market.

The second approach is the creation of startup companies (what we’re talking about in this article), which involves licensing the intellectual property created by faculty or students back to the company they start. Spinning out your own company allows you to take a more active role in the commercialization of the technology and enables the institution to share in the startup’s success. However, the university may not always see the potential for starting a new company to develop and commercialize the product.

In both cases, the tech transfer process involves various steps, including identifying potential commercial applications for the technology, conducting market research, identifying potential licensees or investors, negotiating licensing or investment agreements, and supporting the commercialization process.

Steps to Tech Transfer

As mentioned, there are two main approaches to technology transfer:

  • The university licenses the technology to an existing company.
  • The university works with a faculty member or student to patent something and create a startup to support its development and commercialization.

We’ll review the second approach. Generally speaking, the researcher has decided their work is patentable and must now work with the university’s tech transfer office to file, license, prosecute, and maintain that patent.

This process involves several steps that typically include the following: invention disclosure and patent application, which will be followed by a market assessment, the creation of a startup (if the technology isn’t licensed to an existing company), and commercialization.

Invention Disclosure Form (IDF)

Before you work with the TTO to file a patent application, you’ll want to notify the TTO of your invention or tech using an Invention Disclosure Form, or IDF.

The inventor, or researcher, discloses the invention to the technology transfer office of the research institution, and includes a detailed description of the invention, its novelty, the PI whose lab it came from, any supporting data or research, and an assessment of its commercial potential. Filing an IDF typically means there will be a follow up meeting with the TTO, who will ask for more information.

Patent Application

If the invention is deemed patentable, the technology transfer office will file a patent application—usually a provisional patent—with the appropriate government agency to secure protection for the invention.

Market Assessment

The technology transfer office will then typically help conduct a market assessment to identify potential commercial applications for the invention, assess market demand, and determine potential licensing or commercialization partners.

Startup Creation

If the technology transfer office determines that creating a startup company is the best option, it will work with the inventor and potential investors to develop a business plan and secure funding for the startup. The startup will then license the technology from the research institution and work to bring the product or service to market.


Once the licensing or startup agreement is in place, the technology transfer office supports the licensee or startup company to facilitate the commercialization of the technology. This may include access to research facilities or equipment, product development or marketing assistance, and regulatory compliance guidance.

It’s Complicated

Technology transfer is a complex process that can vary depending on the institution and the nature of the invention. Your experience with your TTO may not necessarily follow this to a tee, but it represents the general steps of the tech transfer process. The goal is to provide a clear path for inventors to bring their innovations to market while ensuring that the research institution and the inventor benefit from the technology’s commercial success.

The information above only briefly mentions the possibility that a TTO will instead choose to license the technology to an existing company, but we’ll cover more on that below.

After you’ve successfully filed a provisional patent application with the help of the TTO to protect your intellectual property, the office will “shop around” the patent to test commercial interest before filing a non-provisional patent application. Many times over, the university will choose to license their own spin-outs (you), but this doesn’t happen 100% of the time.

Licensing & Its Role In Tech Transfer

Technology licensing plays a central role in the tech transfer process and spinning out from an academic lab. Without a license to your technology, your startup has no legs to stand on.

After a patent has been filed, the TTO will determine whether to license the technology back to you or not. If it determines that licensing the technology to an existing company is the best option, rather than spin out a new company, it will negotiate a licensing agreement with the external party. This agreement typically includes terms related to the scope of the license, any royalties or other fees to be paid, and any milestones that must be met for the license to remain in effect.

However, if it’s decided that spinning out a new startup is the best option, the TTO will work with the inventor to patent the invention, develop a business plan, secure funding for the startup, and more. Generally speaking, spin-off startups created around the technology tend to be in the best position to translate and develop the tech because of the founder’s expertise and passion.

In the context of spinning out, the university grants the startup the right to use its IP in exchange for particular financial considerations, such as licensing fees or royalties.

The licensing process typically involves the following steps:

  1. Negotiation: The university and startup negotiate the terms of the license agreement. This includes determining the scope of the license (i.e., what IP is covered), the duration of the license, and the financial terms (i.e., licensing fees, royalties, equity).
  2. Due Diligence: The startup typically conducts due diligence on the IP being licensed to ensure that it is valid, enforceable, and does not infringe on the rights of others.
  3. Execution: Once the terms of the license agreement have been settled, the agreement is executed. This involves signing a formal contract that outlines the rights and obligations of both parties.
  4. Compliance: The spin-off is then responsible for complying with the terms of the license agreement. This may include paying licensing fees or royalties, maintaining the license IP's confidentiality, and providing regular reports to the university on the license IP's status.

Licensing should mutually benefit both the university and the startup, allowing the university to monetize R&D efforts while providing the startup access to valuable IP that can help it bring innovative products and services to market.

Spinning Out a Company

We’ve reviewed the initial steps founders take to spin out a company: identifying the technology or potential IP that can form the basis for the startup; conducting the due diligence necessary to assess the commercial potential and patentability of the technology; and successfully filing a patent with the university’s TTO.

Now, we’ll go over the steps where a spin-off startup can truly begin to take shape: securing the licensing rights to the patented technology, negotiating the licensing agreement, developing a business plan, forming a legal entity, recruiting a team of advisors and employees, and establishing a board of directors.

Before You Negotiate

Before negotiating a licensing agreement with the TTO, it’s important to consider a few things. First, assess whether you genuinely need a license or if you could create your technology using alternate methods within your startup.

You should also consider whether securing an option to license could be a more suitable approach, particularly if you’re still determining whether you’ll require a full license or anticipate pivoting.

Additionally, consider whether an exclusive or non-exclusive license would best suit your needs, with non-exclusive licenses typically negotiated faster and costing less. However, exclusivity can be beneficial if competitors are also interested in licensing the technology, and that interest could impact your business.

Lastly, if you require multiple patents, consider bundling them together to streamline negotiations and save time and resources.

Negotiating a Licensing Agreement

Once the decision has been made to spin out a company from the university that will use, or in-license, the researcher’s technology or invention back from the university, the TTO will typically send a term sheet over with all the major components of the deal.

This can include the description and scope of the technology, payment terms, intellectual property rights, termination clause, indemnification and liability, warranties and representations, confidentiality, and governing law and dispute resolution, among other terms. The specifics of the agreement can vary depending on the technology being licensed, the goals of both parties, and other factors.

After signing the agreement, you’ll be able to use the technology within your startup and work towards commercialization. However, there will likely be a period of negotiation. This process can often take months to complete, with timelines averaging out at 2 or 3 months, but in some cases reaching as high as 18 or 24 months. Staying on top of the process and parties involved helps to avoid the negotiation process from dragging into a multi-year ordeal.

Negotiations may not always be highly flexible. The TTO may not want to diverge from their standard terms and conditions. However, there should typically be some leeway, as most of the term sheet will realistically be negotiable.

The most ideal outcome is to reach a mutually acceptable agreement that protects your interests as well as the university's. This will create the foundation of a good partnership between both of you moving forward.

How to Negotiate

In order to negotiate, you will need to first find out who can actually lead the negotiation. Universities often have conflict of interest policies prohibiting students and faculty members from negotiating directly with the TTO. You can reach out to the conflict of interest (COI) office to confirm whether you can negotiate with the university.

If you can’t negotiate directly, you have a few options. The first involves finding someone else to negotiate for you. They could be a co-founder who doesn’t attend the university, or a third party, such as a lawyer, investor, or advisor. Some universities, such as Harvard, allow you to incorporate while still affiliated with the university and work as a consultant under certain terms, meaning you can negotiate with the TTO on the terms of the licensing agreement without violating a conflict of interest policy.

If you decide to hire a lawyer, make sure you hire one with solid referrals and experience working in tech transfer. While the process may slow down some, you’ll have a better chance of negotiating for fair and favorable terms (as long as your lawyer has experience with TTOs).

It’s even more ideal if the lawyer has previously worked with your specific TTO. They’ll have a better understanding of the office and its methods.

Additionally, you’ll want to hire a lawyer who preferably has a database of comparable and recent licensing agreements, charges a fixed fee and deferred payment, and wants to build a relationship with you long-term. This means they’re interested in the long-term success of your company.

Negotiating can involve trade-offs between the parties. For example, the university may be willing to reduce the licensing fees in exchange for a share of the startup’s equity or revenue. Alternatively, you may be willing to accept more restrictive terms in exchange for exclusive rights to the licensed technology. The best way to understand a fair licensing deal is to study benchmark terms. 

You can do this by speaking with other founders who have recently negotiated a licensing deal, preferably with the same TTO. There are also comparable sets (or “comps”) of licensing data available that can be used as a reference to gain insights on the typical terms and conditions of such deals. Some resources can be found at: 

  • AUTM: The Association of University Technology Managers (AUTM) is a non-profit organization that supports technology transfer professionals in universities and research institutions. They provide a wealth of resources and data on licensing deals, including their Annual Licensing Activity Survey, a comprehensive report on the licensing and commercialization activities of North American universities and research institutions.
  • Royalty Pharma: Royalty Pharma is a publicly traded company that acquires royalty interests in pharmaceutical and biotech products. They provide a database of licensing deals that includes information on deal terms, royalty rates, and other relevant data.
  • Pitchbook: Pitchbook is a financial data and technology provider that covers private equity, venture capital, and M&A deals. They offer a database of venture-backed companies, including information on their funding rounds, valuations, and acquisitions.
  • Crunchbase: Crunchbase is a platform that provides information on companies, investments, and other related data. They offer a comprehensive database of companies, including details on funding rounds, investors, and acquisitions.
  • Various patent databases: Patent databases such as the USPTO patent search and the European Patent Office’s Espacenet provide information on patents, including licensing deals and assignments.

Roch Ogier, Chief BD and Innovation Officer of OM Pharma, covers negotiating with the tech transfer office in more detail. It’s worth reading if you want to learn more about the benchmarks of licensing agreements, the main terms included, and why you essentially have to “pay” academia to in-license your own invention.

Creating a Business Plan for Your TTO

The TTO will most likely require you to prepare a business plan. Writing a detailed one might not always turn out to be useful—businesses constantly change and iterate, making it difficult or even limiting sticking to the first-draft of a plan—but it will be a crucial and required step.

Thankfully, it can also serve as an excellent exercise to clarify your startup’s mission, goals, objectives, and strategies. It will also come in extremely useful again during your journey, as it can help you secure funding (from the federal government, venture capitalists, and angel investors), hire employees, monitor progress, and more.

The plan will be used to determine the viability of your idea in addition to clarifying your vision. For example, you and the TTO may conduct a feasibility analysis through in-depth market research, competitor analysis, and risk analysis.

All of these will give you a better idea of the people you’ll need to reach, how you’ll fare against your competitors, what your market opportunity is, as well as the types of risks your business will face.

To sum it up, TTO business plans often include:

  • Executive summary: A summary of the company and its goals, products, or services.
  • Company description: A more detailed description of your company, including its name, and mission statement.
  • Company solutions/products: A detailed description of the products or services you plan to develop and offer, including their features, benefits, and unique selling points.
  • Marketing and sales strategies: A plan outlining how you will market and sell your products or services, including your target audience, pricing strategy, and promotional activities.
  • Patent & IP Snapshot: A snapshot of the patent situation of your specific type of technology or invention, either nationally or globally (or both).
  • Financial projections: A detailed financial plan for your business, including sales projections, profit and loss statements, cash flow statements, and balance sheets. Typically covers the next five to ten years.
  • Management team: An overview of your management team, including their qualifications and experience.
  • Operations plan: A plan for how your business will operate, including your production processes, supply chain management, and facilities.
  • Milestones and timelines: A timeline for achieving your business goals and milestones, including specific dates and deadlines.
  • Funding requirements: The amount of funding your startup will need to reach specific milestones and achieve its goals.
  • Risk factors: The risks your company faces and the steps you’ll take to reduce and avoid these risks.

This is a general outline of what you’ll need to include. What’s important is to know everything the TTO wants you to include, and to format your document correctly. The information included may not match a typical business plan, nor will it necessarily match a lean business plan, but knowing how these types of documents are written can help you as well during the creation process.

Choosing the Right Legal Structure

There’s a lot of jargon in the business world. A legal structure, or business legal structure, is another term for legal entity, or business entity, which simply refers to the way the government classifies and regulates your business. Two examples include limited liability companies and corporations.

On a federal level, your legal structure determines your tax burden. On a state level, it can have liability ramifications. We’ll leave it at that. You can read more about legal structures in our article, Business Entities & Their Differences: LLC vs. S-Corp vs. C-Corp.

It’s important that you form a business entity for several reasons. In the context of tech transfer and spinning out of academia, it’s important because the technology transfer office will likely need an entity to negotiate with when it comes time to execute a licensing agreement.

Part of forming a business is choosing a legal structure—one that fits your business model and needs best. Chances are, incorporating will serve you well, and, in the case of biotech startups, you will want to incorporate as a C-corp. Especially if you plan on raising money from investors down the road.

While you don’t necessarily need to incorporate, the benefits of incorporating as a C-corp are numerous but primarily include clarifying ownership and shares, increasing your chances of securing financial support, protecting yourself against personal liability, and certain tax benefits (which gets complex, so it’s best to speak with a tax expert to better understand corporate taxation). See what your TTO expects or requires of you in terms of legal structures and go from there.

Many startup investors and experts recommend you incorporate your biotech startup in Delaware for numerous reasons, regardless of the state in which you operate. You don’t have to do this, but incorporating in Delaware will make certain things easier in the future, such as raising money from VC investors.

If the idea of incorporating sits well with you, you’ll want to figure out the timing. The time to incorporate is typically when:

  1. You know what you’re going to build.
  2. You have a clear plan to spin out.
  3. Everyone involved in the company agrees on an equity split.
  4. You’re ready to work for the company full-time.

We're also operating under the assumption your startup will depend on licensing the technology back from the university. In this case, you will also want, at the least, a verbal agreement that the TTO’s licensing officer intends to work with you to negotiate a license or a license option.

Incorporating can feel complex, but with everything in place, you’ll be in a solid position to begin the incorporation process. This can often take a single afternoon. LegalZoom does a great job of breaking down the steps to incorporating:

  1. Pick and reserve a name for your business entity.
  2. Select and retain a registered agent.
  3. Prepare and file the articles of incorporation.

It’s possible to incorporate without any help—there are online tools available that can help with the paperwork—but we generally recommend working with an attorney or CPA who can help you prepare your documentation. 

You'll also want to read up on the 83(b) election form, why it's important, and how filing this form to the IRS within 30 days of incorporating can benefit you and your business. For additional resources, you can read these instructions on how to file a Section 83(b) election form, written by Matthew Bartus, a partner at Cooley, a global law firm. He also provides some background on taxes in general.

Recruiting a Team of Advisors & Employees

If you’re going to hire employees, or plan to in the near future, now can be a good time to conceptualize the recruiting process. It may be as simple as bringing on other faculty members, graduating students, or post docs from your university who are interested in joining a startup. However, you may have to widen the net to fill certain roles.

First, you will want to identify the roles you need to fill. This can include researchers, engineers, or finance professionals. Figure out the gaps in your startup that will eventually need to be filled and plan accordingly. How much will each individual’s salary cost? What type of experience and how much experience will they need?

This means you will also need to define job descriptions and qualifications. Clearly defined roles and qualifications can help you find the right candidate and ensure they've got the proper skills and experience needed for the role.

Next, you’ll want to develop a recruitment strategy—one that gets you in front of the right people. This can include job posting on specific platforms, targeted outreach, and plenty of networking. Picking relevant job sites and reaching out to potential candidates on sites like LinkedIn can help your recruiting efforts.

As you field applicants, you’ll have to set up and conduct interviews in order to qualify the candidate’s skills, experience, and fit within your company and the culture you’re trying to build. You can check references, if available.

You’ll also want to consider developing an advisory board that can offer valuable insight and advice in specific areas, including business strategy, finance, marketing, or the science powering your technology. Your team of advisors should be accomplished professionals in their respective fields, who have achieved success and established connections within the industry, or possess other qualities that can be advantageous to your organization.

Reaching out to advisors typically involves your personal network and attending networking events. There may be other faculty members who are interested in joining the advisory board as well.

One way to incentivize advisors to join your team is to offer them equity in the startup. This can help align their interests with yours and motivate them to stay on in an advisory role, providing you much needed support.

Establishing a Board of Directors

In addition to an advisory board, you may want to (or have to) establish a board of directors. Now might not be the time, but it’s helpful to understand the benefits of having a board of directors, and understand that doing so at some point in the future can add a lot of experience, accountability, and credibility to your startup.

A well-balanced board of directors brings diverse expertise and experience to the company, which can help navigate the challenges of starting and growing a business. It also provides oversight and accountability for the company’s leadership team by ensuring the startup adheres to legal and ethical standards, follows its mission, and manages its resources effectively. Additionally, it can build investor confidence, making the company more attractive to potential investors.

Establishing a board of directors lends credibility to the spinoff startup, which can be especially important for a startup emerging from an academic institution, as it may be relatively unknown in the commercial world.

Raising Capital

Spinning out a company from a university and leaving the academic lab behind means you will have to raise capital on your own to support your research and development, product commercialization, and growth. Fundraising can be challenging—it involves a combination of networking, preparation, and negotiation—but there are several steps that academic spinouts can take to increase their chances of success.

Identify Potential Investors & Funding Sources

You can identify potential investors and biotech funding options to raise capital by tapping into your network of contacts, attending events and conferences, and leveraging online resources. Do this and create a list of targets to approach by identifying potential investors and funding sources. The university you spin out from may also get involved in helping you find potential investors, using their network to seek out interest.

Some common investors and funding sources in biotech include:

Prepare a Compelling Investment Proposition

You should prepare a compelling investment proposition that communicates your company’s vision, technology, market opportunity, and growth potential. Your business plan can be used to put one together. This can involve developing a business plan, creating investor presentations, and preparing financial projections. The investment proposition should be tailored to the interests and needs of each potential investor.

Negotiate Investment Terms & Valuations

Once potential investors have been identified, you'll need to submit your investment proposition and wait to hear back. If the investor is interested, they'll send you a term sheet, which is a strong sign they're willing to go through with the deal.

You'll want to negotiate investment terms and valuations, which can involve determining the appropriate amount of equity to offer, setting a valuation for the company, and negotiating the terms of the investment. Spinout startups should seek legal advice to ensure that investment agreements are fair and compliant with legal and regulatory requirements.

Creating a Lasting Impact When You Spin Out of University

Spinning out of a university is a critical step in turning innovative ideas into successful businesses. The resources and expertise available within universities can include lab space and specialized equipment, funding, entrepreneurial programming, and a strong network of potential collaborators and customers. But successfully spinning out and building a company requires a good strategy.

A successful spin-out strategy includes careful planning, strong leadership, and a deep understanding of the market and technology landscape, and is critical for the success of a biotech startup spinning out of academia. With a strong strategy, founders can help ensure the startup has the necessary resources and support to navigate the commercialization challenges it will face and successfully bring its technology to market.

It can also help the startup attract investors, partners, and customers by demonstrating a clear and compelling vision for the future. With a solid strategy, a startup may be able to secure funding for lab research, navigate regulatory hurdles, and establish a strong market position.

Spinning out involves several steps, many of which can get somewhat confusing or lack transparency. Dealing with technology transfer offices and navigating the world of patent applications can be tedious. However, spinning out can ultimately help researchers and entrepreneurs bring their ideas to market more quickly and with more support.

Spinning Out & Need New Lab Equipment?

Do you need new lab equipment for your biotech startup? Whether you’re interested in getting new lab equipment for R&D into your academic lab, or you want to outfit new lab space you’re moving into, leasing with Excedr can be a helpful strategy for biotech startups that have recently spun out of academia.

Leasing provides a cost-effective way for startups to acquire the equipment they need to conduct research and development, without the upfront costs of purchasing.

Leasing also helps you gain access to high-quality equipment; retain funding and extend cash runway; increase flexibility and adjust equipment needs as you grow and evolve; and reduce risk by trying out equipment before committing to a long-term investment (think 10 years with a piece of equipment that was not right for you).

Additional Resources for startup formation and growth: