2.07Lab to company: IP, tech transfer and spinouts

Licence anatomy, clause by clause

Stage: Minus-oneDeeptech

The core idea#

The licence is the document that puts the institution's IP into your company. For a deeptech startup it is often the single most important contract it signs, because investors are buying into the rights it grants. A good licence gives the company exclusive rights broad enough for its business, economics that leave room for future funding rounds, and the freedom to be sold. A bad one can make the company impossible to finance or acquire.

This playbook goes through a university licence clause by clause, explains what each clause does and what founders and investors should aim for, gives published benchmarks, and shows how to model what a licence will cost over time.

Stage: minus-one to pre-seed · Lens: Deeptech · Reading time: about 35 minutes · Not legal advice: have a lawyer experienced in university licences review the final draft.

Who this is for#

  • Founders who have received a term sheet, option or draft licence from a TTO.
  • Founders preparing to negotiate (playbook 2.10).
  • Business co-founders and early investors reviewing a spinout's licence.

What you leave with#

  • An understanding of every major clause and why it matters.
  • Benchmarks to compare your terms against.
  • A simple model of what the licence costs at different stages.
  • A red-amber-green checklist for reviewing a draft.

The three questions every clause answers#

  1. What rights do we get? Grant, exclusivity, field, territory, licensed IP, improvements, sublicensing.
  2. What do we pay? Equity, upfront fee, patent costs, royalties, milestones, minimums, sublicence share.
  3. Who controls what happens next? Diligence, assignment, change of control, termination, patent prosecution, enforcement, government rights.

How the economics fit together#

A university licence pays the institution in several ways at once. No single term tells you whether a deal is fair; you have to look at the whole economic package (Gunderson Dettmer).

Payment When it's paid Who it hurts most Founder priority
Equity At signing, as
shares		 Founders and later
investors, through
dilution		 Keep it near published
norms; limit anti-dilution
Upfront fee At signing A cash-poor startup Keep it small, or replace
it with equity
Past patent costs At signing or
spread over
time		 A cash-poor startup Spread over 1–3 years or
defer to a funding round
Future patent costs Ongoing The company, from
month 30 especially		 Control which countries
are filed
Annual
maintenance or
minimum fee		 Every year Pre-revenue years Small, rising slowly;
creditable against
royalties
Milestone payments On defined
events		 Depends on the
event		 Tie to events that bring
money
Royalties on sales Once products
sell		 Gross margin,
especially in
hardware		 Low single digits; clean
net sales definition;
stacking relief
Share of sublicence
income		 When you
sublicense		 Business models
built on partnering		 Lower share for later
sublicences

Trade-offs to understand#

Equity versus royalty. For a startup with no revenue, universities often take equity in place of, or alongside, a lower upfront fee, so their return follows the company's success (CASRAI). A higher equity stake can justify a lower royalty, and the reverse. A

practitioner survey of about 100 licences found the two rates moved against each other (Orrick).

  • Startup versus large company deals. Universities ask large companies for big upfront and milestone payments and accept lower royalties; startups tend to get lower cash terms, a required annual minimum and equity (Mondaq).
  • Business model matters. A company that will sell products cares most about royalty rate and net sales definition. A company that will partner or license out cares most about the sublicence income share. A platform company cares about field of use and improvements.

Rights clauses#

These clauses decide what the company actually owns the right to do. Get them right first; money terms are easier to fix later.

Grant#

What it says: the rights granted, usually "to make, have made, use, import, offer to sell and sell" licensed products. A real example: Stanford's licence to Bolt Biotherapeutics grants exactly these rights within the licensed field and territory (Justia).

Aim for: all the verbs your business model needs, including "have made" (so contract manufacturers can produce for you) and the right to practise licensed processes.

Exclusivity#

What it says: whether the university will license the same rights to anyone else. "Exclusive" in the Stanford–Bolt licence means Stanford won't grant further licences under the licensed patents in the field and territory; it ran until the last licensed patent expires (Justia).

Aim for: exclusive rights in your core fields for the life of the patents. Universities nearly always keep the right to use the technology for research and teaching, and often to let other non-profits do so. That is normal.

Field of use#

What it says: which applications the licence covers. Biotech licences are often split by therapeutic area, while standard technology licences more often use broad fields (CASRAI). The Stanford–Bolt licence's field was "all fields" (Justia).

Aim for: a field wide enough for the beachhead and the next two markets (playbook 1.07). If the university wants to keep other fields for other licensees, ask for a right of first negotiation on them.

Watch for: fields defined by your current prototype ("membranes for solvent recovery in pharmaceutical manufacturing") rather than the market ("separation of organic solvents from aqueous streams").

Territory#

What it says: where you can operate.

Aim for: worldwide. A territory limited to one country rarely makes sense for a startup and worries investors.

Licensed IP#

What it says: exactly which patents, applications, software, know-how and materials are licensed. Usually listed in a schedule.

Aim for: every filing in the family, including continuations and foreign counterparts; knowhow and data needed to use it; and materials such as cell lines or samples, under a material transfer clause.

Improvements#

What it says: whether later inventions from the same lab are included.

Aim for: an automatic inclusion of improvements made by the named inventors for a set period (for example, 2–3 years), or at least a right of first negotiation. Without it, a better version of your technology could be licensed to a competitor.

Sublicensing#

What it says: whether you can grant rights to partners, and on what terms.

Aim for: the right to sublicense without the university's approval of each deal, with a share of sublicence income paid to the university (see money clauses). Note that agreements for a contractor to make products for you are usually not sublicences; the Stanford–Bolt licence says so explicitly (Justia).

Money clauses#

Royalties#

What it says: a percentage of net sales of licensed products, often tiered so the rate rises as annual sales cross thresholds (Gunderson Dettmer).

Benchmarks: industry and TTO sources describe a broad range of roughly 1–10% of net sales, commonly in the low-to-mid single digits (CASRAI). A Gunderson Dettmer analysis of university licences found a median royalty of 2.38% where anti-stacking applied and 1.75% where it didn't (Gunderson Dettmer). Where the licensed patent is only peripheral to the product, the royalty may be around 0.5% (Guide to Biotech Startups). The UK USIT guide gives a range of 0–5% depending on the technology's maturity (Cambridge Enterprise).

Aim for: low single digits, with a clear net sales definition.

Net sales definition#

The royalty is only as fair as the base it's charged on. Make sure net sales:

  • Deduct returns, discounts, taxes, shipping and insurance.
  • Cover only the licensed product, not a bigger system it sits inside. If your patented membrane is 10% of a module's value, argue for a royalty on the membrane's value, or a lower rate on the whole.
  • Exclude services, software subscriptions or consumables not covered by the patents, unless they are.
  • Exclude sales between the company and its affiliates or sublicensees, so the same sale isn't counted twice.

Royalty stacking#

What it says: if you must also license other patents to make the product, you can reduce the university's royalty by part of what you pay others, down to a floor (CASRAI).

Benchmarks: anti-stacking appeared in 65% of university licences in the Gunderson Dettmer analysis; typically the licensee may reduce up to 50% of its royalty, by 50% of the amounts paid to third parties for other necessary licences (Gunderson Dettmer). These provisions are common in biotech and rarer in standard technology deals (CASRAI). Aim for: include it even if you don't expect to need it. Patent landscapes change (Orrick).

Sublicence income share#

What it says: the share of payments you receive from sublicensees that goes to the university. 94% of university licences in the Gunderson Dettmer analysis required it (Gunderson Dettmer).

Benchmarks: published express licences range from 15% (Nebraska) (UNL) to 33% (Missouri) (University of Missouri) of non-royalty sublicence income. Stanford's licences to Bolt Biotherapeutics set the share between the high single digits and low teens, depending on when the sublicence is signed (SEC filing).

Aim for: a share that falls over time or as you add value (for example, lower after a Phase I trial or a working prototype).

Upfront fee, maintenance fees and minimums#

Benchmarks: upfront fees appeared in 75% of licences in the Gunderson Dettmer analysis, with a median of $17,500; the median annual maintenance fee was $25,000 (Gunderson Dettmer). UNC's early Carolina Express model set annual minimums of $5,000–15,000 for three to five years, rising to $10,000–30,000 after year six (WIPO/AUTM).

Aim for: low early fees, rising slowly; and make annual fees creditable against royalties, as in the Stanford–Bolt licence (SEC filing).

Milestone payments#

What it says: payments when defined events happen: first sale, regulatory filing or approval, a funding round. Common in biotech, rare in standard technology licences (CASRAI).

Aim for: milestones tied to events that bring the company money or value, so you can afford them when they fall due.

Equity and anti-dilution#

Benchmarks: equity appeared in 57% of the analysed university licences, with a median of 4.2%; 83% of those with equity included anti-dilution protection, with a median threshold of $10 million raised (Gunderson Dettmer). University anti-dilution isn't the price-based protection investors get; it means the university receives more shares to keep its percentage until the company has raised a set amount (Orrick).

Aim for: a stake at or below published norms (playbook 2.11), and anti-dilution that ends at a modest threshold.

Control clauses#

These decide whether the company stays in control of its own future. Investors read them closely.

Diligence obligations#

What it says: milestones the company must hit (raise money, build a prototype, file for approval, make a first sale) by set dates, or the university can narrow the licence or end it. Diligence is one of the terms universities care most about (Orrick).

Aim for: milestones you control and can meet with realistic funding; dates measured from the funding you will raise, not from signing; a process to agree extensions; and a cure period before any termination. Tie the first milestone to "commercially reasonable efforts" rather than fixed dates where possible.

Assignment and change of control#

What it says: whether the licence can be transferred, including when the company is acquired.

Aim for: the right to assign the licence to an acquirer of the whole business, or of the business line using it, without the university's consent (or with consent not unreasonably withheld). A licence that needs consent for an acquisition hands the university a veto over your exit.

Patent prosecution and enforcement#

What it says: who controls filings and who can sue infringers. Large licensees often fight over who prosecutes patents and who calls the shots in litigation (Mondaq).

Aim for: a say in prosecution strategy (which countries, which claims), since you pay for it; and the first right to enforce the patents in your field.

Termination and what happens after#

What it says: when either party can end the licence, and what happens to sublicences and improvements afterwards (CASRAI).

Aim for: termination by the university only for material breach after a cure period; the company's right to end the licence on notice; and sublicences that survive termination so your partners aren't left exposed.

Government rights and other reserved rights#

What it says: rights the university must keep because of how the research was funded. Under Bayh-Dole, the US government keeps a licence, and exclusive licensees must substantially manufacture in the US for US sales (Drexel). In India, DBT-funded IP licences carry an irrevocable, royalty-free right for the Government of India in health, safety or security needs (Conventus Law).

What to do: know they exist and plan for them; they are rarely negotiable.

Board observer, information and reporting rights#

Universities sometimes ask for a board observer seat. Investors often don't object if it has a sunset (Orrick). Reporting obligations (royalty reports, progress reports, audit rights) are normal; keep them proportionate.

Benchmarks from published startup terms#

Use these as evidence of what is normal. The right comparison depends on your field and the strength of the IP.

Source Equity Royalty Anti-dilution Other
Gunderson
Dettmer
analysis
(university
licences,
median)		 4.2% (in 57% of
deals)		 2.38% with
anti-stacking;
1.75% without		 Median
threshold $10
million (in 83%
of equity
deals)		 Upfront fee
median $17,500;
maintenance fee
median $25,000
Carnegie
Mellon
standard
startup terms		 6% exclusive,
5% non-
exclusive
(patented); 3%
(software)		 2%
(patented);
none
(software)		 $2 million Open-source
clearance option:
1%
USIT guide 10–25% for IP- 0–5% — Lower equity for
(UK) heavy spinouts software
(playbook 2.11)
University of
Missouri		 None — — 33% of non-
royalty
express sublicence
income
Source Equity Royalty Anti-dilution Other
IIT Kharagpur 3% (own
technology); 5%
(other institute
technology)		 — — Equity-based
licensing
Guide to Under 5% Around 0.5% Through a Stacking relief
Biotech if the patent is reasonable up to 50%
Startups
(typical
biotech)		 peripheral level of funding

Where a cell is empty, the source doesn't state a figure.

Modelling a licence: a worked example#

Always model what the licence costs year by year before you sign. The example below is illustrative; replace the numbers with your draft terms and your own plan.

Draft terms: 5% equity with anti-dilution until $2 million is raised; $15,000 upfront fee; $40,000 of past patent costs repaid over three years; annual maintenance fee of $10,000 rising to $25,000, creditable against royalties; 2% royalty on net sales; 20% of sublicence income.

Company plan: pre-revenue in years 1–2; $1 million of sales in year 3, $5 million in year 4 and $15 million in year 5; a $2 million upfront payment from a sublicensee in a second field in year 5.

Year Sales Fees and patent costs Royalty (after crediting
maintenance fee)		 Sublicence
share		 Total paid to
university
1 $0 $15,000 upfront + $13,333
patent costs + $10,000
maintenance		 $0 $0 $38,333
2 $0 $13,333 patent costs +
$10,000 maintenance		 $0 $0 $23,333
3 $1M $13,333 patent costs $20,000 (covers the
$15,000 maintenance fee)		 $0 $33,333
4 $5M — $100,000 $0 $100,000
5 $15M — $300,000 $400,000 $700,000

National phase filing costs (playbook 2.04) come on top, usually in years 2–3.

What the model shows#

  • Early cash costs are modest but real for a pre-seed company: about $60,000 in the first two years. Negotiating to spread or defer them matters more than the headline royalty at this stage.
  • Royalties dominate once you sell. Doubling the royalty to 4% would add $300,000 in year 5 alone.
  • The sublicence share can be the biggest single payment. In this example it exceeds a year's royalties. If partnering is central to your business, negotiate the share hard, and ask for it to step down as the company adds value.
  • Equity is the long-term cost. At 5% with anti-dilution to $2 million, the university keeps 5% through the first round, then is diluted with everyone else. Model it alongside founder and investor stakes (playbook 5.19).

What investors will ask you to change#

Lead investors and their lawyers review the licence in diligence (playbook 14.11). These are the requests they make most often. Raising them with the TTO before an investor does saves time.

Investor concern Typical request
Field too narrow for the plan Broaden the field, or add a right of first
negotiation on adjacent fields
Acquisition needs university consent Free assignment on change of control
Diligence dates the company can't meet Dates tied to funding, plus an extension
process and cure period
University anti-dilution beyond the seed
round		 A lower threshold, or anti-dilution that ends at
the first priced round
High sublicence share A lower share, or one that steps down over
time or after milestones
No stacking relief An anti-stacking clause with a reasonable
floor
Improvements not included Automatic inclusion or a right of first
negotiation for a fixed period
University can terminate easily Termination only for material breach after a
cure period; sublicences survive
Investor concern Typical request
Unclear net sales definition Narrow it to the licensed product; deduct
standard items

Two ways to handle this well:

  1. Share the draft licence with your likely lead before signing. It's easier to change a draft than a signed contract.
  2. Use published standards as evidence. TTOs move more easily when you show terms other institutions have accepted (playbook 2.03).

Red-amber-green review checklist#

Mark each clause in the draft. Fix every red before signing; take ambers to your lead investor.

Clause Green Amber Red
Exclusivity Exclusive in core
fields for the patent
life		 Exclusive for a limited
period		 Non-exclusive in
the core field
Field of use Covers beachhead
and next markets		 Covers beachhead only Defined by the
current prototype
Territory Worldwide Major markets One country
Improvements Included for a set
period		 Right of first negotiation Excluded
Sublicensing Allowed without
per-deal approval		 Allowed with consent
not unreasonably
withheld		 Not allowed
Royalty Low single digits,
clean net sales		 Mid single digits High, or charged
on whole systems
Stacking Up to 50% offset
with a floor		 Small offset None
Sublicence share At or below ~20%,
stepping down		 20–33% Above a third, flat
Upfront and
patent costs		 Small; past costs
spread		 Moderate Large cash at
signing
Clause Green Amber Red
Equity At or below
published norms		 Slightly above Well above norms
Anti-dilution Ends at a modest
threshold		 Ends at the Series A Continues
indefinitely
Diligence Tied to funding;
extensions; cure
period		 Fixed dates with cure Fixed dates,
automatic
termination
Change of control Free assignment on
acquisition		 Consent not
unreasonably withheld		 University veto
Termination Material breach plus
cure only		 Broader grounds with
cure		 At will, or without
cure

Mistakes and how to recover#

Mistake Why it hurts How to recover
Negotiating one term at a
time		 You win the royalty and lose
on fees, sublicence share and
diligence		 Negotiate the whole
package against a model
Signing an option with
terms "to be agreed"		 Less leverage later Attach a term sheet to the
option
Accepting diligence dates
without funding		 Risk of losing the licence Renegotiate now, linking
dates to funding
Ignoring change of control University can block or tax an
acquisition		 Ask for free assignment
before signing; fix it in the
first amendment if missed
A field defined too narrowly Next markets need a new
licence		 Ask for a field amendment
or first negotiation rights
No model of total cost Surprises when sales or
sublicences arrive		 Build the year-by-year
model before signing
Not involving investors
before signing		 Renegotiation after signing Share drafts with your likely
lead
Mistake Why it hurts How to recover
Signing without a lawyer Common traps missed Get a specialist review of
who knows university the final draft
licences

Existing playbooks to read, and sources#

  • Gunderson Dettmer's university licence presentation (2024), with benchmark data on fees, equity, royalties and anti-stacking (Gunderson Dettmer).
  • Orrick's guide to university technology licensing for startups (Orrick).
  • US-BOLT life science term sheet template (NVCA).
  • Real licences filed with the SEC. Companies that go public often file their university licences, partly redacted. Stanford's licence to Bolt Biotherapeutics is a readable example (Justia).
  • CASRAI's licence agreement guides (CASRAI).

2.01 Who owns your invention · 2.03 Working with the TTO · 2.08 Royalties, milestones and anti-stacking · 2.09 Sublicensing and change of control · 2.10 Negotiating with a university · 2.11 Spinout equity norms · 5.19 Cap table modelling · 12.03 Deeptech pricing · 14.11 Technical due diligence

Sources#

← 2.06 Freedom to operate: the basics2.08 Royalties, milestones, equity in lieu and anti-stacking →