2.09 Sublicensing and change-of-control clauses

Core idea#

Two clauses in a licence decide how a deeptech company can eventually make money from its IP beyond selling its own product: sublicensing (whether and on what terms the company can license the technology on to partners) and change of control and assignment (what happens to the licence if the company is sold or merges). They're often negotiated in a hurry at the end, and they're the clauses acquirers and large partners read first.

Why they matter more in deeptech:

Partnering is common. A biotech startup may sublicense to a pharma company for late-stage trials; a materials startup may license a big manufacturer for one application while making its own product for another.
Acquisition is the most common exit. If the licence can't move to the buyer cleanly, or a large fee is due, the deal value falls or the deal dies.
Platform technologies are often best commercialised through several partners in different fields.

The goal: keep the company's freedom to partner and to be acquired, while giving the institution a fair share of value without a veto.

Who it's for: founders negotiating or reviewing a licence, especially in life sciences, materials and platform technologies.

Sublicensing#

What to secure in the licence

The right to sublicense, expressly granted. Without it, an exclusive licensee may not be able to sublicense at all.
Consent: ideally none needed, or consent "not unreasonably withheld", or consent needed only above a threshold or for certain partner types. Universities commonly ask for prior consent and require sublicences to carry forward the head licence's diligence, reporting and compliance terms (CASRAI).
Survival: if the head licence ends, sublicences should survive and become direct licences from the institution, so partners aren't left exposed. Companies often ask universities to assume sublicences on termination (Goodwin).
Income share: the institution's percentage of what you receive from sublicensees.

In Gunderson Dettmer's dataset, 94% of university licences required sharing sublicence income; the median share across tiers was 15%, rising to 20% at the highest tier, with a median of 10% at the lowest (Gunderson Dettmer).
In an analysis of upstream deals where research institutions shared in their licensees' commercialisation alliances, the median estimated share was 15%, against 20% where the upstream licensor was a company (BioSci BD).
Some licences offer a choice: Tulane's express licence offers a royalty pass-through plus 15% of other sublicence income, or 25% of all sublicence income without passthrough (Tulane).

Get the definition right#

Sublicence income definitions are among the most hard-fought points with small companies, because they must anticipate deals that haven't happened (LESI, Stevens). Ask for:

Exclusions: equity investment at fair value, payments for R&D the company actually performs, loans, reimbursement of patent costs, and payments for the company's own IP.
A declining share: higher if you sublicense early (the university's IP is most of the value), lower after you've added value (development milestones, your own patents). Royalty pass-through on sublicensee sales at the head-licence rate, rather than a share of whatever royalty you negotiate.

Change of control and assignment#

How acquisitions affect a licence#

Share sale: the buyer acquires the company's shares; the company and its contracts, including the licence, generally continue unless the licence has a change-of-control clause (CASRAI).
Asset sale or merger: the licence must be assigned to the buyer. Most university licences prohibit assignment without written consent, so the university's agreement is needed (CASRAI).

IPO: not a change of control; the licence continues (CASRAI).

Change-of-control payments#

In Gunderson Dettmer's dataset, 41% of university licences required a payment on change of control or assignment, with structures too varied to track (Gunderson Dettmer). Some universities ask for a share of acquisition consideration, particularly if the company is sold before reaching milestones or raising investment (University of Washington). A Columbia-hosted roundtable of VCs and TTOs noted that change-of- control fees or "synthetic equity" give the university a very low single-digit percentage or a set fee of exit value, and that some VCs oppose them because they complicate later rounds and IPOs (Columbia Technology Ventures).

What to ask for#

Free assignment to an acquirer of all or substantially all of the business, or to an affiliate, without consent (with notice).
No change-of-control fee if the university already holds equity; it's already sharing in the exit through its shares.
If a fee is unavoidable: a small fixed amount, or a low percentage, that falls away after a funding threshold or a development milestone, and is capped.
No termination right on change of control, other than for the acquirer's breach.
Clarity that royalty obligations continue under the acquirer, so the university doesn't feel it needs a fee to protect its royalty stream.

What acquirers check#

In due diligence, acquirers look at: whether the licence can be assigned or survives a share sale; any change-of-control fees; whether the field of use covers their plans; sublicence rights; diligence obligations they'd inherit; royalty stacking; and the remaining patent life. A clean licence can add materially to what an acquirer will pay.

Worked example (illustrative)#

A drug-delivery startup has an exclusive university licence. The university holds 5% equity. The original draft licence said: sublicensing only with prior consent; 30% of all sublicence income; assignment only with consent; and a 2% change-of-control fee on any acquisition.

What the founders negotiated#

Term	Original draft	Agreed
Sublicence consent	Required for every sublicence	Not needed for sublicences to established pharma or device companies; consent not unreasonably withheld otherwise
Sublicence income	30% of everything	20% before first-in-human, 12% after; excludes equity at fair value and funded R&D; royalty pass-through on sublicensee sales
Sublicence survival	Silent	Sublicences survive termination as direct licences
Assignment	Consent required	Free assignment to an acquirer of substantially all the business, with notice
Change-of-control fee	2% of deal value	None, because the university holds equity

What happened#

Four years later the company signs a partnership with a pharma company: $10 million upfront, of which $4 million is for R&D the startup will perform. Sublicence income for the share calculation is $6 million, at 12% (after first-in-human), so the university receives $720,000. Under the original draft, it would have received 30% of $10 million: $3 million.

Two years after that, the pharma partner acquires the company. Because assignment is free and there's no change-of-control fee, the deal closes without renegotiating the licence; the university is paid through its 5% equity.

Country notes#

United States. These terms are common and well understood by investors; published university data (above) is a strong negotiating reference.
United Kingdom. The USIT Guide encourages simple, investor-friendly terms; most spinouts with university equity can argue against change-of-control fees on the same basis. Check whether the university's investment agreement, not just the licence, has consent rights over a sale.
India. Institute licences vary widely; some are short and silent on sublicensing or assignment, which creates uncertainty for acquirers. Ask for explicit sublicensing and assignment rights. Government lab licences (CSIR, DRDO) may restrict assignment, foreign sublicensees or exports, and need approvals (playbook 2.15).

Scripts#

Asking for free assignment#

"Acquirers will require the licence to move with the business. Could we agree free assignment to a successor of substantially all of our business, with notice to you, and confirm that your royalty and reporting rights continue against the successor?"

Pushing back on a change-of-control fee#

"You'll share in any acquisition through your equity. A separate fee would mean you're paid twice and would reduce what buyers will pay, which hurts your equity too. Could we drop it, or limit it to a sale before we've raised [amount]?"

"Early on, your IP is most of the value, so a higher share makes sense. Once we've taken it through [milestone], most of the value is our work. Could we agree [X]% before that milestone and [Y]% after, excluding investment and funded R&D?"

Common mistakes#

No express right to sublicense.
Consent required for every sublicence, with no standard for when it can be refused. Sublicence income that includes equity investment or R&D funding.
Sublicences that die with the head licence.
Consent needed for assignment on acquisition. It hands the university a veto at exit. Change-of-control fees on top of equity.
Leaving these clauses to the end of negotiations.

2.07 Licence anatomy
2.08 Royalties, milestones and anti-stacking
2.10 Negotiating with a university
2.11 Spinout equity norms
2.15 Licensing from government labs

Sources#

Gunderson Dettmer, University license presentation (2024).
LESI (Ashley Stevens), Defining sublicense income.
BioSci BD, Sharing the wealth.
CASRAI, spinout exit strategies and patent licensing.
Columbia Technology Ventures, VC/TTO term sheet recommendations; University of Washington CoMotion, licensing FAQs; Tulane, Go Green licence; Goodwin, 10 issues.

Worked example is illustrative. Not legal advice. Last checked November 2026.