1. Introduction
This Policy sets out the University’s approach to: deciding whether to commercialise its technologies, innovations or other research outputs through a specially created company; taking shares in such a company; and distribution of income received by it from commercialisation of its Intellectual Property (IP), whether from such a specially created company or otherwise. It reflects the recommendations of the Government commissioned Independent Review of University’s Spin-Out Companies published November 2023 and the TenU USIT Guides 2024 - TenU.
2. Aims
This Policy aims to set out: (i) how the University decides whether to form a company to develop and exploit a technology, innovation or other research output generated by its staff and students and what share of equity it expects to receive if such a company is established; (ii) how University staff and students may also receive equity in that company to reward them for their contributions to the technology, innovation or other research output and also their future commitment to the company’s business; and (iii) how the University allocates income it receives from commercialising its IP to its staff and students who have contributed to the creation of that IP.
3. Scope
3.1. This Policy only applies in respect of arrangements for commercial exploitation of technologies, innovations and/or other research outputs generated by staff and/or students of the University. For the avoidance of doubt, this Policy does not apply to other types of income or value (including research funding) received by the University, and persons who are not staff or students of the University do not have any entitlement to any allocation of income or equity under this Policy.
3.2 Sections 4 (Spin-Out Companies and Shareholdings) and 5 (Distribution of Residual Income) are not mutually exclusive. Depending on the structure of the commercialisation arrangement, staff and students of the University who have contributed to the IP in question may be entitled (i) to share in distribution of residual income relating to licence fees, royalties and the like received by the University; and (ii) if the commercialisation arrangement is the formation of a spin-out company, to subscribe for shares in that company.
3.3 For the meaning of “Intellectual Property/IP” for the purposes of this Policy and for details as to requirements on staff and students to report to the University any potentially exploitable results and/or other IP and the circumstances where the University claims ownership of IP generated by its staff and students, please refer to University’s Ordinance 22 – in particular Ordinances 22.1, 22.2 and 22.3.
3.4 This Policy only applies in respect of arrangements for commercial exploitation of the University’s IP and research outputs made from 12 March 2025.
4. Spin-Out Companies and Shareholdings
4.1 Definitions: For the purpose of this section 4, the following terms have the following meanings:
IP Contributor means any member of staff or any student who is subject to Ordinance 22.3(b), in each case who is not a University Founder (as defined below) and who has been identified as having contributed to the creation of IP which it is intended the Spin-Out Company will further develop and exploit.
Spin-Out Company means:
A company formed primarily through the transfer of knowledge, technology, innovation, and/or other research output, assets and/or people originating from the University to further develop and exploit that technology, innovation and/or other research output. The University is normally (but not always) the licensor/assignor of the relevant IP to the company. For the avoidance of doubt, Spin-Out Company does not include a wholly owned subsidiary company that is a research institute of the University nor does it include a company formed to further develop and exploit technology, innovation and/or research output solely generated by a student who is not subject to Ordinance 22.3(b) in respect of that technology, innovation and/or other research output.
University Founder means any member of staff or any student who is to work for the Spin-Out Company (e.g. as a director, employee, secondee, consultant and/or member of its scientific advisory board) and is thus committing to its business. A University Founder will usually also have contributed to IP which the Spin-Out Company intends to develop and exploit.
4.2 If a technology, innovation or other research output is identified which might be suitable for exploitation through the formation of a Spin-Out Company, request for approval to ‘spin out’ must be made to the Chair of the University Commercialisation Executive Board (UCEB) and spinning out may not occur without first obtaining such approval. Generally, such requests should be made with the support of the University’s Technology Transfer team. It is expected that a decision whether to approve spinning-out will be made within four (4) weeks of a final proposal and business plan being submitted to the Chair of the UCEB. It is expected that the Chair will make a decision informed by the views of the UCEB, either by circulating the proposal to members for their views or by ensuring that their known views are reflected in the proposal.
4.3 The University will be entitled, in recognition of its having provided the environment and support leading to the development and spinning out of the business, to take an equity stake in the Spin-Out Company as follows:
a) In cases where only software (and any associated, small-scale, unregistered IP) is going into the company, the University will be entitled to hold between 5% to 10% of the pre-cash investment for a nominal cash investment (at par). This reflects the ‘recommended landing zone’ of the USIT Software Guide 2024;
b) In other relatively simple cases (e.g. where the IP going into the company is unpatented) the University will be entitled to hold 10% of the pre-cash investment for a nominal cash investment (at par);
c) In cases where there are significant complexities in the process (including in protecting the IP) the University will be entitled to hold 25% of the pre-cash investment for a nominal cash investment (at par);
That said, there may be cases where businesses are IP rich/complex so the University’s equity holding may necessarily need to fall between the limits of (b) and (c) above. The University will be guided by nationally-developed guidance for specific types of business as such guidance emerges and exact terms may vary depending on the wider commercial deal. The University will also be guided by relevant further information provided in the TenU USIT Guide and TenU USIT Software Guide.
In each case, the University’s % shareholding should be calculated by reference to a share/options pool of up to 10% of the total issued share capital to be established on spinning out, i.e. University’s % shareholding must not be diluted by the subsequent issue of shares from that pool.
Note that, in addition to taking an equity stake, the University will be entitled to require licence payments in respect of IP licences granted by it to the Spin-Out Company, such as upfront, milestone payments and product related royalties. Those payments will be subject to the provisions for Distribution of Residual Income in Section 5 below. In the event that a relevant sector-wide initiative similar to the US-BOLT (University Startup Basic-Out-Licensing) Terms Sheet is developed in the UK, the University will consider this as regards its licensing terms (as appropriate).
4.4 The relevant percentage of the University’s equity holding (pursuant to Sections 4.3 above and 4.8 below (if relevant)) will be agreed and approved as part of the decision whether to spin out, pursuant to Section 4.2 above.
4.5 University Founders and IP Contributors will be entitled to subscribe for shares in the Spin-Out Company at par value.
4.6 The University does not prescribe the respective % shareholdings in the Spin-Out Company to be held by the University Founders, any IP Contributors or any other persons (provided always that the University’s relevant equity entitlement under Section 4.2 is not prejudiced). However, it is expected that each University Founder will usually subscribe for more shares in the Spin-Out Company than any IP Contributor.
4.7 Responsibility for determining the respective % share entitlement of the University Founders and IP Contributors (if any) will firstly be that of the University Founders and they are encouraged to adopt sensible equity shares as between them so as to create beneficial future incentives for investment. It is expected that the allocation proportions will already have been agreed by them and the IP Contributors prior to a request for approval to spin out. That said, so that the University can satisfy itself that no member of staff or student is being pressured to receive a lower shareholding than they deserve, written proposals for the respective % shareholdings must be made by the University Founders to the Head of Technology Transfer, Research and Innovation Services for approval, such proposals to include a justification in terms of contribution to the creation of the IP going into the Spin-Out Company and future role with the Spin-Out Company. In the event of dispute, the Head of Technology Transfer will take steps to resolve it. Further, and in any event, all proposed % shareholdings are subject to approval as part of the decision whether to spin out, pursuant to Section 4.2 above.
4.8 Sometimes the University might be under an existing obligation to permit a third party, such as a sponsor of research, to take shares in the Spin-Out Company. In that case, that allotment of shares will dilute the University and the combined University Founders’ and IP Contributors’ shareholdings on a pro-rata basis.
Worked example
A Spin-Out Company is proposed with share allocation of 25% (University): 75% (University Founders and IP Contributors).
A funder of the research giving rise to the spin-out opportunity is entitled to be allocated a 4% shareholding (not to be diluted by creation of a share pool of up to 10% of the issued share capital on spinning-out).
1,000 shares are to be allocated on spinning out plus an additional 100 shares are identified for a share options pool.
The research funder would receive 4% of 1,100 shares = 44 shares.
This leaves 1,056 shares for allocation between the University and the University Founders/IP Contributors.
The University would receive 25% of 1,056 = 264 shares.
The University Founders/IP Contributors would receive 75% of 1,056 shares = 792 shares.
4.9 For the avoidance of doubt, any realisation of the University’s shareholding in a Spin-Out Company (whether through a sale, IPO or otherwise) is not subject to the provisions for Distribution of Residual Income in Section 5 below.
5. Distribution of Residual Income
5.1 Residual income, whether in the form of periodic payments or a capital sum, will be calculated on the basis of gross income received by the University from an IP exploitation arrangement less those costs which are directly attributable to the exploitation. By way of example, those costs may include external legal technical and commercial advice, patent fees, expenses, commercialisation payments required to be made to a research funder as a condition of the funding giving rise to the IP, and any past or future commitment of internal resources specifically used for commercialisation of the IP. Such costs may also include the cost of any independent audit of deductible costs requested by the staff team.
5.2 The distribution of total residual income to the creator team from a given piece of IP will be made as follows:
The creator team may include students who are subject to Ordinance 22.3(b) as well as staff, but all creator team members must have been identified as having contributed to the creation of the IP.
a) Where the technology or other research output is not protected by registered IP and the licence or assignment or other commercialisation agreement is simple to administer (e.g. a simple software licence, copyright licence or molecule licence), then the creator team will be allotted 90% of the residual income and the University will be allotted 10% of the residual income.
b) Where the technology or other research output is either (a) protected by registered IP; and/or (b) has received proof of concept funding or other significant legal or technology transfer support, then the creator team will be allotted 70% of the residual income and the University will be allotted 30% of the residual income.
5.3 The relevant percentages of residual income for the creator team and the University (pursuant to Section 5.2 above) will be agreed prior to executing the relevant commercialisation agreement. In case of dispute, the matter will be referred to the Chair of the University Commercialisation Executive Board (UCEB) whose decision will be final. In any event, for any exploitation arrangement which concerns the University’s IP going into a Spin-Out Company (as defined in Section 4.1 above) the proposed percentages are subject to approval by the Chair of the UCEB pursuant to Section 4.2 above.
5.4 Residual income allotted to the University will be split as described below:
• 25% to University central overheads • 25% to Faculty/School overheads • 50% to Crescent Seedcorn Fund (or any successor fund of the University).
5.5 Arrangements for the distribution of residual income as between the members of the creator team will be agreed prior to executing the relevant commercialisation agreement on the following basis:
The creator team leader, who must always be a member of staff and the major staff contributor to the IP (unless no staff member was a contributor to the IP), notifies the Head of Technology Transfer, Research and Innovation Services in writing of which staff/students should be paid and in what proportions, with a justification in terms of contribution to the inventive step (in the case of patentable IP) and/or effort and/or ideas input to the IP the subject matter of the exploitation arrangement.
5.6 Responsibility for determining the respective allocation proportions as between the members of the creator team will firstly be the responsibility of the creator team leader and it is expected that the allocation proportions will already have been agreed by the members of the creator team prior to written notification to the Head of Technology Transfer pursuant to Section 5.5 above. That said, so that the University can satisfy itself that no member of staff or student is being pressured to receive a lower proportion of residual income than they deserve, the Head of Technology Transfer must approve all proposed allocation proportions and, in the event of dispute, will take steps to resolve it. Further, for any exploitation arrangement which concerns the University’s IP going into a proposed Spin-Out Company (as defined in Section 4.1 above), the proposed allocations are also subject to approval by the Chair of the University Commercialisation Executive Board (UCEB) pursuant to Section 4. 2 above.
5.7 For the avoidance of doubt, academic members of staff and students who are subject to 22.3(b) of Ordinance 22 potentially have the right to a share of residual income (pursuant to Section 5.5 above).
5.8 Staff who do not have academic contracts may be eligible to be included in the distribution of residual income provided that this does not conflict with their contract of employment or Ordinance 22.7(d).
5.9 Payments made by the University to staff and students may be subject to tax. The University reserves the right to deduct and account to HMRC in respect of tax at the relevant rate and any further withholdings and/or payments to HMRC and any other relevant taxation authority in respect of any tax and/or National Insurance Contributions. If National Insurance Contributions are required to be made the University will be entitled to deduct both employer and employee contributions from any staff or student entitlements prior to payment.
5.10 The University will make payment to staff and students in a timely manner when they have an entitlement under this Policy.
5.11 A staff member’s or student’s entitlement under this Section 5 will continue to be paid to them should they leave the University, and in the event of death, the entitlement will continue for the benefit of their estate, subject to section 5.12 below.
5.12 The University will use reasonable endeavours to obtain and maintain contact details for staff and students in respect of whom a notification of IP has been made but who have left the University and for the estates of such persons who have died. If despite such endeavours contact is lost for six consecutive months, the University may send notice to the last known address so that the IP contributors’ residual income entitlement may be allocated. If no contact details are received by the University within a month after such notice the University will allocate the share to the other staff/students entitled to participate or, if there are no other contributors, to a specific University Department account agreed by the relevant Head of Department.
6. Other
This Policy replaces and updates what were formerly Ordinances 22.8 and 22.9 of the University’s Ordinance 22 (Intellectual Property).
The University’s Financial Regulation on Conflicts of Interest is relevant to the subject matter of this Policy. That Financial Regulation governs the holding of financial or other benefit in a commercial entity with which the University has, or may reasonably be expected to enter into, a commercial relationship. University staff and students must adhere to that and all of the Financial Regulations.
Review date: by January 2028