Establishing an IP agreement between DTU and a spinout company

Making it transparent and efficient for everyone

DTU wants to create value for society by commercializing its inventions. This can be done by spinning out IP and technology to a spinout company. DTU wishes to support sustainable spinouts by maturing the inventions/technologies as much as possible within the frame of the university.

Starting up a successful spinout company is very exciting and requires many efforts to access the market, mature the technology, identify the right team, establish the company, attract investors as well as make

the IP agreement with DTU. DTU assists the founder team with various tasks in this process.

DTU Central Business Development has prepared this handout that outlines some of the essential phases of making the IP agreement with DTU. We hope to make things a little easier for everyone involved in a spinout company based on DTU technology.

The primary audience for this handout is the founder team followed by mentors, investors and DTU departments. Let

us together make a strong agreement that benefits both the spinout company and DTU.

It should be kept in mind that all inventions have different potentials, markets and risks. Though the process might be similar, no two spinouts will receive or benefit from, the same terms.

Maturing process and IP negotiation process

01 05

02 0604 08 10

03 07 09

KICK-OFF MEETINGBUSINESS PLAN

EVALUATIONTERM SHEET

REVIEWTERM SHEET

SIGNING

FOUNDERS’ BUSINESS PLAN

DRAFT ING TERM S HEET

TERM SHEETNEGOTIATION

CONTRACT DRAFTING

CONTRACTNEGOTIATION

SIGNING ANDCHAMPAGNE

DTU STAGE GATEPROCESS FOR

COMMERCIALIZATIONOF INVENTIONS

Maturing process

FROM INVENTION TO AN IP AGREEMENT TO A SPINOUT COMPANY

Inventions at DTU are based on significant research efforts at departments and centers. According to the “Act on inventions at public research institutions”, new inventions must be offered to the university. If the university decides to take ownership of the invention, the university is obliged to make efforts to commercialize the invention. The process starts with the notification of a new invention made by researchers and employees at DTU. DTU Central Business Development will make a detailed assessment of the invention to understand its commercial potential. If the invention shows great commercial potential, DTU will formally take ownership and follow a stage gate process with detailed action plans and milestones

for bringing the invention to a level where the technology can be commercialized. Early in this process, DTU Central Business Development will also confirm that the invention meets the criteria for starting the patenting process and will then make a patent application in collaboration with the inventors.

Further activities normally include more research into developing the invention/ technology as well as getting more information about customer needs and market understanding. As part of this process, DTU Central Business Development will, together with the founder team, engage in meetings and dialogue with customers, partners and investors to secure that the commercial and technical development is addressing specific customer pains and needs. As DTU departments usually do not have access to financing to cover commercially

directed de-risking activities, DTU has established the DTU PoC Fund. This fund provides grants to take projects with TRL 3-5 to a level where a commercial party is ready to step in. To complement the founder team, DTU Central Business Development encou-rages the founder team to establish advisory boards early on to get expert commercial competence on board to help set direction and keep momentum of the spinout projects. As the project approaches the company establishment phase, DTU Central Business Development will gradually decrease its involve- ment in favor of the advisory board and founder team. When sufficient customer feedback has been obtained, and a risk level where commercial partners are ready to step in has been reached, the IP and technology can be spun out in a company established by the founder team.

DTU STAGE GATE

PROCESS FOR

COMMERCIALIZATION

OF INVENTIONS

01 0503

KICK-OFF MEETING BUSINESS PLANEVALUATION

TERM SHEET REVIEW

FOUNDERS’ BUSINESS PLAN

DRAFT ING TERM S HEET

02 04

IP negotiation process

01 KICK-OFF MEETING

This is where the negotiation process is kicked-off by gathering relevant stakeholders – founders, the department, DTU Central Business Development and Legal & Contracts. The meeting serves two purposes. Firstly, it gives the founders a chance to present their spinout case, their agreement priorities as well as receive input to the case. Secondly, it is a chance for DTU stakeholders to explain the negotiation process, to get solid insight into the value proposi-tion, business models, strategy and business potential as well as understand the agreement priori-ties of the spinout company.

02 FOUNDERS’ BUSINESS PLAN

DTU Central Business Develoment offers the founders the use of a standard DTU business plan template to ensure relevant infor- mation to attract future investors. It is recommended to use or get inspired by this template. At this stage DTU Central Business Development also encourages the spinout company to involve mentors/advisory board to assist the company in the process of making the business plan. The business plan must be shared with DTU Central Business Develop-ment that will engage in dialogue with the company and provide relevant input, if needed.

03 BUSINESS PLANEVALUATION

Based on the business plan, DTU Central Business Development will, in dialogue with the spinout team, suggest the IP model best suited for the spinout company. We will make an effort to meet the founders’ preferences. However, this may not always be possible as DTU Central Business Development is obligated to make sure commercial trans- actions are concluded on market terms.

04 DRAFTING TERM SHEET

Based on the discussions so far DTU Central Business Develop-ment will translate all input into a draft term sheet. The term sheet lays out the basic principles of the contract. Along with an esti-mated time schedule, it serves as a starting point for a swift and agile negotiation process. At this stage we will also align expectations with the head of department and the Senior Vice President for Innovation and Entrepreneurship.

05 TERM SHEET REVIEW

Before the first negotiation meeting, the founders will receive the draft term sheet and a time schedule. To make sure the founders are well briefed and prepared for the negotiations, DTU offers Entrepreneurship Packages. These packages give access to legal and financial con-sulting provided by top lawyers and accountants, and DTU will pay for the first three meetings. At this point, we also strongly encourage you to bring your most experienced mentors/advisory board members into play or seek alternative professional advice to support you during the negotiation process.

Founders

Central Business Development

Legal & Contracts

Department

Head of Central Business Development

Senior Vice President for Innovation and Entrepreneurship

TERM SHEETSIGNING

CONTRACTNEGOTIATION

TERM SHEETNEGOTIATION

CONTRACT DRAFTING

SIGNING ANDCHAMPAGNE

05

06 08 10

07 09

06 TERM SHEET NEGOTIATION

The first step is to make sure that the draft term sheet creates a common ground. DTU Central Business Development will present its suggestion for a commercial agreement with the spinout company. We will go through the draft term sheet and agree on the individual terms. It is our experience that this approach is the best way to avoid a lengthy process.

07 DRAFTING TERM SHEET

The term sheet that will kick off the drafting of the detailed agreements is signed. When we sign the Term Sheet we confirm that we agree on the overall and most important terms of the transaction we are about to make. There will be issues to discuss in the detailed agree-ments as well, but since we have signed the term sheet we can expect the further discussions to be less complicated.

08 CONTRACT DRAFTING

As soon as the spinout team and DTU Central Business Develop-ment have reached an agreement at term sheet level, Legal & Contracts will start drafting a detailed agreement in an iter-ative process with the spinout company.

09 CONTRACT NEGOTIATION

Once the contract is drafted, the founders are recommended to review it with their financial and legal advisors and/or advisory board before the final signing.

10 SIGNING AND CHAMPAGNE

When both parties have confir-*med all terms in the agreement, the final agreement will be ready for signing within 1-2 weeks.

Founders

Central Business Development

Legal & Contracts

Department

Head of Central Business Development

Senior Vice President for Innovation and Entrepreneurship

Commercialization models

THE LICENSE MODEL

When making an agreement about the commercialization of a DTU technology, the License Model is typically the starting point as it is the most common way to obtain commercial rights to IP and technology.

DTU Central Business Development offers a standardized approach for licensing IP to new spinout companies. The license for new spinouts has a structure that makes it possible to defer some of the payments until an exit event or until products reach the market. It includes:

• An upfront fee covering historical patent costs and other direct investments made by DTU

• Payment of future patent costs• Royalties on net sales• Buyout option to convert the

license to full IP ownership

As an alternative to a partial or full payment in cash DTU Central Business Development is prepared to accept payments as equity (shares in the spinout) for selected spinouts with a well-defined exit strategy.

A license to DTU technology can be exclusive, partly exclusive or non-exclusive. The specific payment options offered by DTU Central Business Development will depend on the structure of the specific license terms agreed with the spinout company.

The payment options will always seek to reflect the tight liquidity situation in spinout companies and we can apply different tools to relieve liquidity stress in the company’s early life.

THE OPTION MODEL

The Option Model is often used before the License Model and is usually created to enable the evaluation of the value of a DTU technology with the perspective of obtaining an exclusive license agreement or purchase of the technology.

The Option Model can best be compared to a time-limited licensing agreement with less items to negotiate.

Payments are always, as a minimum, equal to patent costs during the period which can have a maximum duration of 12 months.

Dictionary

Advisory boardA small group of people with vast industry and start up experience who will act as counsellors to the founder team on a no-pay basis. It is not to be confused with a board that is an official part of the registered management and which will be held responsible for the running of the company.

Articles of associationA document that specifies the regulations for a company’s operations. They define the company’s purpose and lay out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled. The Articles of association identify the manner in which a company will issue stock shares, pay dividends and audit financial records and power of voting rights.

Buy out optionAn option to obtain ownership to IP in return for cash payment or shares.

DTU foundersMembers of a founder team working at DTU at the time of establishment of a spinout company

Entrepreneurship packageLegal, financial and tax advice from top legal and accounting firms to DTU founders. First 3 meetings paid by DTU Central Business Development.

EquityShares of ownership in a company.

Founder teamThe team that will establish and run the spinout.

Investment agreementA contract establishing the terms of an investment. The contract typically specifies the amount of the investment and the rights of the investor.

IP Abbreviation for Intellectual Property which is a broad categorical description for the set

of intangibles owned and legally protected by an organization from outside use or implemen-tation without consent. At DTU, Intellectual Property is restricted to protectable inventions and software which DTU is entitled to.

Licensing agreementRefers to a written agreement entered into by the contractual owner of IP offering permission to another to use that IP or engage in an activity in relation to that IP.

Shareholder agreementA shareholder agreement is an arrangement between a company’s shareholders describing how the company should be operated and the shareholders’ rights and obligations. It also includes information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders.

Patent costCost payable for filing, prosecu- tion and maintenance of patents.

Royalty Cash payment made on a frequent basis, usually once or twice a year. The amount depends on the level of actual sales.

SpinoutA company established on the basis of a DTU invention/technology and IP.

TRLTechnology Readiness Level which is a method of estimating tech- nology maturity on a scale from 1-9, where 1 corresponds to “basic principles observed” and 9 corres-ponds to “actual system proven in operational environment”.

Term sheetA legal document which is signed by both parties laying out the heads of terms of the prospective transaction – e.g. equity percentage, royalty, up- front payment, milestone terms.

Upfront feeA cash payment to DTU made at the signing of a licensing agreement.

Who we are. DTU Central Business Development is responsible for commercialization of inventions developed at DTU. Our most important task is to make sure that DTU inventions and technologies are matured and applied in the industry – thereby creating value for society. It is our ambition to do that as professionally, fast and seamlessly as possible and we continuously strive to provide optimal conditions and best possible terms for the founder teams, customers, partners and investors. DTU Central Business Development employs 20 people with diverse commercial and technical backgrounds. The unit is headed by Head of Business Development Peter Sylvest Nielsen.

DTU

Anker Engelunds Vej 1

Bygn. 101 A

DK-2800 Kgs. Lyngby

Denmark

Phone +45 45 25 25 25