The Computer Laboratory@University of Cambridge has launched a new approach to licensing its IP to start-ups that it asserts will be attractive to new companies strapped for cash, strengthen relationships between start-ups and the university, and ultimately lead to the creation of more new companies.
Called the “Golden Share,” (www.co.cam.ac.uk/gold-share) it works like this: The start-up gives a small, non-dilutable percentage of the company (usually 1%) to the Computer Laboratory in exchange for the IP, which enables start-ups “to publicly and consciously link their destinies to those of the Computer Laboratory, and the Computer Laboratory to further strengthen their links with industry,” according to a statement released by the laboratory. The statement asserts the following benefits:
- The deal provides “a clear association of the pedigree of your company’s founders with their training and education at the UK’s most prestigious university;
- As a philanthropic gesture, which involves no cash outlay for fast-growing, cash hungry business, it nevertheless enables the success of your company to contribute in a small way, helping future generations of entrepreneurs and academics to follow in your footsteps;
- On a practical level the 1% Golden Share scheme is a means of ensuring a continuing dialogue between the Computer Laboratory and your company through its various stages of development, enabling you to access the vast network of academics and specialists in your chosen field.”
The first start-up to gift the university a ‘golden share,’ 1248 Ltd., is unusual in that it was not even spun out from lab IP. Pilgrim Beart,its co-founder and CEO, had served as a business fellow at Cambridge and became familiar with the university’s ecosystem. “I like things that are simple enough that people can understand,” he explains. “Quite a few people, including me, felt that the IP policy was an impediment to starting companies.”
In his second start-up, Beart recalls, “we had to take IP out of two universities and it took us 18 months to negotiate IP agreements — and that’s ridiculous. It’s a horrendous waste of time, and it creates uncertainty.”
Beart concedes there aren’t any many benefits from this transaction to his company. “I suppose it’s a benefit to associate with a prestigious lab,” he notes. “If I had been a researcher in the lab then obviously the golden share creates a nice, simple, clean methodology for rewarding my parent organization.”
As for potential drawbacks, Beart continues, “you have to work out how to do it — but I enjoyed doing that, talking with the lawyers. In the end it seems to be relatively straightforward — we created a new class of shares. We have no rights ever except the right to participate in a sale, and we have voting rights to protect our rights — like if they are trying to dilute the share you have almost infinite voting rights.”
But that doesn’t solve a potential problem, he concedes. “When a new company has some momentum it has a burn rate; it needs more money to grow or to stay alive,” Beart explains. “They may be pressed into a deal they do not want to do but need to survive. Essentially the new funder can name their terms, and existing shareholders are crushed down. The university is protected in theory, but if the company is facing extinction anything is possible.”
One of the leading proponents of Golden Share, serial entrepreneur Hermann Hauser,who co-founded Amadeus Capital Partners, agrees with Beart about the complexity of current IP negotiations. “The main problem here is the tedious way in which universities treat IP,” he asserts. “There is so much discussion on what it is worth, endless negotiations, and I was very keen to make this formulaic. You don’t care what it’s worth unless the 1% is undiluted; the real idea is to maximize the number of spinouts formed and not maximize what the universities get for the IP. My argument is they will make more money since there will be so many more companies formed.” A detailed article on the benefits and potential drawbacks of the “golden share” model appears in the August issue of Technology Transfer Tactics. To subscribe and access the full article, as well as a subscriber-only archive filled with hundreds of best practices, case studies, and success strategies for TTOs, CLICK HERE.