Issue link: https://htpgraphics.uberflip.com/i/246991
Funding Section 5 Research Institution It is likely, though not always the case, that the research institution will take a significant shareholding in exchange for various things such as, IP rights, infrastructure contributions, general support, use of research institution name/association. Sometimes this shareholding will be held on behalf of the research institution by its IP commercialisation organisation. Sometimes the research institution will invest cash at the start-up stage mainly for proof of principle purposes or to match or attract a first/ early Investor. The research institution will frequently expect to have good information about its own spin-out company activities and this is achieved either by including certain obligations for this provision in the Shareholders' Agreement and/or having a representative on the spin-out board – quite often it will nominate someone with market experience of the spin-out's activities but sometimes it will nominate a member from its IP commercialisation organisation's board. Early Stage Funders As with the research institution itself, the University Challenge Fund and other dedicated early stage investment funds set up by external investors will expect similar rights to the research institution. As many Challenge Funds are set up as separate investment vehicles (although owned by a university), this can result in a separate (additional) shareholding to that of the research institution. Whilst both the research institution (acting through its IP commercialisation organisation) and the Challenge Fund are interested in realising a capital gain by selling their shares, it is unlikely that they will be active in managing the spin-out or being a board member beyond about two years from the creation of the spin-out, by when they are likely to have been replaced by experienced directors and professional managers (but they will still retain their shareholding). At times these early stage funders like to co-invest with a number of similarly structured funds as a consortium and one will be chosen to handle most of the negotiations ("the Lead Investor"). 28