The Founder Driven Route is for academics who want to take developmental responsibility for their startup

Founder who elect to take developmental responsibility for their startup will receive the lower level of basic support from the Imperial Startup Team. The Startup Team will provide less hands-on assistance and the university will receive 5-10% founding equity. The university will also receive non-dilution protection on their percentage equity holding up to a pre-agreed level of investment. This may range from £3m to £15m depending on the nature of the company being formed.

Academic founders taking the Founder Driven route will therefore retain between 90% and 95% of the initial founding equity, to be distributed among themselves.

Founders who choose the Founder Driven route will agree with the Startup Team a period of time (typically 6-12 months) during which they will test the market. During this time they will establish the existence of customers, the potential for acquiring funding, and will attract professional management to run the company.

During this time Imperial will not market the Intellectual Property which is the basis of the company. This is known as the 'Standstill' period. Imperial will maintain the patent(s) up to an agreed cost ceiling.

If, during the standstill period, there is sufficient evidence from the company founders of engagement and interest in the new company, the IP will be exclusively licensed into the new founder driven company on reasonable commercial terms. This is a similar approach to that used by a number of successful US universities (though details may differ) and recognises the developing maturity of the entrepreneurial ecosystem around Imperial and London.

The Founder Driven route follows the process below

  1. Founders agree to take the Founder Driven route and sign a non-binding Letter of Understanding (LoU)
  2. Founders and Imperial will sign an IP Standstill letter agreeing to a fixed test period and a ceiling on IP maintenance costs
  3. Founders will be provided with a startup package of template agreements and an IP Term sheet
  4. Founders will engage a law firm drawn from the preferred suppliers list
  5. A shell company can be established by the law firm selected (optional at this stage)
  6. Founders will form a management team
  7. Founders will attract investors
  8. Founders and the Imperial Startup Team will agree the Memorandum of Understanding (MoU) and licence term sheet. The MOU acts to ensure that all founders agree on the route forward and the equity split. It also acts as guidance for Imperial’s lawyers to draft the full legal documents which will be finalised in association with the founders and any incoming investors.
  9. Founders will then finalise investment with first investor
  10. The startup is formed with small, minority, non-dilutable shareholding and royalty bearing licence to Imperial College London

How the Startup Team will decide on Imperial’s initial equity holding

Every startup proposition has its own unique circumstances, such as the characteristics of the technology sector and the obligations Imperial has to the funders of your research.

Imperial College London will therefore decide the initial university equity holding on a case-by-case basis. In the Founder Driven route, this will always fall in the range of 5% - 10%.

Investment Threshold
This equity holding will remain unchanged throughout the initial investment rounds until a cumulative investment threshold is reached. This threshold will also be agreed on a case-by-case basis. As the founders are responsible for managing the growth of the startup, Imperial will set no restrictions on the terms of any funding round; therefore it could take one or multiple funding rounds to reach the investment threshold.

Option pool
The founding team (inventors) will receive between 90% and 95% of the founding equity in the Founder Driven route. Because this represents a dramatic decrease in university founding equity, it is expected that the founders will draw any option pool to be set aside for incoming management from their initial equity holding.

Non-dilution clause
A clause will be added to the Articles of Association of the new startup, based on standard clauses provided by the British Venture Capital Association, that will act to maintain the university founding percentage shareholding at the agreed minimum threshold (accomplished by the issue of the appropriate number of additional shares to Imperial College London). This will last only until the cumulative investment in the company reaches the pre-agreed amount and, after this point, the university equity will be subject to dilution in the same way as other shareholders.

Setting the investment threshold
As guidance, our approach to the agreed investment threshold will differ depending on the capital requirements of the new company. For example, with a pharmaceutical company, which may require tens of millions of pounds of investment to progress the technology, we would seek a relatively high initial threshold – say £15m. For a software company, in which the required investment may be relatively low, we would expect to agree a lower hurdle - say £3m. The precise threshold that the non-dilute will be set at will therefore be agreed on a case-by-case basis.

We will provide an equity modelling tool to founders to allow you to do your own scenario analyses of the impact of these investment ranges on your founding equity.