Action Plan

1. Initial Decision to Proceed

Refer to the Spin-out Questionnaire (pages 13 and 14) and discuss with your colleagues (and Isis if you wish) whether you want to start looking at the possibility of starting a spin-out company.

2. University Permission

If you wish to proceed, because you may become a shareholder, director, and/or consultant to the spin-out, you will need to consider the University's rules about its employee's holding external appointments and conflicts of interest. You will probably need consent from at least one of: your Head of Department, your Faculty Board, the General Board's Appointments Committee, and the Conflict of Interest Committee. Isis will guide you through all this. You may also require clearance from any external funders of your research.

Your Isis Project Manager will present the business plan and proposed structure of the spin-out, including the suggested equity split, to the Managing Director of Isis and the University Finance Director (also a director of Isis), who will either seek more information or approve the proposals.

3. University and Founder Researchers Equity

The University expects to be a significant shareholder in the spin-out company because of the resources and permissions it makes available to the spin-out. Isis will provide advice about the division of the equity spilt between the University, the researchers and the investors. The University expects that its shareholding be the same as the founder researchers. There are a number of factors to be taken into account: for example, the roles of the individual researchers, the value of the intellectual property, the amount of capital required, the involvement of the University in reaching the stage where a spin-out is possible, and the importance of the association with the University. If there is a disagreement between the University and the researchers on this issue, the people involved will be asked to put their points of view to the University's Intellectual Property Advisory Group, which will attempt to broker an agreement acceptable and fair to all parties.

The division of spin-out equity between all those involved and the management and employees is a key issue and must be addressed early in the procedure. Since it will be a multi-party negotiation it is rarely easy. Having agreed their respective shareholdings, the researchers and the University can then negotiate together with the investors as to what percentage of the company they wish to sell to the investors for their cash investment. In practice it is rarely as simple as this and an iterative, three-way negotiation usually results. Isis has assisted in several of these negotiations and, although our responsibility is primarily to our own shareholder (the University), our interest in helping to complete the deal as rapidly as possible has proved helpful to the researchers spinning out.

4. Technology Licence

If the spin-out intends to use any intellectual property owned by the University or Isis it will need appropriate licenses to the intellectual property (patents, copyright, know-how etc). The technology licence will not be free of licence fees and royalties. However, the licence terms will be sympathetic to the circumstances of the new company, due to the importance of cash to the spin-out in its early years.

5. Business Plan

This describes what the business will do and how the investors will get a return. With some spin-outs the business is at too early a stage for numerical projections to be meaningful. In these cases the investment decision will be made on the basis of confidence in the researchers and the technology. Although it is the responsibility of the investors to evaluate this, Isis will look at the technology on behalf of the University. The University's royalty-sharing rules do not apply to Spin-out equity. If there are multiple researchers, their individual entitlements must be covered by agreed equity shares or in some other way.

6. Documentation

• Heads of Agreement
  This sets out the key provisions of all aspects of the spin-out company and provides a summary upon which lawyers can build full documentation.
  
  
• Shareholders Agreement
  This addresses the relative shareholdings between the founding researchers, the University, management, and investors, and the protections which each shareholder seeks. The University has a standard shareholders agreement which is a useful starting point in discussions.
  
  
• Technology Licence Agreement
  This will authorise the company to use any specified intellectual property owned by the University/Isis which the company wishes to use and which the University is able to make available to the company.
  
  
• 'Oxford' Trade Mark Licence
  The University trading as Oxford University Press has trademarked the word "Oxford". If the spin-out company wants to use the word "Oxford" in its name, it will need permission from the University which has a standard licence agreement.
  
  
• Consultancy Agreement
  The company will want to secure access to the services of the founding researchers. The arrangements between those individuals employed by the University and the company need to be approved by the University, via Research Services.
  
  
• Managing Director's Service Contract
  This contract will be supplied by the company's lawyers and, whilst it does not need University approval, it is advisable to ensure the University has no objections to it.
  
  
• Memorandum & Articles of Association
  These documents are standard company documents which set out the nature of the company's business and its operations. These will be supplied by the company's lawyers.
  
  
• Share Option Scheme
  All spin-out companies are likely to establish an incentive scheme at some stage. There may be advantages, relating to the option exercise price, in setting up a share option scheme at the spin-out stage.
  

6. Final Approval and 'Completion'

The necessary documents will be signed by the researchers, the University, Isis (if Isis technology is involved) the external investors and any other shareholders. In order to optimise the taxation position of the company and those involved current legal and tax advice is followed.