Golden shares and anti-dilution provisions in university spinouts

18 June 2015

The Technology Transfer Offices (TTOs) of Cambridge, Edinburgh, Imperial, Oxford, Manchester and UCL have collaborated to produce another briefing paper called “Golden Shares & Anti-dilution Provisions.” This paper has been written by Tom Hockaday, CEO, Isis Innovation ltd and Tony Hickson, Managing Director Technology Transfer, Imperial Innovations plc.

From time to time the idea of introducing anti-dilution provisions into university spin-out company shareholder agreements re-emerges for discussion. When the idea that universities could have special ‘golden’ shares in spin-outs from their universities was first proposed many years ago, the practicalities were challenged by some seasoned investors, as no special provisions would survive further rounds of investment.

However, the idea has recently been revived by some influential UK based investors and other commentators as being a potential solution to solve problems that they see are holding back the formation of technology companies in the UK namely:

  • that UK universities take too much equity in spin-outs and more equity should be retained by founding entrepreneurs to incentivise them to carry out this type of activity
  • that negotiations between universities, founders and investors around equity and IP (which are often linked) take too long and this may be limiting the numbers of start-ups being created

As one experienced investor and advocate for this model explains:

The real idea is to maximise the number of spinouts formed and not maximise what the universities get for the IP. My argument is they will make more money since there will be so many more companies formed

As such, it is worth exploring the idea and issues raised.

To read the full document, please click here.