For many scipreneurs, the journey begins when they decide they want to use technology they have developed at the university and realize they are not its owner.

Signing a licensing deal becomes the creational act of a spinout, but it's a process that can be extremely cumbersome, lengthy, and in some cases even expensive.

One of the simplest cases is when the university holds a patent that the company wants to exploit. Licensing a patent means that the university will transfer either the ownership or will cede the rights of exploitation to a company, in exchange for something (normally money).

Since applying for a patent and paying the upkeep fees is relatively expensive, many TTOs want to recoup those costs upfront, which means the startup should have some cash available already. However, it is possible to sign a licensing deal guaranteeing the payout as soon as the company generates some revenue, but not earlier.

The licensing of a patent almost always includes some form of future revenue sharing.

It is very common to see European universities that hold non-negligible amounts of shares in spin-offs as part of the licensing deal. Unless the university takes the role of an active investor, I believe this is a very bad mistake, since it'll stumble the future possibilities of the company to raise money if needed, and it'll create some inherent tensions in the governance of the startup.

A sensible approach is to agree on some form of success sharing. If the company makes money out of the patented invention, then a percentage is paid out as royalties to the university. There can also be an agreement on an exit fee (if the company is bought by someone else), or fees for sub-licensing.

However, it's useful to put a limit on how much is paid back.

As time passes, the value of the patent diminishes: New inventions will be created, and new knowledge will be developed.

If the company is already operational (for example, a spin-out that is going through a second licensing agreement round), it may possess enough cash to fully buy out the patent. In this case, the risk is not shared and is completely in the hands of the company. If they never make money out of the invention, the university does not care.

Licensing and spin-out creation is a contentious topic.

Some countries like The Netherlands have tried to streamline the process by having a blanket deal. In this way, they hope to make the process more transparent (founders know they are not getting worse off compared to their peers). However, not all universities have signed the agreement, and it is still common to see universities being massive shareholders in startups.

Something that for me has always been important is to use the licensing deal as a way of paying it back.

Public money has been used to create innovations, and I think it is fair that some of the profits are given back.

It is a balancing act, because if universities ask too much then the company can't be successful. If they ask too little, they only act as risk-lowering actors that allow others to become rich. I know, not everyone will lead the creation of a company like Google, but in many small bets, there'll always be a couple of winners.