TiE Silicon Valley University Mentors Webinar: “Legal 101 for Startups“
Your Legal Checklist for Startup Success
The journey of an academic founder—from inventing technology in a lab to leading a commercial company—is both exhilarating and complex. While scientific rigor is your foundation, mastering the legal and corporate infrastructure is essential to securing investment and scaling your venture.
In a recent TiE Silicon Valley University Mentors Webinar, Paul Hastings Corporate Partners James Huie and Sarah Gagan shared a “Legal 101” roadmap for founders, focusing on the critical steps in forming a company and licensing intellectual property (IP) from universities.
Transactional vs. Litigation: Choosing the Right Legal Partner
The first rule of startup legal strategy is selecting the right kind of attorney.
- Litigators handle disputes, arbitration, and court cases — think “Suits.”
- Transactional Attorneys (like James and Sarah) focus on building the business — forming entities, drafting contracts, and structuring deals.
For startups, transactional expertise is crucial, especially in corporate law and IP licensing. Investors expect a well-organized corporate structure and clean IP ownership before committing capital.
“How tidy the house is is a reflection of how clean and tidy they might run the company.”
— James Huie
The Startup Life Cycle: Where Legal Plays a Role
Legal counsel is integral throughout every phase of a company’s growth:
- Pre-Formation: Identify the invention and assess its commercial potential.
- Formation & IP Licensing: Form a company (typically a Delaware C-Corp) and license the foundational IP from your university.
- Financing: Secure funding through Angel, Seed, Venture, and Growth rounds.
- Exit: Achieve liquidity through M&A or an IPO.
Understanding Corporate Structure
A standard Delaware C-Corp operates with defined roles and fiduciary responsibilities:
- Shareholders: Elect the Board of Directors.
- Board of Directors: Makes major decisions—financing, M&A, executive hiring, and strategic partnerships—always in shareholders’ best interest.
- CEO: Executes the Board’s decisions and oversees day-to-day operations.
This structure ensures governance discipline—something investors value highly.
The Crucial Steps of University IP Licensing
For academic founders, commercialization begins with licensing the core technology from the university. Sarah Gagan outlined the process and the key negotiation points every founder should understand.
The Licensing Process
- Identify and Engage: Initiate contact with the researcher and the university’s Technology Licensing Officer (TLO), who has authority over licensing decisions.
- Option Agreement: Sign a short-term Option Agreement (typically $2K–$10K). This grants the right to evaluate the IP internally—without commercial use—and an exclusive period to assess its market potential.
- Negotiate Terms: If the startup decides to proceed, negotiate a term sheet defining deal structure, field of use, and financial obligations.
- License Execution: The TLO finalizes the agreement using the university’s standard licensing template.
Key Negotiation Points for Founders
- Exclusive vs. Non-Exclusive: Startups almost always seek exclusive licenses to secure control over patent prosecution and enforcement. In exchange, universities often require development milestones or minimum royalties.
- Scope (Field & Territory): Most licenses limit exclusivity to a specific Field of Use (e.g., “for kidney disease treatment”) and a Territory (ideally worldwide).
- The Know-How Gap: Universities typically license patents, not know-how, due to academic freedom concerns. If non-patented knowledge is essential (like manufacturing processes), founders should arrange a separate consulting agreement with the faculty inventor.
From Innovation to Investment
A solid legal foundation is not just about compliance—it’s about readiness. Clean IP ownership, a clear corporate structure, and defined founder agreements demonstrate professionalism and discipline, increasing investor confidence.
By understanding this legal landscape—from formation to licensing—academic founders can confidently take their innovations from lab bench to boardroom, setting the stage for sustainable growth and successful fundraising.
