Start-up Guide

Information to assist you with your Start-up

University of Melbourne research has the capacity to make a positive impact on society, the environment and the economy, in Australia and worldwide. One way to achieve impact from research is through a start-up company, a commercially sustainable business founded and run by researchers with the support of the University.

This guide is intended for all University academics, postdoctoral researchers and graduate students, in any field, who are curious about how to achieve broad impact from their research through a start-up. The guide provides information and advice on how to develop your start-up ideas and describes the University resources that are available to support you.

The University is committed to encouraging entrepreneurship in its staff and students. With this guide, the University will help you take the first steps in the path towards a start-up.

1. Understanding the basics

  • 1.1 How can I achieve impact from my research?

    The Australian Research Council defines research impact as “the contribution that research makes to the economy, society, culture, national security, public policy or services, health, the environment, or quality of life beyond contributions to academic research”.

    If the only output from a research project is publications, the impact of this research, according to the definition, is limited. Beyond publication however, a range of commercialisation pathways are available to researchers which offer the potential to maximise the benefit of their work.

    Other pathways to impact include:

    • A partnership between the researchers and existing industry in the form of joint research. Any intellectual property (IP) arising from the partnership is transferred from the University to the industry partner via a license agreement.
    • Technology transfer to a spin-out company. Here, a spin-out is defined as a new company founded by the University, and at least partially owned and controlled by the University. The University researchers working on the associated IP may be involved in founding or running the spin-out (for example, as the CEO or CTO), or they may have no role. Spin-outs are distinct from start-ups and are not covered by this guide.
    • The creation of a start-up company. Here, a start-up is defined as a new company, founded and run by researchers with the support of the University. The purpose of launching a start-up is to create and grow a commercially self-sustaining business based on the founders’ research ideas. Achieving impact via a start-up company is the focus of this guide.
  • 1.2 Why would I get involved in a start-up?

    There are many reasons to get involved in founding a start-up company based on your research. For example, you might be interested in the potential to:

    • Play a significant role in achieving impact from your research
    • Explore an alternative career to academia
    • Create employment for your students
    • Embark on an exciting new path as a business founder and owner
    • Take on more responsibility and independence
    • Create a mutually beneficial partnership between the University and your start-up, which could bring prestige and research contracts to the University
    • Discover and lead new research ideas and directions
    • Reap financial reward.

    A word of advice; although some start-up founders become very wealthy, most don’t. A much more likely outcome, if you persist as an entrepreneur and manage risk wisely, is that your financial situation will not change drastically. However, you may enjoy some or all of the non-financial benefits listed here. Don’t get involved in a start-up for major financial reward alone, or you will almost certainly be disappointed.

  • 1.3 What would be the consequences for my University job?

    How your involvement with a start-up affects your University job will depend on your specific circumstances. In the most extreme case, founding or co-founding a start-up might involve leaving academia permanently and embarking on a new career with the start-up. The prospect of a career change requires careful consideration, especially if you have invested years or even decades in your academic career.

    The founders of many successful start-ups did not permanently leave the University, and remain successful academics. For example, Professor Rob Scholten incubated MOGLabs on weekends and even now spends several days per week in his University lab.

    Of course, even part-time involvement in a start-up can take time away from traditional academic activities such as research, teaching, administration, work with professional societies, publication and applying for research grants, although start-up activities might involve some of these. Universities and funding bodies are however increasingly interested in academic research that leads to commercial and community impact. So being a co-founder of a start-up might have a positive impact on your academic career. The University is continuing to develop support for staff participation in start-ups.

  • 1.4 What do academics know about running a business?

    As a researcher, you already know a lot about running a business. The research business has more in common with commercial businesses than you might realise. For example, in your 'research business':

    • Your customers are other researchers.
    • Your product is publications.
    • A valuable product (publication) creates opportunities for your customers by enabling them to do more of their own research.
    • The currency that measures the value of your product is citations.
    • Your investors are the University and your funding bodies.
    • The role of the CEO (the research group leader) is to create and communicate a vision that inspires the team (postdocs, students, technical support), your customers and your investors.

    In addition, your skills at testing research ideas, which often requires a logical, iterative approach, can be used to create and test business ideas (see Section 2.3). This approach has features in common with the scientific method which will be familiar to many researchers.

    A researcher's business skills are most valuable in the early, or discovery, stages of a start-up. As the start-up evolves and matures, different leadership skills are often necessary. So, if a start-up is successful, its founders might not run it forever.

  • 1.5 What kind of research ideas could drive a start-up?

    Although research groups share important characteristics with commercial ventures, not all research ideas can be transformed into successful businesses. The most suitable ideas are those that solve significant and immediate problems for customers. Although novelty and scientific excellence are integral to research, they are only valuable in the commercial world when they fulfil customer needs.

    Potential start-up founders must understand clearly who their customers are, what problems they face, and what they value. The process for addressing these questions and assessing the potential commercial viability of your research ideas is discussed in Section 2.

  • 1.6 What must I do to manage conflicts of interest?

    If you continue to work for the University while being involved in a start-up, conflicts of interest may arise. The University’s Research Integrity in Practice guidelines for staff describe conflicts of interest as "any circumstances where a researcher has a real, perceived or potential opportunity to prefer their own interests, or those of any other person or organisation, to the interests of the University".

    The guidelines also state:

    "Conflicts of interest can arise naturally from a staff member’s engagement with the world outside the University. The mere existence of a conflict of interest does not necessarily imply wrongdoing on anyone’s part. However, it is essential that University research is carried out (and is seen to be carried out) in an impartial and independent manner and is not compromised by any commercial activity".

    To manage potential conflicts of interest and avoid serious consequences for you or the University:

    • Inform the University as early as possible if you’re considering founding or being involved in a start-up.
    • Discuss potential conflicts of interest openly.
    • Be prepared to relinquish some of your University responsibilities while you’re involved with the start-up.

    The University’s guidelines present strategies for managing conflicts of interest based around six R’s – register, restrict, recruit, remove, relinquish and resign – and discuss when each of these strategies is most and least appropriate. For example, if you’re a member of a departmental or faculty committee that decides on the pricing and availability of University facilities for external industry customers, and you’re also a founder of a start-up company that wants to use those facilities, it would be appropriate for you to remove yourself from the committee.

  • 1.7 Successful University of Melbourne start-ups

    The University of Melbourne has a rich heritage of supporting start-up companies founded by its research staff and students. Notable University start-ups include:

    • Pharmaceutical company Hatchtech, founded in 2001 by Dr Vern Bowles, Deputy Director of the Centre for Animal Biotechnology. In 2015, Hatchtech signed a $A279 million deal with a major global partner, Dr Reddy’s Pharmaceuticals, to bring to market its innovative head lice treatment.
    • Drug developer Fibrotech Therapeutics, whose founder and CEO Professor Darren Kelly is Associate Dean of Innovation and Enterprise in the Faculty of Medicine, Dentistry and Health Sciences. The start-up – including its treatment for the fibrosis that causes diabetes-related kidney disease – was acquired in 2014 by Irish pharmaceutical company Shire in a deal worth more than $US557 million. The lead compound was discovered by Professor Kelly and Professor Spencer Williams, an Associate Director of the University’s Bio21 Institute.
    • Specialist lab equipment manufacturer and supplier MOGLabs, founded and run by Professor Rob Scholten in the University’s Department of Physics. The company’s high-performance laser technology and related equipment, sold to labs worldwide, are based on Professor Scholten’s novel use of existing technology.

2. Assessing commercial potential

  • 2.1 Who are my customers? What's my product? What is my value proposition?

    Many tools exist to help you, as a potential start-up founder, think through what product or service you might offer and what would make customers pay for this offering. Once you’ve made these decisions, you can develop your value proposition, a statement describing how your start-up’s product or service solves a problem for your customers, for example, by removing obstacles that prevent them from doing their jobs, or enhancing their ability to perform their jobs successfully.

    A well-regarded tool used by many successful start-up founders is the Value Proposition Canvas from Strategyzer, who have also produced a video explaining how to complete the canvas. This tool and others like it, help you see your proposed product or service from the viewpoint of your potential customers.

    The Value Proposition Canvas prompts you to answer questions such as:

    • What is your customer’s job? What are they aiming to do?
    • What obstacles, or ‘pains’, stop them today from doing their job? What causes them to fail?
    • Conversely, what ‘gains’ define success for them in their job?
    • What product or service might you offer to these customers?
    • What features of your product or service address each of your customers’ pains and gains.

    A successful product or service relieves the target customer's pain and creates gain. That is, there is a close fit between the left side of the Value Proposition Canvas, describing the customers’ job, pains, and gains, and the right side, describing your product or service.

    Completing an exercise like this often leads to a change in thinking about exactly who your target customers are and what you’re offering them. Who cares most about the problem your product or service is solving? Who feels the most pain from this problem today, and who will experience the most gain when it is solved? What features of your product or service relieve this pain, and create this gain? Are you spending time developing other features that don’t do this?

  • 2.2 How would the start-up make money?

    Once you have identified potential customers for your proposed product or service, other tools can help you consider how to build a commercially sustainable business. One example is the Business Model Canvas from Strategyzer, who have also produced a short video explaining how to complete the canvas.

    Completing a Business Model Canvas will prompt you to consider questions such as:

    • Of all the people who will interact with my product or service, which ones are my customers, the ones who will pay me for it? This exercise might also help you identify end users of your product or service, i.e. your customers' customers.
    • What am I offering these customers that they do not already get from their existing suppliers?
    • Is my offering sufficiently valuable for customers to consider switching from their existing supplier to a new, unknown supplier (my start-up)?
    • How will I communicate with my customers and deliver my product or service to them? Will I use direct sales, distributors or the internet? What will this cost me?
    • Of all the things that must be done to create and deliver my product or service to my target customers, what subset of these are critical to my business? What resources will I need to do these? What will these resources cost me? What partnerships might give me the other things I need? And what will these partnerships cost me?
    • What will my costs be over the next 12 months? The next five years?
    • Will my revenues exceed my costs?

    Completing a first pass at the Value Proposition Canvas and Business Model Canvas, based on your current understanding, will probably take less than an hour. However, both processes are iterative and will likely lead to revisions of your plans, such as re-thinking your target customers and your proposed product or service.

  • 2.3 What will tell me if my ideas could succeed?

    While the exercises described above clarify your ideas about what your start-up’s business might be, they do not generate any objective evidence that these ideas will succeed. And while a start-up inherently involves risk, you want strong evidence that these ideas will succeed before you commit your time, energy, reputation and potentially your family’s savings to it. The University will also want confidence in your business ideas before it supports you.

    The most valuable technique for finding this evidence is the customer interview. Approaches similar to those used in the scientific method, familiar to many researchers, can be used here. Your goal is to identify the most important hypotheses (used here to mean untested business ideas) inherent in the canvases and validate them with data that is as objective as possible, derived from discussions or interviews with potential customers. In this context, the word ‘customer’ includes end users, suppliers and industry experts as well as paying customers.

    In the early stages of developing your value proposition and business model, your goals in customer interviews are simply to learn what the jobs of the players in the industry are, what products and services they offer to whom and how the industry works.

    As you revise your Value Proposition and Business Model Canvases based on what you learn from interviews your goals in subsequent customer interviews will be to validate your key hypotheses. Focus first on exploring the most critical hypotheses, the ones which, if invalid, significantly change the whole canvas and the ones about which you know least. You’ll know that a hypothesis is validated if a number of interviewees, in response to open-ended questions, offer the same information without your prompting.

    Customer interviews are a different type of conversation from those you might have had before and it takes practice to conduct interviews that produce valuable information. Customising the interview questions for your purposes takes thought
    and practice too. For this reason, many pre-incubator programs for early-stage start-ups, including the University of Melbourne’s Translating Research at Melbourne (TRaM), focus on customer interviews. Another similar program, CSIRO’s ON Prime, requires participants to conduct at least 100 customer interviews to validate their Value Proposition Canvas. This is a lot of work. 100 interviews averaging 90 minutes each (including time to prepare, interview and synthesise) is four weeks of full-time work. But the insight you’ll get from conducting these interviews is priceless, so this is work that you and your co-founders must do yourselves. Don’t delegate or outsource it.

    The customer interview philosophy described here is consistent with the Lean Startup methodology, pioneered in Silicon Valley, which aims to reduce the risk of new ventures failing through an iterative development process involving prospective customers. Customer interviews will not only give you a deep understanding of the problems that need to be solved, but also enable you to focus your resources on solving them.

    Getting the best out of interviews

    When conducting customer interviews, it is important to:

    • Spend more time listening than talking.
    • Ask open-ended questions (don’t ‘lead the witness’). For example, you’ll learn more from saying, “I’d like to learn more about your job. What are you responsible for?” than from “So, your job is to keep your company’s infrastructure running – is that right?”
    • Ask about actions, not intentions. The most valuable information will come from customers’ current or recent behaviour, not from statements about what they might do in future. For example, if you’re investigating an idea
      for a new exercise regime, the question “How many times did you go to the gym last week?” will yield more useful information than “How often do you go to the gym?” (which is likely to uncover intentions rather than actual behaviour) or “Would you go to the gym to do X?” (which invites speculation about possible future behaviour).
    • Avoid undue influence. Most people naturally want to help, and more often than not, an articulate researcher communicating their passion about their new idea and asking the interviewee whether it might be valuable to their company will get a supportive response, which might or might not translate into sales. When requesting an interview, it’s best to be very general about what you’d like to discuss. For example, instead of saying “We’ve invented a new chemical that has higher efficiency and more stability that [compounds X and Y], and we think it will be very valuable in luminescent solar concentrators. Do you have time to help us validate this?”, it would be better to ask “We’re conducting research on compounds that might have applications in solar photovoltaics, and we want to learn about this market. Do you have time to help us by answering some questions?”
    • Avoid personal bias. When you have invested significant time and effort in developing an idea, it’s natural to seek validation of the idea’s value and to shy away from evidence to the contrary. However, while it might be painful for you to find out that your idea has limited commercial value, the sooner you discover this, the better. The history of technology start-ups is littered with stories of founders who invested huge amounts of time and money developing products that had no value to their target customers. Customer interviews, carried out without bias, will help avoid this.
    • Remember that you’re gathering information, not selling anything. That will come later.
  • 2.4 What impact am I really trying to achieve?

    Many successful technology companies have one thing in common; their leaders have consistently articulated a clear, simple and ambitious vision of the company’s impact and the way it will change the world. For example, the vision of co-founder Dr Elaine Saunders for Melbourne-based hearing health disruptor Blamey Saunders Hears is “Empowering you to take control of your hearing – making hearing health affordable and accessible.”

    The value proposition and business model canvases capture some of the strategy that your start-up will use to achieve your vision. As the start-up develops, this strategy might change significantly – or pivot – as you learn more about your target customers. However, your vision, once it’s established, is less likely to change.

    As leadership expert Simon Sinek explained in a TEDx talk, company leaders’ clear and consistent articulation of their vision fosters the commitment from stakeholders that is required to achieve major impact.

    Because of the power and importance of a well-defined, credible vision, you are strongly encouraged to invest time in developing a statement of your vision for your start-up. The challenge for most researchers is being sufficiently ambitious – that is, stepping back far enough from the details of the research to see how much it could change the world.

    One way to do this is to ask yourself a series of ‘what if ...?’ questions, by completing the Massive Canvas exercise in the StartUp Science® Toolkit.

  • 2.5 If not a start-up, then what?

    Even if you are motivated to achieve impact with your research, you might realise after completing the value proposition and business model exercises that founding a start-up isn’t the right decision for you and your research. What now? Here are some options:

    • Partnering with an existing company. Perhaps you’ve concluded that although your research solves a real problem, the market has no room for a new start-up. In this case, your research might be valuable to established companies through improvement to their existing products. Consider forming a partnership with one or more of these companies, in the form of joint research projects. Any resulting IP is typically transferred to the partner company via a license agreement.
    • Transferring the IP to a spin-out company, an entity that is at least partially owned and controlled by the University.
    • Redirecting your research. If your customer interviews identified a real problem that your current research does not solve, but that related research might, you could consider redirecting your research to solve the problem. If so, stay connected to the customers whose problem you aim to solve, as their feedback may be useful later (see Section 3.3).

3. Developing commercialisation and business plans

  • 3.1 What is a commercialisation plan?

    The commercialisation plan details how you will develop a saleable product or service from your research (that is, from the University IP generated by your research). Typically the commercialisation plan ends with a prototype of the first product or service.

    A valuable commercialisation plan includes a target timetable and measurable deliverables, or outputs, for each step. It addresses questions such as:

    • What is the proposed product or service to be developed from the University IP?
    • What is the development status of the University IP today? Has the concept been proven in a research setting? Has it been proven outside a research setting? Has a prototype of the proposed product or service been built? Ideally, your assessment of the development status includes objective evidence from an expert who is not involved in the research or the proposed start-up.
    • What parts of the development will be done within the University, and what parts will be carried out by an external commercial entity such as your proposed start-up?
    • What (if any) third-party IP is required to develop the product or service?
    • Who will fund the development work?
    • Who will do the work?
    • If new people are required, how will you, as the prospective founder of the proposed start-up, identify and recruit these people?

    Like the value proposition and business model exercises described in Section 2, the development of a commercialisation plan is necessary for prospective founders of a start-up. It will give you a clear understanding of the steps you need to take to work out what funding, people and resources you’ll need, and what level of risk you’re taking on. For this reason, the commercialisation plan is one of the documents that the University requires before it considers licensing its IP to your start-up. A clear and credible plan will help increase the University’s confidence in you and your proposed start-up – and encourage the University to support it. Your successful formulation and execution of this plan will help maintain the University’s confidence and support.

    Appendix A provides a template for a commercialisation plan.

  • 3.2 What is a business plan?

    The business plan for your proposed start-up sets out in detail the financial goals of the start-up together with the resources required to achieve the key milestones. It describes how you as founders, plan for the start-up to become profitable and therefore financially self-sustaining.

    This plan usually begins where the commercialisation plan ends; with a prototype of the first product or service. It includes quarterly and annual analyses of expected costs and income typically projected over five years. In addition to showing the sources of expenses and how these will be met, the plan details who will be involved by defining the start-up’s customers, suppliers, partners and in-house team.

    A start-up’s progress against the later stages of its business plan is intrinsically more easily measurable than its progress against its commercialisation plan because the metrics are simply quarterly revenue and expenses. The business plan usually includes a discussion of your competition (for example, your customer's current suppliers) and the reasons why customers will choose your product rather than theirs.

    As with the commercialisation plan, development of a credible business plan is a necessary exercise for you as a founder. The University will require a credible business plan from you as a start-up founder before granting you rights to use its IP (see Section 4.4).

    You can use your completed Business Model Canvas (see Section 2.2) as the basis of your business plan. Appendix B provides a template for a business plan.

  • 3.3 How do I test my commercialisation and business plans?

    Section 2 described a method to explore your start-up’s value proposition and business model, based on identifying key business hypotheses and validating them through interviews with prospective customers, their customers, suppliers, partners and industry experts. The same method can be used to validate your commercialisation and business plans. This process will probably lead to many revisions and iterations of the canvasses and to both plans. It might take months or even years and hundreds of customer interviews, to converge on canvasses and plans with sufficient validation for you (and your investors) to believe in. Just as more relevant data leads to greater confidence in scientific results, more data from well-conducted customer interviews leads to a more credible business plan.

4. Managing intellectual property

  • 4.1 What types of intellectual property are there?

    As a University researcher, you may have participated in the creation of IP. A broad definition of IP includes material such as literary and artistic works, lab notebooks, designs, databases, software, inventions, scientific discoveries and proprietary information. IP can be protected in a number of ways, such as by patenting. In order to execute its commercialisation and business plans, your start-up might want to use some or all of these types of IP, especially patented inventions and software.

  • 4.2 Who owns my ideas?

    According to the University’s Statute: “The University owns intellectual property created by
    staff in the course of, or incidental to, employment with the University, except copyright in scholarly works.”

    Students can, under some circumstances, own the IP they create, but the University will ask them to assign ownership of this IP to the University before commencing formal protection of the IP.

    Your faculty’s Business Development team member can offer advice and guidance with respect to ownership of IP created through your research.

    If you are considering a start-up based on research you’ve done while working at the University, it is safest to assume that the start-up will need to use IP owned by the University. To determine the circumstances under which the University will let you use the IP in this way, it is necessary to understand the University’s commercialisation objectives.

  • 4.3 What does the University want to achieve with commercialisation?

    The University of Melbourne engages in technology transfer to create impact. In other words, to change the world for the better and enhance its reputation.

    Revenue generation is an important but secondary goal that flows naturally from success in creating impact. To achieve its goals, the University is required to consider all commercialisation options for its IP, not only your proposal to license the IP to your start-up, but also licensing the same IP to established companies. As owner of the IP, the University will choose the commercialisation option or options that it believes best fulfil its goals.

  • 4.4 What will the University want from my start-up?

    4.4.1 Business and commercialisation plans

    To consider all commercialisation options for its IP, including your proposal to commercialise the IP via your start-up, the University needs to understand and have confidence in your plans, specifically your commercialisation and business plans.

    To help the University understand the advantages of your proposed commercialisation pathway over the alternatives, make sure that your business plan includes a clear discussion of your competition (for example, your customers’ current suppliers) and the reasons why customers will choose your product rather than theirs. If you looked at alternative pathways to impact for your research, such as a partnership with an established company, your findings as to why your start-up is a better path to market for the University’s technology will also be useful.

    4.4.2 License agreement

    The type of license or IP agreement that the University offers your start-up will depend on its options for commercialising the IP and on the potential impact and financial returns resulting from your start-up compared with alternatives.

    The key features of a typical license agreement and the factors influencing how the University and your start-up might approach each one are listed in Table 1.

    License agreements are often complex and when they are, their negotiation may take months. This is another reason to engage early with your Faculty’s Business Development team member.

    Appendix C includes an outline of a typical license agreement.

  • 4.5 What will I need from the University?

    Your start-up’s commercialisation and business plans will define what else you might need from the University. Other negotiations with the University might cover:

    • Use of facilities and capital equipment such as laboratory space, test and fabrication equipment.
    • Joint research projects with the University aimed at developing new IP for use by the start-up.
    • License rights to other IP owned by the University.
    • Use of the University’s brand, for example, permission to describe the start-up as “founded by University of Melbourne researchers, based on technology developed at the University”. This can build credibility of the start-up with potential customers and investors.
    • Joint publicity with the University.
    • Financial support.

    At some point, your start-up’s use of University facilities and capability will be charged at market rates. However, the University may be willing to discuss a gradual transition towards market rates as part of its investment in and support of the start-up, perhaps in return for a larger financial share of the start-up’s success. This is another way in which the University can be your start-up’s most valuable partner. Despite this it is prudent to assume in your business plan that the start-up will pay market rates to its partners as early as possible.

5. Building a team

  • 5.1 Who is needed in the start-up team?

    An important output from a mature Business Model Canvas and business plan is an understanding of what parts of its offering will be developed by your start-up team and what parts will be obtained from external partners. This understanding will define what roles need to be filled in your team and at what stages of the start-up’s evolution they must be filled. In addition to your role as a founder in setting the vision and strategy for the start-up, other responsibilities of the start-up team might include:

    • Development of the underlying technology.
    • Product development.
    • Business development, marketing and sales.
    • Pre and post-sales technical support and documentation.
    • Regulatory compliance.
    • Selecting and dealing with partners (suppliers).
    • Financial management.
    • Management of these sub- teams and their projects.

    Some successful start-up investors argue that the most important ingredient for success is not the underlying technology or IP, product idea, business plan or even relationships with customers, but the start-up’s team, especially the founders. This might suggest that the ideal team would include people with proven experience in all the relevant roles. However, other successful investors argue that particular personality traits, including passion to achieve impact, are more important than experience. There is evidence that teams reach better decisions if they have access to diverse viewpoints, particularly from people of different educational background, gender, age, culture, risk tolerance and personality type – and processes in place to manage team dynamics. The right people will quickly learn useful skills on the job, but diversity of this kind is fundamental. Also, especially in the early stages of your start-up’s evolution, it’s possible to outsource non-core functions, such as financial management.

    In summary, the ideal team for your start-up might be a small but diverse group of people with a shared passion and vision for achieving impact in the target market.

  • 5.2 How many co-founders do I need and how do I find them?

    Opinions vary as to the ideal number of founders, from as few as two to as many as six. However, business leaders are now realising that diversity, shared vision and the ability to work together are more important than a particular number of people. Although you may be tempted to recruit those who share your own background and perspective, your start- up will likely benefit if you build a diverse team. While it’s not necessary that you and your co-founders are close friends, it’s important that you can work through challenges and uncertainty together, because there will be many.

    Other researchers involved in the work on which your start-up is based are potential co-founders. Increasingly, the University is employing experienced Entrepreneurs and Enterprise Professors with interest in research-based start-ups to act as mentors. If such a person becomes involved in developing your start-up’s business plan, you might consider inviting them to become a co-founder. Similarly, early-stage investors might introduce you to a member of their network, who could also become a co-founder.

  • 5.3 What is a founders' or shareholders' agreement?

    A founders' agreement is a written agreement between the start-up's founders describing their roles, their commitment in time and money and therefore their equity ownership. Although critically important for avoiding disputes which could threaten the start-up's future, it is often neglected. Reaching agreement after the start-up has achieved significant financial value often becomes exponentially more difficult.

    The template provided in Appendix D, defines the key elements which comprise an agreement of this type.

6. Funding your start-up

  • 6.1 How much money would the start-up need?

    One of the key outcomes of developing your business plan is an understanding of the money your start-up will need, how much, when and from where.

    At one extreme, your business plan might be based on completely organic growth whereby all the start-up’s activities are funded by revenue (and perhaps your savings), with no outside investment or debt.

    In this model, you and your co-founders retain control of the company. No control is given away to investors, but the rate of growth of your business is limited and as a result, opportunities might be missed. This model makes sense if your start-up’s development requirements and growth goals are modest, but it’s not applicable to start-ups aiming for larger opportunities.  For example, this model is usually not applicable to pharmaceuticals start-ups, which typically spend millions of dollars on clinical and pre-clinical trials before earning significant revenue.

    At the other extreme, the start-up might seek significant external early-stage funding to enable rapid growth. In exchange, you and your co-founders almost always surrender some ownership and control of your company and its direction to investors. This model is often seen in start-ups developing deep technology, such as electronic chips and new materials, as well as in pharmaceutical and other life sciences, where millions of dollars of investment in product development and trials might be required before significant revenue is achieved.

    Developing your business plan is a means for you and your co-founders to explore these options. Ultimately, the founders will decide on the vision, strategy and goals for your start-up, while the market, including customers and investors, will have a significant say in whether or not these goals are achieved.

  • 6.2 Where will the money come from?

    Start-ups have many potential sources of funding and founders are encouraged to consider each of these options. However, any type of funding has a cost to you as a founder in the form of the amount of your time and energy required to educate the investor about your vision and strategy.

    To minimise this cost, it is important that you understand the objectives, or investment thesis, of each potential funding provider and choose sources whose objectives are closely aligned with those of your start-up. For example, a start-up with a business plan dependent on low-cost, offshore manufacturers is probably not aligned with a grant program aimed at developing local, high-value manufacturing capability. The investment theses of different investors and funding sources are discussed below.

    6.2.1 Self-funding

    Self-funding of a start-up is investment from your personal savings, and perhaps those of your co-founders, in the form of cash and/or forgone salary. Many early stage start-ups rely on self-funding, but it represents a significant leap of faith for you and your family.

    A clear founders’ or shareholders’ agreement is extremely important for start-ups that include significant self-funding (see Section 5.3).

    6.2.2 Grants

    Grants are funds, often from government agencies, that are not paid back and do not require the founders to surrender any control or ownership of the start-up to the investor. As a University researcher, you are likely familiar with research grants. Grants for start-ups are similar.

    Government grants are usually designed to achieve a policy objective, such as enhancing university-industry collaboration or accelerating the development of particular capabilities. Recipients are normally required to report on their progress towards this objective and to permit the government funding agency to publicise successful outcomes. Because grants tend to cost founders less than other types of funding, they can be very attractive to a start-up. Many non-research grants take the form of matching funding, for example, one dollar of grant funding for every dollar received from other approved sources.

    If your start-up benefits from a grant given to the University (rather than directly to the start-up) or from matching funding from the University, this money represents an increase in the University’s contribution to the advancement, risk reduction and value of your start-up. In exchange, it is reasonable to expect that the University would ask for a larger share of any success.

    Because they are often driven by policy, the availability, scope, terms and other details of grant programs for start-ups often change. A detailed search of State and Federal Government websites and the University website, is strongly recommended.

    6.2.3 Debt

    Debt funding, typically from a bank,  requires the borrower (your start-up) to make regular repayments towards the amount borrowed plus interest. The advantages of debt funding are that if the repayments are made, you do not give up any ownership or control of the start-up in exchange for the funding and that once the loan is paid off, the lender does not have claims on any profit you might make. However, debt funding is usually not available to start-ups because most lenders are not willing to tolerate the risk associated with forecasting the start-up’s future income and therefore its capacity to make the repayments. If debt funding is available to your start-up, the interest rate is likely to be extremely high to account for this risk.

    Furthermore, a disadvantage of debt funding is that the consequences for your start-up of failing to make the repayments are usually severe. In the event of loan default, the lender could assume complete ownership and control of your start-up, close it down and sell its assets to recover their capital. For both these reasons, debt funding is not an option for most start-ups.

    6.2.4 Competitions

    Organisations including professional investors, universities, corporations, government agencies and even media outlets sometimes run competitions for fledgling start-ups. Prizes might include cash and/or in-kind support such as mentoring, product development, professional services and introductions to potential customers and other investors. The availability, scope, terms and other details of these competitions may change, so a detailed web search is strongly recommended.

    6.2.5 Equity investors

    An equity investor invests cash and often makes in-kind contributions such as intellectual property, leadership, labour or mentoring in return for ownership of an agreed, usually significant, share of the start-up. Equity investors might include the founders, external investors, leaders, some or all of its employees, and potentially the University. Shareholders holding significant equity typically assume some control of the start-up by taking one or more seats on the board of directors. The different types of equity investors, and their investment theses, are discussed in Section 6.3.

    6.2.6 Crowdfunding

    A number of technology start-ups have raised initial funding using crowdfunding platforms such as Kickstarter. There are two main types of crowdfunding: rewards or non-equity crowdfunding where backers pre-buy your product or service but do not take a share of your start-up and equity crowdfunding, where backers buy shares in your start-up, usually without governance rights.

    The benefits of crowdfunding include customer validation and feedback (aligned with the Lean Startup methodology) and the creation of a network of passionate product advocates if you are successful. The risks include the public consequences of failure, the possibility that funding (which may be received towards the end of product development) will not match costs, potential loss of control of the IP and the time investment required to manage communications with a large number of stakeholders.

  • 6.3 What kinds of equity investors are there?

    Many start-ups seek equity investment. You’ll need to understand the different types of equity investors, how their investment objectives or theses vary and the different benefits and costs they offer start-ups. The main types of equity investors are discussed briefly here.

    6.3.1 Family and friends

    Early investment in a start-up often comes from founders’ family and friends. The investment tends to be small (usually a few tens of thousands of dollars at most) and might serve as matching funding for grants. It is usually applied to achieve a particular milestone, such as creating an early prototype of your start-up’s product. The investment might be in the form of a loan which needs to be repaid or conversion to equity which is tied to the success of the start-up. For example, you might agree that repayments begin when the start-up’s revenue exceeds a certain amount.

    At this early stage, the financial risk for these investors is high. However, their primary motivation is often to provide you with early financial support and a vote of confidence, rather than receiving any financial return.

    If your start-up is seeking investment from family and friends, you are strongly advised to be clear with potential investors about the level of risk and to formally record the terms of the investment in a written, signed document, preferably with professional legal advice.

    6.3.2 Angel investors

    Angel investors are individuals of high net worth looking for opportunities to invest their own money (and often their time and experience) who seek out founders of early-stage start-ups. Many angel investors have become wealthy from their own success as entrepreneurs and they frequently have start-up experience in the same markets in which they invest. Investment amounts typically range from a few tens of thousands to a few hundreds of thousands of dollars, but can be more.

    Angels tend to be motivated as much by the desire to use their start-up experience and contacts to benefit other entrepreneurs as they are by financial return. For this reason, angels are likely to be very hands-on investors: they usually expect their investment to result in a significant equity stake in your start- up (usually at least 20%) and a significant say in its strategic direction, generally via a seat on the board of directors.

    The right angel investor can make huge contributions to your start-up, particularly if you are inexperienced as a founder, by providing strategic and tactical advice, mentoring, industry and market knowledge as well as introductions to potential customers, partners and other investors. Angels can become passionate and influential advocates for your start-up, but by the same token, an energetic angel investor whose views on the vision and strategy of the start-up diverge significantly from yours will consume a lot of your time and energy.

    If you’re considering angel investment, you are advised to engage early with potential investors, consider carefully what they offer and expect to spend six months or more developing a relationship that would lead to an investment.

    6.3.3 Venture capital investors

    Venture capital (VC), from professional investors or investment funds, is most relevant to start-ups with high growth potential. VC is typically raised by the VC fund from institutional investors, such as superannuation funds and invested by the VC fund in a range of start-ups over seven to ten years. A major attraction of VC is its scope; millions and in some cases tens of millions, of dollars are available.

    VC funds carefully choose the start-ups in which they invest, closely monitor the progress of each against its business plan to ensure that start-ups progressing successfully are well resourced. VC funds are prepared to lose some or all of the money they invest in many of their portfolio companies, as long as they generate a significant return in one or more of them. This can be as much as a ten-fold return on more.

    While individual VC investors may be motivated by a desire to support entrepreneurs and the innovation ecosystem, the VC fund’s primary aim is to generate financial returns for its investors. VC funds will therefore expect a large equity stake in your start-up, often greater than 50% and some involvement in its governance and exit strategy. If the start-up is successful, the exit, whether through acquisition, merger or initial public offering, gives the VC fund its financial return. Because VC funding is provided over a fixed term, a VC investor may be less flexible than other investors about the schedule for an exit.

    Experienced VC investors are professional negotiators and will bargain hard, especially with first-time founders. And while VC investors benefit personally from a successful exit of a portfolio company in the same way that an angel investor would, VC investors are often more inclined than angels to cut their losses if your start-up is struggling. Some VC investors have personal start-up experience and can mentor you like an angel can, but many do not. However, any successful VC investor has a strong network and will introduce you to potential co-founders, mentors, customers, suppliers, other investors and employees.

    While a VC fund will typically target one or several market segments of interest (such as life sciences), VC investors are usually generalists, so you’ll need to make a large and long- term time investment to develop a relationship with potential VC investors and to educate them about your market. If you’re interested in VC investment, you must engage with potential VC investors early, and choose target investors carefully, based on a clear understanding of their investment thesis and the benefits they would offer to the start-up. Questions to consider include:

    • What are the characteristics of their ideal investment in terms of the start-up’s ambitions for achieving impact, founder experience, team size, target market, development stage and level of risk?
    • How much are they prepared to invest?
    • What return are they looking for? Over what period? (It is critically important to understand clearly the end date of their funding, and what must happen at the end of its life.)
    • What type of exit do they prefer?
    • What degree of involvement do they prefer in the governance of their portfolio companies? What experience do they have in governing start-ups?
    • What relationships do they have with your start-up’s target customers and partners? What help would they offer you?

    Any credible and successful VC investor who is seriously considering an investment in your start-up will offer to introduce you to founders of other start-ups in which they have invested. Discussion with these founders about their experience of working with the VC investor is strongly recommended. If you are considering investment from a particular VC investor or fund in your start-up, it is important for you to perform due diligence on them just as they will on you and your start-up.

    6.3.4 Strategic investors

    Strategic investors are large, established companies that invest in start-ups as a means of exploring high-risk technologies and/or markets that overlap with or are adjacent to their own. If the start-up is successful, the strategic investor is likely to be interested in acquiring it.

    Many strategic investors, like some VC investors, make large, multimillion- dollar investments. They may invest in start-ups as part of a syndicate, often with one or more VC investors. Although their primary motivation differs from that of VC investors, strategic investors also want a financial return from their investment. Because their motivation is exploration, strategic investors will usually insist on a seat on your start-up’s board, although many prefer a so-called ‘observer’ seat, which gives them the right to attend board meetings but not to vote on board decisions.

    Strategic investment in your start-up has several potential advantages. Endorsement of your product and/or market approach by a large, successful player in your target market makes the start-up attractive to other investors and prospective customers. A good strategic investor, as a successful market player, can provide you with valuable market insight and potentially introduce you to prospective customers and suppliers. Also, as some strategic investors do not have the tight time constraints that VC investors sometimes do, they can make longer-term investments.

    The disadvantage is that significant investment and management involvement in your start-up from a single strategic investor can limit the start-up’s ability to deal with the investor’s competitors and so can actually reduce the exit value of your start-up and make it less attractive to VC investors.

    As with other types of equity investors, strategic investors have a range of investment theses and it is important for you to understand these clearly.

  • 6.4 How do I interest investors in talking with me?

    One of the biggest challenges for you as a start-up founder is communicating your vision for the start-up to prospective investors. Most investors are more time poor and have less knowledge about the specifics of your start-up’s target market than other potential stakeholders. You must be prepared to invest weeks or months developing a pitch that clearly and concisely communicates your start-up’s vision and the strategy for achieving it. The concept of the elevator pitch – explaining your start-up’s vision and value within the duration of an average elevator ride – has become a cliche╠ü for a reason: it is essential that your pitch grabs a prospective investor’s attention in a few sentences.

    The exercise of condensing, clarifying and refining your pitch to prospective financial investors will also help
    you communicate with and inspire your start-up’s stakeholders – the University, potential co-founders, employees, customers, suppliers, partners and your family – and might help keep you inspired, too.

    Guidance about crafting the ideal pitch is available online. For example, search for ‘pitching’ at First Search, a curated database of start-up advice. Start-up incubators and accelerators and special pitch events focus on coaching founders in this area and many will introduce founders to prospective investors. Because it takes months to develop a relationship with an investor, it is important for you to engage with prospective investors well before investment is needed.

7. Setting up your business

  • 7.1 How do I choose a company structure?

    The Australian Securities and Investments Commission (ASIC), the government’s independent corporate regulator, offers the broad definition of a company thus:

    “A company is an entity that has a separate legal existence from its officeholders and members. Its legal status gives a company the same rights as a natural person, which means a company can own, buy and sell property in its own name. It can also incur debts, employ staff, sue and be sued. Companies are managed by company officers who are called directors and company secretaries.”

    Most start-ups are proprietary, limited-liability companies. Although other  business structures such as sole trader, partnership and non-profit organisations exist, these have personal liability and other management challenges less accommodating of the risks associated with a technology based start-up. However it should be noted that the proprietary limited liability company is costly to establish and run. It’s officers are required to understand and comply with the Corporations Act 2001.

    Important information about company structures and your legal obligations  is available on the ASIC website and It is strongly recommended that you make sure you are aware of these obligations and seek professional legal and financial advice before committing to your commercialisation pathway.

  • 7.2 How do I deal with legal and tax obligations?

    ASIC lists the legal and taxation requirements associated with each business structure under Australian law. For example, a limited-liability company must:

    • Lodge an annual company tax return.
    • Be registered for GST if its annual revenue is $75 000 or more.
    • Pay tax at the company tax rate.
    • Pay superannuation guarantee contributions for all eligible workers.

    Company directors have their own responsibilities, which include:

    • Acting honestly and carefully at all times.
    • Remaining fully aware of the company’s activities.
    • Taking extra care when handling other people’s money.
    • Paying debts on time.
    • Keeping proper financial records.
    • Acting in the company’s best interests, even if they conflict with your own interests.
    • Adhering to occupational health and safety requirements.
    • Never using any business information to gain an advantage for yourself or anyone else, or to harm the company.

    Company directors must take their role seriously, as failure to meet these responsibilities can result in personal criminal liability. Company directors’ legal responsibilities, in particular, are onerous and almost certain to impact you as a founder. It is worth considering formal education about these responsibilities, such as that offered by the Australian Institute
    of Company Directors
    , before your start-up accepts major investment.

8. Finding help

  • 8.1 Help from the University

    Your first point of contact for help with any aspect of the start-up process is your Faculty’s Business Development team member. If they don’t have the information you need themselves, they will know where to find it.

    Formation of your start-up will require negotiation of a license agreement for the start-up’s use of any IP owned by the University. This involves a number of steps and approval. As such it is important for you as a founder to engage early with your faculty’s Business Development team member and remain involved with this process

    Questions you might ask your Faculty’s Business Development team member include:

    • I’m thinking about a start-up based on my University research. How do I discuss this possibility with the University?
    • What support does the University provide for staff who want to participate in a start-up?
    • How do prospective start- up founders meet potential customers to interview?
    • Who can help me validate some of the assumptions in my start-up’s draft commercialisation plan?
    • How do I get feedback from the University on my plan?
    • Where can I find potential funding sources for my start-up?
    • How can I find a lawyer or patent attorney to advise my start-up?
    • If I want to achieve impact from my research but don’t want to be involved in a start-up, what other options do I have?

    The University's tech transfer process involves a number of necessary steps and approvals. As such, it is important for you, as a potential start-up founder, to engage early with your Faculty’s Business Development team member and to remain involved in this process.

  • 8.2 Accelerator and incubator programs

    Many successful technology entrepreneurs have succeeded without any formal, structured support or training. However, first-time founders may find it useful to participate in an accelerator or incubator program, which are becoming more common and popular in Australia. Most of these programs take founders through the concepts described in this guide, with particular emphasis on pitching, usually with introductions to prospective investors. At the time of writing, the University offered the Melbourne Accelerator Program and the TRaM program to students and staff researchers. CSIRO offers the ON Prime pre-accelerator and ON Accelerate and a number of corporations, industry bodies, venture funds and related organisations offer similar programs.

    If you are interested in one of these programs, talk with other founders who have participated in the same program, to see if it is likely to meet your needs. Most programs publicise the names of their previous participants, who may be keen to share their experience with other potential entrepreneurs.

  • 8.3 Professional services

    You are strongly advised to seek professional legal advice on the following matters:

    • Company structure.
    • Shareholders’ agreements
      (with co-founders and investors).
    • IP agreement (license) with the University.
      Customer and supplier contracts.
    • Employment agreements.
    • Non-disclosure agreements.

    Legal advice is expensive, but not obtaining it can also be costly, especially for first-time founders with no experience dealing with contracts, negotiations or professional investors. Some accelerator and incubator programs have a pool of lawyers who may be willing to offer discounted advice to early-stage start-ups.

    Professional financial advice is also recommended when managing significant investment. Professional human resources advice, especially from start-up specialists, might be valuable in recruitment and team building. These types of advice become increasingly important as the start-up moves beyond the early stage development.

  • 8.4 How long will this take?

    Translating your research idea into a viable start-up is more like a marathon than a sprint. You may need months, or even years to develop and validate your start-up’s commercialisation and business plans (see Section 3). Developing a workable founding team can take a similar length of time (see Section 5). Although negotiating a license with the University is much smoother and faster if you engage with your Faculty’s Business Development team member early and understand the University’s objectives (see Section 4.4), this step may still take a few months. Building mutually trusting relationships with individual investors can also require several months of your time.

    To expedite the process, you are advised to start developing and testing hypotheses with prospective customers as soon as possible and to engage early with both your faculty’s Business Development team member and prospective investors.

9. Making it happen

  • Next Steps

    If, having read this guide, you’re excited about exploring your start-up ideas, remember that the University can be a valuable and important partner at all stages of the process. The University wants its research to have a more positive impact on society, the environment and the economy. It is committed to encouraging entrepreneurship in its staff and students, and is keen to support them in achieving their start-up ideas.

    When you succeed, the University succeeds.

    Uncertain about what to do next?

    Contact your faculty’s Business Development team member for a chat.  Visit for more details.

    If you want to learn more about IP, technology transfer and start-ups, the University’s Intellectual Property and Technology Transfer Services team website contains many useful resources to assist you. Visit or call a member of this team. Contact details are located on the website.

10. Appendices

  • Appendix A: Commercialisation plan template

    The commercialisation plan describes the proposed steps to develop a saleable product or service (or to raise significant VC funding) from the University IP as it currently exists. Prospective founders of a start-up company based on University research would typically structure a commercialisation plan around the following topics.

    Commercial opportunity

    • Customers, end users and other relevant market players.
    • Problem or opportunity Current solutions Estimated market size.

    Proposed solution

    • Description of the proposed product or service.
    • Value of the proposed product or service compared with existing alternatives.

    University IP

    • What University IP is proposed to be used in this solution?
    • In what ways is the IP protected?

    Technology status

    • What is the current readiness level of the technology? Has the concept been proven in a research setting? Has it been proven outside a research setting? Has a prototype been built?
    • Ideally, this assessment of the technology status includes objective evidence from an expert who
      is not involved in the research
      or the proposed start-up.

    Commercialisation roadmap

    The roadmap to a saleable product or service could include milestones such as:

    • Proof of concept: measurable proof that your solution solves the target problem.
    • Proof of value: measurable proof, validated by customers, that your solution solves the target problem significantly better than existing solutions.
    • Field trial: measurable proof that your solution solves the target problem significantly better than existing solutions in the environment in which the customer will use it.

    Each milestone should include:

    • Target timetable.
    • Measurable deliverables: what will be delivered to whom?
    • Description of work.
    • Estimated scope and cost of work.
      • Labour cost.
      • Material and other costs.
    • What part of this work will be done: 
      • Within the University.
      • By the start-up.
      • By other parties.
    • Who will fund this work?
    • Who will do the work?
    • If new people are required, what means will be used to identify and recruit these people?
    • What are the risks to reaching each milestone?
    • What will be done to manage and reduce these risks?
  • Appendix B: Business plan template

    The business plan begins where the commercialisation plan ends: with a prototype of the first product or service (or a major external funding round). Prospective founders of a start-up company based on University research would typically structure a business plan around the following topics.

    Executive summary

    A concise pitch, of the kind described in Section 6.4, based on the rest of the business plan.

    Commercial opportunity

    • Customers.
    • Key players.
    • Problem or opportunity.
    • Current solutions.
    • Estimated market size and five-year forecast.
    • Market dynamics Value chain.

    Proposed solution

    • Description of the proposed product or service.
    • Value of the proposed product or service compared with existing alternatives.
    • Validation of your solution’s value (for example, obtained through customer interviews).

    Proposed path to market or exit

    • Target customers (and/or acquirers)
    • Channel to market and/or acquirers
    • Market share goals and how they will be achieved.


    A list of the founders and planned key employees.

    Financial plan: assumptions

    List the assumptions implicit in the five-year financial plan, including:

    • Product development costs
    • Other costs
    • Team size
    • Market share
    • Product price, volume and cost Investment required
    • Valuation and exit strategy (how will investors get their money back?).

    Five-year financial plan

    Usually in spreadsheet form and covering five years, the financial plan details:

    • Quarter-by-quarter and year-by-year analysis of expected costs and income
    • Sources of expenses
    • Sources of income: revenue, grants, investment
  • Appendix C: License agreement template

    The license agreement sets out how the start-up is permitted to use the University’s IP. The University would typically offer founders of a start-up company an agreement including the following types of information, each of which might form one or more clauses in the agreement.


    The preamble lists the parties to the license agreement, namely the licensor (the University, operating via its commercialisation office or a commercialisation entity) and the licensee (the start-up), and broadly states each party’s intentions in entering into the agreement.


    Any terms that have a specific meaning in the remainder of the document are clearly defined.


    The key terms of the license rights granted by the University to the start-up, such as:

    • Exclusivity
    • Territories
    • Field and application
    • Term
    • Sub-license rights for the start-up, if any.

    Ownership of improvements

    The University usually assumes ownership of enhancements made to the University’s IP by the start-up that can only be used in conjunction with the University’s original (background) IP. The University might agree to license these enhancements to the start-up under the same terms as the background IP.

    Conditions precedent

    What each party must do before the license is granted – potentially including:

    • Formal incorporation of the start-up.
    • Formal University approval of the license.
    • Formal agreement with University about the proposed founders’ participation in the start-up (including approval of a conflict of interest management plan).
    • Securing of specified funding by the start-up.


    What return the University will receive from the start-up in exchange for granting these IP rights, including specification of when these payments commence and how often they are made.

    Minimum performance

    What the start-up must achieve to maintain the license under these terms. These performance targets are based on the start-up’s commercialisation and business plans, and typically include market, technology development and funding milestones, along with minimum revenue or royalty goals. This section also specifies the rights that the University has if the minimum performance goals are not met – such as a reduction in license scope, or termination of the license agreement.

    Patent costs

    The start-up is usually responsible for assuming some or all of the cost of maintaining the patent portfolio.


    The University typically provides no assurance that its IP is fit for purpose and does not infringe third-party IP.


    The start-up usually assumes all liability for any damages resulting from commercial use of the University’s IP.

    Joint publicity

    The University will usually want the start-up to agree to joint publicity about the formation of the start-up and its subsequent successes.


    A mutual non-disclosure clause requires both parties not to disclose the other party’s confidential information (including the University’s IP) to third parties without written permission.

    Other terms

    Other relevant terms include:

    • Other aspects of the relationship between the University and the start-up (for example, joint research and development).
    • In rare cases, the University might commit to offering the start-up a license to related IP developed by the University before offering that IP to other prospective licensees. Usually, however, the University prefers that the licensing of such IP is negotiated separately.
    • The University may want the right to audit the start-up’s finances, to ensure that royalty payments to the University are complete.
    • Change of ownership: the University usually wants to be notified if the start-up changes ownership (for example, through acquisition) and may want the right to terminate the license if the new ownership does not align with the University’s principles.


    A schedule, or appendix, lists exactly what IP is licensed under the agreement and might include:

    • Documents describing the IP, such as patents.
    • Internal University reports describing un-patented knowledge.
    • Documents describing software.
  • Appendix D: Shareholders' agreement template

    The shareholders’ agreement documents the relationship between the start-up’s shareholders (its founders and investors) and the start-up. It defines how much of the start-up each shareholder owns, the process for issuing new shares and the shareholders’ participation in the governance of the start-up. A complementary agreement, the constitution (see Appendix E), defines the details of the day-to- day governance of the start-up.

    Unless the University takes equity in the start-up (and therefore is a shareholder), the University would not be a party to either the shareholders’ agreement or the constitution. However, even when it is not a shareholder, the University might want to know that a shareholders’ agreement and perhaps a constitution, is in place before executing a license agreement with the start-up.

    Prospective founders of a start-up company based on University research would typically structure a shareholders’ agreement around the following topics, each of which might form one or more clauses of the agreement. You can find examples of more detailed shareholders’ agreements online, such as through the Australian Private Equity and Venture Capital Association Limited website.


    The agreement begins by listing the shareholders, such as the founders and investors.


    Any terms that have a specific meaning in the shareholder’s agreement are clearly defined.

    Board of Directors

    Details of:

    • Which shareholders are members of the start-up’s Board of Directors
    • What positions the founders hold
    • Whether the founders remain members of the Board of Directors if their equity holding in the company becomes low as a result of cash investment
    • What mechanism (if any) is used for the Board of Directors to take account of the views of shareholders who are not members of the Board of Directors.

    Issue of new shares

    The process by which the start-up issues new shares (for example, in the event of further investment) and the impact that the issue of new shares will have on the value of existing shares (known as dilution).

    Disposal of shares

    The process by which shareholders can dispose of their shares and what happens if a founder leaves the start-up or an investor decides to no longer be involved.


    Any rights that employees (and perhaps founders) have to acquire shares in the start-up when they complete certain milestones, such as employment with the company for an agreed period and/or completion of agreed duties, and the process by which this occurs, including the process for pricing these shares.


    Description of how the proceeds are distributed if and when there is an exit (such as an acquisition or an initial public offering), and how this differs for different types of shares.


    What obligations the shareholders have to avoid working with, investing in or supporting other companies that might compete with the start-up.


    The degree to which the shareholders share in any liability that the start-up might incur and the differences in liability between shareholders who are directors of the start-up and those who are not.

    Schedule: capitalisation table

    The capitalisation table, the heart of the shareholders’ agreement, lists how many shares of each type are owned by each shareholder, and therefore what percentage of the company they own.

  • Appendix E: Start-up constitution template

    A start-up’s constitution defines the details of the company’s day-to-day governance. The constitution complements the shareholders’ agreement, which documents the relationship between the start-up’s shareholders (its founders and investors) and the start-up itself (see AppendixD). In some cases, the constitution is made widely available (for example, to employees), whereas the shareholders’ agreement might be kept confidential. In other cases, the main items of the constitution might be included in the shareholders’ agreement.

    As previously explained, unless the University takes equity in the start-up (and therefore is a shareholder), the University would not be a party to either the shareholders’ agreement or the constitution. However, the University might still want to know that a shareholders’ agreement and perhaps a constitution, is in place before licensing its IP to the start-up.

    Prospective founders of a start-up company based on University research would typically structure a constitution around the following topics.


    Details of:

    • Names of Directors.
    • Process for appointment and removal of Directors.
    • Directors’ remuneration.
    • Powers and duties of Directors in setting the direction of the company.
    • Chairperson of Directors.
    • Position held by each Director, including executive officers and company secretary.

    Directors’ meetings

    Processes for making decisions about the direction of the company, for resolving disagreements, and for taking, distributing and archiving minutes of Directors’ meetings.

    Indemnity and insurance

    The type and value of insurance that the company must hold to protect individual directors from indemnity.

    Distribution of profits

    The process for distributing profits to shareholders.

    Closing down the company

    The process for closing down the company in case of insolvency, i.e. if the company cannot pay its debts.


    The circumstances under which the company will appoint external auditors to review its finances, the process for appointing auditors, and their duties when appointed. An independent audit is often required by government funding bodies at the conclusion of a project they have funded, to provide evidence that taxpayer funding was used appropriately. The University’s license agreement might also require an audit under some circumstances to clarify royalty payments.

  • Glossary of Startup Terminology

    Angel investors (or angels): wealthy individuals (many of whom are successful entrepreneurs) who invest their own money – and often time and experience – in early-stage start-ups. Angel investments are typically a few tens to a few hundreds of thousands of dollars.

    Employees: people hired by the start-up’s founders or leaders to create and execute the start-up’s strategy. Employees usually have less involvement than the founders in the creation of the vision.

    Equity: ownership of an agreed percentage of the start-up’s shares in exchange for a financial or in-kind contribution to the start-up. Equity holders (shareholders) can include the founders, investors, leadership, some or all its employees, and potentially the University. Significant equity- holders typically also have membership of the start-up’s board of directors, and thus a say in the company’s strategy.

    Exit: the eventual sale of a start-up, through acquisition by another company or initial public offering (floating of some or all of the start-up’s shares on a public stock exchange). An exit gives shareholders the opportunity to sell their shares. In a financially successful exit, the return to investors might be ten or more times their original investment

    Founders: the people who create a start-up and develop its vision and business plan.

    Intellectual Property: intangible property created by the human intellect. A discovery of a natural phenomenon is not usually considered intellectual property. An invention, the creation of something entirely new that didn’t previously exist in nature, is intellectual property. Discoveries often lead to inventions.

    Lean Start-up: a methodology aiming to reduce the risks of establishing new ventures (including start-ups) through an iterative development process involving prospective customers. Based on the book The Lean Startup by Eric Ries.2

    Pivot: a significant change in the start-up’s strategy, which often happens as the start- up develops and learns more about its target customers.

    Start-up (or staff start-up): a new company, founded and run by researchers with the support of their University, which is based on research ideas that the founder(s) developed at the University.

    Spin-out, or University spin-out: a new company, founded by the University to commercialise its intellectual property and at least partially owned and controlled by the University.

    Strategic investors: large, established companies that invest in start-ups as a means of exploring high risk technologies and/or markets that overlap with or are adjacent to their own. If the start-up is successful, the strategic investor may wish to acquire it.

    Strategy: the start-up’s plan to achieve its vision, including its target customers, the problem it will solve for them, the product or service that will solve the problem, and so on.

    Value proposition: a statement describing the value that a start-up’s product or service brings to its customers.

    Venture capital (VC): funding typically raised from institutional investors such as superannuation funds, and invested in a range of start-ups over seven to ten years in exchange for equity. VC investments in each start-up are typically millions of dollars, and in some cases tens of millions.

    Vision: a clear, simple and ambitious statement describing how the start- up will change the world. The vision is used to fosters the commitment from the start-up’s stakeholders that is required to achieve major impact