You usually can’t take your lab’s invention and start a company with it. Universities generally own what their faculty, staff and many students invent with university funding or resources, so your company has to license it from the university’s technology transfer office (TTO). Tell the TTO early, hold the technology with an option while you raise, and agree a term sheet on exclusivity, field of use, equity, royalties, patent costs and diligence milestones before you sign the long-form license. Investors will read that license closely, so its terms are part of your fundraising.
Key takeaways
- University IP policies and the assignments researchers sign usually give the university ownership. Your company needs a license, and the university usually won’t assign the patents outright.
- File an invention disclosure with the TTO before you publish, present or pitch the technology publicly.
- An option holds the technology for you while you raise. It’s a right to negotiate a license, not a license.
- Expect patent cost reimbursement, equity with anti-dilution up to a financing threshold, royalties, sublicense income sharing and diligence milestones.
- A founder who keeps a university job usually can’t negotiate for the company, hold a management title without taking leave, or use the lab for company work.
- Federally funded inventions carry a government license, a US manufacturing preference and march-in rights. March-in has never been used to license a patent to someone else.
- Make sure the license can move with the company in an acquisition without the university’s consent.
Who owns an invention made at a university?
Usually the university. Under US patent law an invention belongs to its inventors until they assign it. Universities get ownership through IP policies that faculty, staff and researchers accept as a condition of their appointment, and through signed assignment agreements. The Bayh-Dole Act lets universities keep title to inventions made with federal funding, but in Stanford v. Roche (2011) the Supreme Court held that the Act doesn’t take title from the inventor by itself. The assignment does, which is why universities now have researchers sign present assignments (“I hereby assign”) rather than promises to assign.
Students are a closer question. Many policies look like Yale’s, which claims a student’s invention made under sponsored research, in supervised thesis or dissertation work, in a university job, or with significant use of university resources. A student who builds an app on their own time usually owns it. A graduate student whose dissertation lab produced the invention usually doesn’t. Read your university’s policy and whatever you signed.
Bayh-Dole also limits the university. It generally can’t assign a federally funded invention without the funding agency’s approval, so it licenses rather than sells, and it must share royalties with the inventors and prefer small businesses as licensees. Building your company on the invention without a license leaves a gap in the chain of title that investors will find. See Who Owns Startup IP?
When should I talk to the tech transfer office?
Before you publish, present, pitch the technology publicly or form a company around it. University policies require an invention disclosure, a short form describing the invention, its funding and its contributors. The TTO uses it to decide whether to file a patent application and to report federally funded inventions to the funding agency.
Timing matters. US law gives inventors a one-year grace period after their own public disclosure, but Europe and many other countries don’t, so a paper or talk before a patent application is filed can forfeit foreign patent rights. Tell the TTO about upcoming papers and talks.
Tell the TTO early that you want to start a company, too, so the technology isn’t licensed to an established company first. If you’re a faculty or staff founder, someone outside the university, such as a co-founder, a CEO or the company’s lawyer, will need to negotiate for the company. Some universities won’t negotiate a license directly with their own employees, and others bar faculty from negotiating with the university for a company they’re involved in.
Should I get an option first?
If you aren’t ready to sign a license, ask for an option. An option gives the company the exclusive right, for a set period, to negotiate a license, usually with a limited right to evaluate the technology. University options are typically short and inexpensive. The University of Kansas’s standard startup option, for example, lasts 12 months for a $500 fee, can be extended six months if you’ve made progress, and requires the license to be signed within six months after you exercise it. Expect the license to require you to reimburse the university’s patent costs.
An option buys time to raise a pre-seed round, but investors discount it because it doesn’t fix the license terms. Agree on a license term sheet during the option period if you can. Many seed investors want the license signed before they fund.
Should the license be exclusive, and in what field?
Most startups need an exclusive license, because investors won’t fund a company whose core technology a competitor can license too. Universities grant exclusivity within a defined field of use, such as “therapeutic uses in humans” or “battery electrode coatings,” and reserve the right to keep using the technology for research and teaching and to let other nonprofits do the same.
Define the field to cover your realistic roadmap, not only your first product, but expect the TTO to resist uses you have no plan to develop. Ask whether anyone holds rights in a neighboring field, confirm the license covers continuations and foreign filings, and get rights from every co-owning institution. A non-exclusive license can work for a technology you don’t need to own, and it’s usually cheaper. See Startup Licensing Agreement.
What are the economic terms of a university license?
The payment terms trade against each other. A university may accept a lower royalty for more equity, or waive an upfront fee for larger milestones.
| Term | What it is | What to negotiate |
| Upfront fee | A payment on signing | Often small or waived for startups. Ask to defer it to your first financing |
| Patent costs | Repayment of the university’s past and future patent costs | A payment schedule tied to financing, and which countries you’ll pay to file in |
| Equity | Common stock, usually a percentage of fully diluted capitalization | The percentage, when it’s measured and when anti-dilution ends |
| Running royalty | A percentage of net sales of licensed products | The rate, the net sales definition, a reduction for royalties owed to others, and a lower rate when no patent covers the product |
| Sublicense income | A share of non-royalty payments from your sublicensees | A share that steps down as you hit milestones, excluding research funding and equity investments |
| Milestone payments | Fixed payments on development or sales events | How many, how large, and deferral until you have revenue or a partner |
| Minimum annual royalty | A yearly minimum, credited against royalties | A start date that fits your development timeline |
| Diligence obligations | Development and financing milestones you must meet | Realistic dates, paid extensions and a cure period |
Diligence obligations deserve the most attention, because missing them can cost you exclusivity or the license. Set dates from your own plan with margin, and get a right to extend them.
University anti-dilution isn’t the price-based anti-dilution investors get. It means the university receives more shares, without paying for them, to keep its percentage until the company has raised a set amount of money. Negotiate that dollar threshold and whether SAFEs and notes count toward it, because the extra shares dilute everyone else. See Anti-dilution and Equity Dilution.
Universities also commonly ask for the right to buy their pro rata share of future rounds, and occasionally for a board observer seat.
What do universities typically ask for?
Several universities publish standard startup terms. The University of Washington’s published startup term sheet takes 5% equity with anti-dilution through a financing threshold and waives the upfront fee. Michigan’s software startup terms take 1% or 4% equity and no royalty. The University of Colorado’s options run from an equity-free license with a 3% royalty to 10% equity with no royalty on the first $20 million of sales. Stanford has been reported to ask for 1% to 5%. Across published terms, university equity usually falls between about 1% and 10%, and royalties run from zero to a few percent of net sales. Treat those as reference points, not a market standard.
What if I keep my university job or stay a student?
Then university conflict-of-interest rules apply to you and will shape the company. Faculty can usually consult for the company only up to a time cap. Stanford’s, for example, is 13 days a quarter. Many universities bar faculty from holding management titles such as CEO or CTO unless they take a leave. Faculty generally can’t use university labs, staff or students for company work, or take sponsored research from their own company without conflict review. If the founder has NIH or other Public Health Service funding, federal rules treat any equity in a private company related to their university responsibilities as a significant financial interest that must be disclosed and reviewed for conflicts.
Do company development in the company’s own space or under a written sponsored research or facilities agreement, not informally in the lab. Inventions a founder makes in the lab after formation will usually belong to the university, not the company, unless the license covers improvements. Student founders should check whether a research assistantship or thesis work brings university ownership with it. Every founder should still sign a CIIAA with the company for work done for the company. The same rules apply to an academic advisor.
Can I license software, know-how and copyrights, not just patents?
Yes, and you often need to. Much of a lab’s value sits in code, data, protocols, materials and what the team knows, but university licenses are built around patents. Code is protected by copyright and is often licensed separately, sometimes non-exclusively. Know-how is hard to define, so universities usually license it non-exclusively, and the standard life sciences term sheet charges half the patent royalty on products covered only by know-how. List the specific code, data and materials you’re licensing, make sure the royalty drops if the patents never issue, and check lab code for open source components. See Open Source Licenses and Trade Secrets.
What rights does the federal government keep?
If federal grants funded the research, three Bayh-Dole rights come with the license.
A government license. The government keeps a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention worldwide, so the government and its contractors can use it without paying you a royalty.
A US manufacturing preference. An exclusive licensee of the right to use or sell the invention in the US must agree that products will be manufactured substantially in the United States. The agency can waive this when domestic manufacture isn’t commercially feasible or no domestic manufacturer could be found. Since 2021 most Department of Energy funding goes further, requiring substantial US manufacture of products using the invention wherever they’re sold unless DOE agrees otherwise, so ask the TTO which agencies funded the work.
March-in rights. An agency can require a license to others if the invention isn’t being brought to practical application, to meet health, safety or federal public-use needs, or if the US manufacturing commitment wasn’t obtained or is breached. No agency has ever done so. A December 2023 draft framework would have let agencies consider a product’s price, but it was never finalized, and as of December 2025 the agency drafting it had no timeline. In August 2025 the Commerce Department opened a march-in proceeding against Harvard over alleged failures to follow the Act’s rules, and it has floated taking a share of university licensing revenue. We haven’t seen a final outcome on either. For most startups the practical risk is low, but meet your milestones and document your progress.
Are there standard or express startup licenses?
Increasingly, yes. Many universities now offer a standard startup license that founders can sign with little negotiation, and some offer short, cheap options. In life sciences, a group of universities, venture funds and law firms published a representative startup term sheet through AUTM, the association of technology transfer professionals, and dozens of TTOs and investors have endorsed it. Standard terms trade flexibility for speed, so read the acquisition and sublicensing terms closely.
How should I negotiate, and what will investors check?
Negotiate a short term sheet before the long-form license, which is on the university’s form and can take months. Settle exclusivity, field, territory, every payment and the milestones, plus three terms founders often miss.
Assignment on acquisition. The license should be assignable without the university’s consent when the company or the relevant business is sold. Some universities also take a fee if the company is acquired early. Washington’s standard term sheet takes a share of acquisition proceeds that starts at 50% and falls as milestones are met, ending after a qualified financing. Watch for exit fees that sit on top of the university’s equity.
Sublicensing. Get the right to sublicense through multiple tiers without approval of each deal, and protection for sublicensees if your license ends.
Patent challenges. Universities may penalize a licensee that challenges the licensed patents, with higher royalties or termination. Know what that clause costs you.
In diligence, investors will confirm that the university owns what it licensed, the field covers the product, the milestones are achievable, the university’s equity and anti-dilution are on the cap table, the license survives a sale, and founders with university roles have conflict management plans and signed CIIAAs. See Startup Due Diligence.
What does this look like in practice?
Example. Maya, a postdoc, and her advisor, Professor Chen, develop a battery electrode coating in a lab funded by a National Science Foundation grant. Maya files an invention disclosure and holds her conference talk until the TTO files a provisional patent application. They form a Delaware C corporation, and an outside CEO negotiates a 12-month option while they raise.
During the option they agree on a term sheet: an exclusive worldwide license in battery electrode coatings, no upfront fee, $40,000 of past patent costs repaid at the first financing, 5% of fully diluted stock with anti-dilution until the company has raised $3,000,000, a 2% royalty on net sales, minimum annual royalties from year four, 25% of sublicense income falling to 10% after the first commercial sale, diligence milestones to raise $1,000,000 within a year and build a pilot line within three years, and free assignment in a sale of the company.
The founders hold 9,000,000 shares and the option pool has 1,000,000, so the university receives 526,316 shares, or 5% fully diluted. The company then raises a $2,500,000 seed round, selling 2,800,000 shares and adding 700,000 shares to the pool. Because it has raised less than $3,000,000, the university receives 184,210 more shares to stay at 5%. The founders end up with about 63.3% instead of about 64.2%, and the seed investors are diluted too, so they’ll price it in. Professor Chen keeps his faculty job, consults within the university’s time cap and holds no officer title. Maya leaves the lab to become CTO and signs a CIIAA. Because of the federal funding, the company agrees to manufacture substantially in the US for US sales.
For more, see Startup Intellectual Property, Startup Patents: Are They Worth It?, Founder Equity and Can I Start a Startup While I Still Have a Day Job?
If you’re spinning a company out of a university lab, contact us before you sign the option or the license term sheet.
