The SCALE Deeptech Licence (SDL) sets out the commercial relationship between a university and its spinout company. This page summarises the main commercial terms in plain english, and explains the thinking behind each one. For the full legal wording, see the SDL itself.
1. Commercial Definitions
Royalty on sales — 1%
The company pays the University a royalty of 1% on sales of its products. This only starts once the company’s total sales pass £10 million (the “Scaling Threshold”). Once the University has received £10 million in total royalties, payments stop for good.
Why: Charging royalties before a product has proven itself in the market misprices the risk that founders and investors are taking on. Starting the royalty only once the company is already scaling keeps cash free for growth, while a cap stops the company carrying an open-ended obligation as it grows further.
Annual Licence Fee — £50,000
A flat administration fee of £50,000, paid in five yearly instalments of £10,000. Payments only begin once the company has raised at least £500,000 in funding (a “Qualified Financing”) — or, if that hasn’t happened, by the third anniversary of the licence.
Why: Fees charged too early can drain the cash an early-stage company needs most. Waiting until the company has real funding means the fee never gets in the way of getting the company off the ground.
Historic Patent Costs — actual costs incurred
The company reimburses whatever the University actually spent on patents before the licence was signed, paid as a single lump sum once the company has raised £500,000 (or by the third anniversary of the licence, if sooner).
Why: A single payment is simpler to administer than costs spread over several years, and — like the licence fee — it’s only due once the company can actually afford it.
Qualified Financing — £500,000
This is the trigger point that decides when the company has enough funding to start paying fees. Once the company raises £500,000 or more in a genuine funding round, the clock starts on the Licence Fee and Historic Patent Costs above.
Why: The threshold is set deliberately low, so it’s normally reached within the company’s very first funding round — meaning the University isn’t waiting years for its costs to be covered.
Assignment of the patents — full ownership transfers to the company
Ownership of the patents passes fully to the company once any one of the following happens: the company has been profitable for 12 months at £1 million or more in annual revenue; the company has raised £25 million in total funding; the University has received its full £10 million royalty cap; the company is acquired or lists on a stock exchange; or the company and University simply agree it makes sense to do it sooner.
Why: Keeping the University as licensor indefinitely makes investors and acquirers nervous about the company’s freedom to operate. But since most early-stage spinouts don’t succeed, the University can’t hand over ownership immediately either. These triggers only transfer ownership once the company has clearly proven it’s here to stay — and if the company later fails, there’s a further safety net that returns the IP to the University automatically.
Dilution protection — up to £5 million raised
Where the University’s shareholding is protected from dilution (see Equity below), that protection lasts until the company has raised £5 million in outside funding. After that point, the University’s stake dilutes normally like everyone else’s.
Why: This gives the University a meaningful stake through the earliest, most fragile funding rounds, while making sure the protection doesn’t linger indefinitely once the company is genuinely established.
2. Sub-Licensing
Many deep-tech companies grow by licensing their technology onward to partners, rather than selling products directly — think Arm, Qualcomm or Dolby. The SDL is built to support this as a normal, workable route to market.
Freedom to sub-license
The company can grant sub-licences to other businesses without needing the University’s permission each time, as long as the sub-licence is on fair, arm’s-length terms and protects the University’s technology. The company remains fully responsible for anything its sub-licensees do.
Why: UK licences have not traditionally handled sub-licensing well, even though it’s a proven, successful business model for deep-tech. Removing the need for prior consent means the company doesn’t miss time-sensitive partnership opportunities.
Royalty on sub-licensing income — sliding scale from 10% down to 1%
Where the company earns money by sub-licensing its technology to a partner, it pays the University a share of that income. The rate starts at 10% in the licence’s first year and steps down by 1 percentage point each year, reaching 1% from year nine onwards. Unlike the sales royalty above, this applies from the very first pound received — there’s no £10 million threshold to clear first.
Why: In the early years, most of the value in a sub-licence still comes from the University’s original technology, so the University’s share is higher. As the company adds its own engineering, market development and relationships over time, more of the value is down to the company’s own work — so the University’s share steps down accordingly.
Step-in right for sub-licensees
If the main licence ever ends, any of the company’s sub-licensees who weren’t at fault can ask the University to put them on a direct licence instead, so their business isn’t automatically cut off. The University must provide a draft of this replacement licence within 60 days of being asked, and both sides then have up to 90 days to agree the terms.
Why: Without this protection, a sub-licensee could lose its rights entirely just because the company above it ran into trouble — for reasons entirely outside the sub-licensee’s control. This keeps the technology in the market and protects the University’s route to commercial success even if the original company fails.
3. Equity
Equity, not fees or royalties, is the main way the University benefits from a successful company — it’s what aligns everyone’s incentives around building genuine long-term value rather than extracting cash early.
University’s shareholding — a choice of 5% non-dilutable until £5 million raised, or 10% dilutable
The spinout chooses one of two options when the licence is signed:
• 5% of the company, protected from dilution until the company has raised £5 million (see Dilution protection above), or an exit — after which it dilutes normally; or
• 10% of the company, with no dilution protection — it dilutes from day one alongside every other shareholder.
Why: Some universities already offer this kind of choice, and after a few funding rounds the two options tend to land in a similar place on the company’s cap table — some prefer the simplicity of a flat 10%, others prefer starting lower with protection. Either way, the company starts life with a clean, well-understood cap table, which makes it easier to bring in early investors.
Royalty buyout — a right to ask, not a right to get
If the company believes it would materially help its prospects — for example, ahead of a funding round or acquisition — it can ask the University to agree a one-off lump sum instead of ongoing royalty payments. The University doesn’t have to agree, but must give the request a fair, timely hearing and negotiate in good faith.
Why: This gives the University the chance to receive a lump sum that could be worth more than the royalty stream it replaces, while giving the company a way to present a cleaner IP position to acquirers or investors who prefer not to see ongoing royalty obligations on the books.