Becki DeGraw on spinouts, IP licensing & clean exits | Wilson Sonsini Startup Legal Basics
Thursday, 3 September 2026 · 2 min read · Listen to the episode ↗
In this episode, Becki DeGraw discusses the intricacies of spinouts, highlighting how founders can strategically depart from their original companies to pursue new ventures. She emphasizes the importance of intellectual property licensing and maintaining a clean chain of title to attract investors. DeGraw also addresses the delicate negotiation process involved in spinouts, comparing it to a divorce, and underscores the necessity for founders to ensure a clear separation from their previous companies to uphold trust and integrity.
Spinouts represent a strategic maneuver where founders depart from a company to launch new ventures that diverge from the original entity's vision. This often occurs when a company decides against investing in certain technologies or assets that do not align with its goals. Universities are notable participants in this process, frequently initiating spinouts as a result of research and development activities.
In typical arrangements, the original company retains an equity stake of 20% to 30% in the spinout. This retention can be advantageous if the spinout achieves significant financial success, potentially becoming a billion-dollar enterprise. Negotiations surrounding these deals often involve a mix of equity and cash, with careful consideration given to stock class, rights, and equity percentages. However, if the original company retains too large a stake, it may disincentivize the founders, as investors generally prefer that founders hold a substantial share to drive motivation and foster long-term growth.
Navigating the complexities of spinouts and intellectual property licensing requires the expertise of a skilled attorney. Founders must be particularly cautious about confidentiality restrictions related to intellectual property developed at their previous company. It is critical that they do not carry over any confidential information or IP into their new ventures. A clean chain of title to intellectual property is essential for attracting investors, making it a primary focus during due diligence when assessing a new company.
The negotiation process for a spinout can be intricate and is often compared to a divorce due to the shared employees and assets involved. Successful execution of a spinout can lead to positive outcomes and investor interest, but founders must ensure a clear and clean separation from their former company to avoid potential breaches of fiduciary duty. This separation is vital for maintaining trust and integrity in the eyes of investors and stakeholders.
This summary was generated from the episode transcript and can contain mistakes.