New ordinary shares documents online for university spin-off’s and other companies

Source: Capital Waters
Photo: Daniel Verkijk

Great news: since the summer of 2023, Capital Waters has worked together with the tech transfer offices (TTO’s) of some of the most prominent universities in the Netherlands on a new Shareholders Agreement that can be used by Dutch university spin-offs in which universities will participate as shareholders.

The goal of this project was to make the equity part of the spin-off process more smooth. Discussions between TTO’s and scientific teams that want to start their own company based on scientific work done at the university can be long and painful. A lot of these discussions are usually around intellectual property. For this, last year the universities laid down transparent principles for the transfer of intellectual property to academic spin-offs that can be helpful in many cases.

If universities take equity positions in a spin-off, there are also other arrangements to be made between the academic team, the spin-off, and the university. Here’s where Capital Waters steps in. It saves all parties time and money if a well-balanced standard shareholders agreement is available that can be used to facilitate this process. Therefore, we have worked together to prepare the documents that are now launched online. As a standard rule at Capital Waters, comply or explain applies. Parties may deviate from the standard agreement, provided that any changes are made visible to the other parties involved. The standard Ordinary Shares Shareholders Agreement is launched yesterday at The State of Dutch Tech organized by Techleap and can be found here. The documentation is not static, they intend to publish an updated version every year. If you have any comments or feedback on these templates, please send them an email.

Of course, this new Shareholders Agreement is not exclusively for university spin-offs. Also other startups can use it. For companies that want to raise ordinary shares equity funding from early-stage investors, Capital Waters has also published a simple Subscription Agreement that can be used together with the Ordinary Shares Shareholders Agreement.

They have followed a diligent process to come to the versions now published, taking into account the interests of all parties involved. Together with the University of Twente and Delft University Capital Waters has prepared and discussed a first version of the Shareholders Agreement and made iterations thereof. They also had fruitful discussions and received feedback from the TTO’s of the Eindhoven University of Technology and the University of Amsterdam, and finally discussed a more advanced draft in their own Expert Panel which represents the interests of both startups and investors. The team wants to thank in particular Roy Kolkman for initiating this project and the in-house legal counsels of Delft University and University of Twente, Judith Smit, and Peter van Roosmalen for their support and cooperation.

Highlighted items

Some highlighted items regarding the published documents:

• The Ordinary Shares Shareholders Agreement will in most cases be part of a larger set of documents. If you are a university spin-off, you will probably also need an Intellectual Property License Agreement or Intellectual Property Transfer Agreement with the university and maybe also a Facilities Agreement to keep using part of the university’s facilities. If you are not a university spin-off but are raising ordinary shares equity financing, you can use the Ordinary Shares Subscription Agreement next to the Shareholders Agreement.
• It’s an Ordinary Shares Shareholders Agreement, so the university or early-stage investor will not get any preferred shares or preferential rights usually attached to preferred shares such as liquidation preference rights or anti-dilution protection rights. This makes the Shareholders Agreement fair and simple. At the same time, the agreement follows the same principles and definitions as used in the Capital Waters Preferred Shares documents, so the company is set for growth and can easily switch to preferred shares documentation when needed.
• The startup will have a Management Board that consists of the founding team. Attached to the Shareholders Agreement is a limited list of Management Board decisions that require the approval of the General Meeting of Shareholders by a – to be determined – qualified majority of votes. Also, other important shareholder decisions require this qualified majority of votes, which can be two-thirds, three quarters or whichever percentage agreed on. The Shareholders Agreement includes the option to install a supervisory board at a later stage.
• The Shareholders Agreement includes a lock-up period and vesting period for founders’ shares. Based on this, founders will lose any unvested shares when leaving the company early. The document also caters to bad leaver and good leaver situations and includes a mandatory offer provision that applies to all shareholders in case of bankruptcy or committing a criminal offense.
• The Shareholders Agreement has standard tag-along and drag-along clauses and a right of first refusal clause in case a shareholder wants to sell his shares (after the lock-up period). The agreement also includes restrictive covenants, a non-competition clause for founders, and confidentiality restrictions for all parties.
• The Subscription Agreement has all customary warranty provisions and closing mechanics for an early-stage equity investment. Attached to this agreement is a list of warranties. Depending on the stage of the company, this list might be a bit to extensive and can be shortened as needed.

Whether you are a university spin-off, an academic institution, or a startup raising ordinary shares equity funding, we hope you will appreciate the new model documents and use them in dealmaking. We will keep on working on providing startup founders and investors better (and free!) access to easy-to-use, balanced, and market-standard investment documents in order for you to save time and money when spinning out and doing venture deals.