We recognise that financial constraints are a top concern during the early critical phases of spin-out preparation. Despite the wider public benefits that can materialise from spin-outs, the risk and uncertainty in the earliest stages often means that private financing options for founders are limited.

We help to bridge this gap, often called ‘The Valley of Death’, with an option to access early financing from the Ploughshare Accelerator Fund (PAF). PAF was set up to provide the necessary funds to accelerate an innovation and gain early momentum. This can take the form of a few thousands of pounds for prototyping a new technology, to a few hundreds of thousands of pounds for founders’ salaries and recruitment costs. So, if the best way to accelerate an innovation is through a spin-out, PAF can be used to de-risk many of the options facing you when you decide whether or not to join a spin-out.


funding 1
funding 2

We will work with you to decide whether this funding is suitable and, if it is, the level of funding required will be assessed on the specific circumstances of the spin-out. If PAF funding is awarded to the spin-out, it will receive additional venture development support and further financial and equity provisions associated with the funding will apply.

Since the majority of our spin-outs use PAF to support themselves, the spin-out pathways automatically assume that PAF is used.


An introduction to the spin-out pathways

We have set out four main pathways to help you answer the key questions you might have to help you make an informed decision that best suits your aspirations and circumstances. One of the most important initial decisions is whether to join the spin-out full-time or retain your current role in government. The pathways reflect this first key decision and the implications that follow, including:

  • The amount and type of equity you will own
  • Your eligibility for government RTI schemes
  • The royalties you might receive from IP
  • Your access to the equity option pool
  • Employment considerations at your government department
  • Compliance with conflict of interest policies

The pathways are a guide for the majority of spin-out scenarios – we had to make a number of assumptions about everyone’s circumstances when we created them but we are fully aware that these might not work in all scenarios. If this is the case we will address these circumstances with inventors to ensure everyone is treated fairly.

For those new to spin-outs, it may take some time to become familiar with the language involved. We have included a quick reference guide to key terms used in the pathways in this section, there is also a full glossary of terms at the end of this playbook and we are always available to answer any questions you may have directly.

Founding equity, equity from the
option pool and principles

A key distinction for you to note in each pathway is the difference between founding equity and equity acquired later in the spin-out journey through the option pool. When you form a new company the amount you pay for your shares is usually nominal – maybe a few pounds.

The awarding of ordinary shares as the business develops is usually impractical; the value of ordinary shares increases as the company value increases (and this could be 5 or 6 figures for a founder’s equity stake). Therefore, if you are issued new ordinary shares once the company becomes valuable, the shares will have significant value; it becomes a “capital gain” which means you could receive a potentially punitive tax bill of many thousands of pounds.

Taking founding equity is therefore a key decision. Ordinary shares entitle the holder to greater rights within the spin-out and, as they don’t have any value when the business is formed, they do not have the same tax implications; you are only liable to pay tax on your capital gain when you sell them.

If you acquire equity after spin-out formation through the option pool then the rights associated with these shares will be less than those with ordinary shares.

If you opt to join the spin-out full-time from the beginning you will carry the greatest risk, so you will therefore have the greatest potential reward. This will take the form of you being allocated a larger amount of equity when the business is formed: founding equity. At the other extreme, if you decide to stay full-time in your government department and join later, you can only gain shares through access to the option pool, but the number of shares you will eventually own will be far fewer than had you joined fully at the start.

rti scheme

Access to the RTI scheme

You could choose to join the spin-out part-time and remain in your government department for the other part of your working week. Deciding whether to join the spin-out full or part-time will impact on your workload and daily life. If you join the spin-out part-time, the equity you will be entitled to and, consequently, the control you will have over the spin-out will be reduced; you will be entitled instead to a mixture of a smaller amount of founding equity and options.

You should consider the work you are currently undertaking and the work you will undertake as part of the spin-out and ensure the decision is aligned with your individual strengths and circumstances. You should also take into consideration the potential differences in pay and benefits between these options and the future implications should your circumstances and preferences change. Pathways 1 and 2 outline these considerations in greater detail.

The spin-out pathways

The equity split for each pathway is detailed below and represents the amount of equity you will share with other inventors, Ploughshare, and any other stakeholders at the formation of the spin-out. The royalty split refers to the periodic payments that inventors, Ploughshare and your government department will receive from a licence to the IP needed for the spin-out and is determined by how well the spin-out performs. In the pathways 1, 2 and 3 below, no royalties are paid to founders under the RTI scheme (pathway 4).


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Joining the spin-out at formation

Pathway 1: Inventor joins the spin-out full-time

If you choose to leave employment at the start of the spin-out journey, you will have a pivotal role in the strategic direction of the spin-out and you will have the ability to influence every aspect from the beginning to realise the impact of the IP that was created.

You will then only be paid by the spin-out. PAF can be used to help pay for a portion of the founder’s pay, and this will be broadly in-line with what you would currently be earning in your present job, but your additional benefits, such as your government pension, will cease. Ultimately, sustainable funding needs to be sought until the spin-out can pay full salaries and benefits. You will decide together with your fellow founders and Ploughshare whether one of you will take on the role of CEO themselves or whether it would be better to bring in a CEO with the required business experience from outside. If an external CEO takes on the role they, alongside yourself and other founders, will have access to the full amount of remaining equity. This option requires significant commitment from all who undertake it and is reflected in the equity you will be allocated.

  • Equity splits:
    • Ploughshare ownership is 24.99%
    • Founders have full access to the remaining 75% equity
    • If there is more than one founder, you will all decide, with guidance from Ploughshare, the split of the remaining founding equity
  • Control: founders can be persons of significant control
  • Pay: you will be paid by the spin-out at roughly the same rate. Any government pension would cease
  • RTI: no access to royalties
  • Option pool: typically 20% with founders having full access
Pathway 2: Inventor joins the spin-out part-time

Under this pathway you would remain a part-time employee of your government department. You will still become a founder of the spin-out but the amount of founding equity you receive will be less than for those who join full-time. The equity you will be allocated will be roughly proportionate to the number of days per week you work for the spin-out; the more you work for the spin-out, the more equity you should expect to receive.

If the IP that the spin-out is based on has multiple inventors you will have to share the equity you are all entitled to receive with them. If any inventor chooses pathway 4, equity in this pathway is shared amongst the inventors that don’t.

As there are many factors involved, it is only possible to state the range you are likely to get in this pathway. If you are the only inventor of the IP and you will work for the spin-out 4 days a week you can expect to be allocated up to a maximum of 24.99%. If you are one of many inventors and you only work for the spinout 1 day per week you would expect a stake close to 5%. If you are somewhere in the middle you would expect a stake of 10-15%.

If you still work part-time for a government department you cannot become the CEO of the spin-out.

Due to conflict of interest policies, there may be constraints on the work you can perform in your current role and your work may need to be adapted in collaboration with your line manager. Part-time founders will still be able to have some decision-making influence but it will be less than those who have more equity. If, after making this decision, you decide later in the journey to increase your hours at the spin-out or join full-time, additional equity can be awarded through the option pool as part of this new arrangement.

  • Equity splits:
    • Founding equity collectively ranges from 5% to a cap of 24.99%
    • The amount of equity founders receive is proportionate to the amount of time (of a working week) spent with the spin-out and what the CEO and other founders choose to do
    • If there are joint founders and one or more of them chooses to join the spin-out full-time, the equity cap falls in proportion to the number of inventors who stay full-time in their government department
  • Control: unless you become CEO an inventor cannot be a person of significant control in the spin-out if they are still an employee of a government department
  • RTI: no access to royalties
  • Pay: you will be paid partly by the spin-out at roughly the same rate as their government job, pro rata. Your government pension would continue, but only for the hours you worked in the government department
  • Option pool: maximum 20%
  • Conflicts of interest: must be declared

Not joining the spin-out at formation

Pathway 3: Inventor retains government role full-time and takes equity in the spin-out

Whilst remaining a full-time employee, you can take a small founding equity stake in the spin-out. As you will not be working for the spin-out, the equity stake will be small and capped at 5%. Because the equity stake will be small, you will not have significant control over the spin-out.

Under this pathway you will not receive RTI but should you wish to join the spin-out part-time or full-time in the future, you will have the option to acquire more shares through the option pool. Otherwise, if you are needed to provide some initial support for the transfer of the innovation to the spin-out you can provide some paid consultancy work as long as you get permission from your line manager.

Choosing equity means that you will be compensated through the value of the spin-out’s shares when those shares are sold at a point in the future. The return is less certain under this pathway but should the spin-out become a success then the value of the equity holding would reflect this.

  • Equity: cap of 5% per inventor
  • RTI: no access to royalties
  • Pay: you will continue in full-time employment and your salary and government pension will remain in place
  • Option pool: not access if you are working full-time for your government department
  • Conflicts of interest: must be declared and abided with
Pathway 4: Inventor retains government role full-time and takes RTI

If you want to stay employed full-time, another option is the RTI scheme. In this case, when the innovation is taken forward through a licence to the spin-out, you will only receive a share of royalties received by Ploughshare from the licence.

It is a lower risk option with reduced potential upside compared to taking equity and choosing to take this option will depend on your risk appetite. As with pathway 3, if you are needed to provide some initial support for the transfer of the innovation to the spin-out you can provide some paid consultancy work with permission from your line manager.

Royalty payments are less likely in the first few years of a spin-out’s operation, but it could potentially provide modest, regular, additional income once the spin-out starts to generate revenue. Under this option, inventors will have the least control over what happens to their innovation. If the spin-out is successful, there is a greater potential payoff through choosing the capped equity option in pathway 3. To calculate how much you would be entitled to for this pathway, you should refer to your government department’s RTI scheme.

If you want to join the spin-out later, you can, but you must first forfeit your rights to the RTI scheme. Furthermore if, when joining the spin-out, you want to take equity, the only route will be through the option pool. Your contribution to the spin-out will still be rewarded as it grows, but the amount of equity you will have will be significantly less you would have been allocated had you joined at formation. This pathway is a more arm’s-length option than the others:

  • Equity: no access to equity
  • RTI: access to royalties
  • Pay: you will continue in full-time employment and your salary and pension will remain in place
  • Option pool: no access (unless RTI benefits are forfeited)
  • Conflicts of interest: must be declared

What happens if a partner institution is
involved in a joint spin-out?

If the IP has been created in collaboration with a partner institution and some founders are employees of the partner institution, a joint spin-out might be formed in which both Ploughshare and the partner institution take equity. As a result, the equity at the founding of the spin-out will be shared between the two institutions. Partner institutions will likely have their own equity policies, so we will work with the other institution to come to an agreement. However, for the inventor, the options available will reflect the models above, as though the spin-out was facilitated purely by Ploughshare.


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The pathways are not mutually exclusive so if the inventor switches away from pathway 3 and 4 to join the spin-out either full-time or part-time, they will have access to option pools (but not equity in the form of ordinary shares).



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