Framework conditions for spin-offs
The Max Planck Society supports spin-off projects based on Max Planck technologies as part of its technology transfer. As a public institution, it must observe certain framework conditions in this regard. The guidelines for the technology and knowledge transfer provide an orientation for this. These deal with questions concerning the participation of MPG associates in a spin-off or the leasing of premises and equipment at Max Planck Institutes. A key objective here is to avoid conflicts of interest and hence a clear division between private sector start-up activities and MPG’s own research interests. To this end, the so-called clearing procedure of the MPG also serves for MPG spin-off projects.
Guidelines for spin-offs
The guidelines for knowledge and technology transfers serve to avoid or resolve conflicts of interest between the MPG and the scientists involved in the technology transfer. At the same time, they form a material basis for the rules of procedure of the clearing office. These guidelines contain “rules of the game” for the MPG, whose framework allows the implementation of consultant contracts, industry cooperations and company spin-offs.
During the course of preparing an MPG spin-off as part of a technology transfer, the clearing body of the MPG is involved right from the start. The clearing body checks each individual case for potential conflicts of interest and their transparent regulation.
Participation model and management
To grant exclusive use of rights to MPG’s own technologies, a license agreement is concluded between Max Planck Innovation and the spin-off. Besides license fees based on sales and milestones, an upfront payment usually becomes due when the license agreement commences. Our participation model generally envisages the MPG participating in the spin-off jointly as a property rights holder at the time of foundation. In recompense, it waivers an upfront payment. The negotiated terms and conditions of this mixed participation license model must be market compatible and should also be designed so as to be friendly to the founder. Max Planck Innovation works out joint solutions attractive to consensus here with founders. For more detailed information, please request direct individual discussions with the startup and portfolio managers.
The participation management and hence the exercising of shareholder rights is part and parcel of Max Planck Innovation in coordination with the MPG General Administration. Thus Max Planck Innovation also assumes the coordination and implementation of transactions during the course of follow-up financing or a company sale. To protect its assets, the MPG can also participate in follow-up financing rounds. In this way, it can protect its shares acquired by the technology transfer until the original participation quota.
Frequently Asked Questions
If you as a scientist of the Max Planck Society are interested in spinning-off a project based on a technology you have developed at a Max Planck Institute, then we can provide competent advice and professional support as and when required. Regard us as your sparring partner! The following sections try to answer the most important questions. If you have any other question or if you need more detailed information please feel free to call us or send us an email.
Who can be supported by Max Planck Innovation?
Our technology transfer task is based on the commercialization of Max Planck technologies. We therefore support all spin-off projects that are based on technologies of the MPG. Under this condition, the founder team does not inevitably have to comprise MPG associates. Thus, for instance, a spin-off with an external management and founder team is conceivable, having already been implemented in diverse cases.
To what extent can Max Planck Innovation support MPG spin-offs?
The spectrum of our services extends over the entire foundation process and subsequent build-up phase, i.e. from first evaluation and discussion of your company idea during the business and finance planning, patent consulting and assignment of network partners via the financing phase through to longer-term consulting (e.g. via a mandate in the advisory board or supervisory board of the relevant company) and management coaching.
We basically work in interdisciplinary teams in order to impart all knowledge and experience skills to your company foundation. Our legal counsel is always part of this team, this representing the interests of Max Planck Innovation or the Max Planck Society in negotiations and during contractual work. As a rule, we are not allowed to offer legal advice to third parties and hence also company founders.
Is support by Max Planck Innovation based on fees?
The consulting support activities of Max Planck Innovation do not have to receive fees. They are free services for the scientists and founders as part of our technology transfer task.
However, the technologies that are licensed to the spun-off company (usually exclusively) are not free. Here it is necessary to conclude license and participation contracts with Max Planck Innovation or the Max Planck Society.
Can employees of Max Planck Innovation personally participate in spin-off projects?
No. So as to avoid conflicts of interest, the employees of Max Planck Innovation are also subject to a ‘code of conduct’, having signed corresponding compliance regulations. That means they are not allowed to participate personally in MPG spin-off projects, either financially or in any other way.
How can I participate in a spin-off as MPG scientist?
As a scientist of the MPG, you can basically become a shareholder in a spin-off. You can also change to the company as an employee, but may no longer remain employed in the MPI. If you wish to continue your scientific work as an employee at the Max Planck Institute, you can continue to advise and support the spun-off company as part of a secondary activity subject to approval. However, a managerial or directing role in the company is not allowed – with exceptions in individual justified cases – as a secondary activity, in order to prevent the latent risk of conflicts of interest.
What are typical beginner´s mistakes?
- Scientists usually believe their technology is the real McCoy, and rightly so. In view of the planned spin-off, however, it is important to completely change your perspectives here and critically scrutinize the developed technology from the aspect of the clientèle in terms of both content and cost.
- An inadequate clarification of the property rights situation can be critical. Thus novelty destroying publications can lead to patent applications being withdrawn or at least heavily restricted in their claims. Competing patents can also prove to be similarly critical for an initial freedom to operate.
- Before creating a homepage and registering a company or contacting investors, the content issues of a business plan should be dealt with first. If essential questions remain unanswered in this early stage, this can result in the spin-off project receiving a negative stamp. Amongst other drawbacks, it could even rob you of further opportunities.
- Founding a company at too early a stage can rule out options for certain funding programs and entail other disadvantages. Some funding programs are oriented to spin-off projects that are in the pre-foundation phase or may not exceed a maximum company age.
To what extent can Max Planck Innovation be helpful in funding applications?
Max Planck Innovation has been accompanying and supporting funding applications for many years, having amassed ample experience, ‘lesson learned’ and tips for 'do’s and dont’s’. This means we can support you effectively as a sparring partner, especially in the fields of business administration and commercial economics less familiar to scientists. Similar to the business plan though, we do not write the funding applications for you. Nor do we undertake any translation work. This is above all justified by the fact that you need to present and defend your foundation idea and business concept in front of a jury yourself as an applicant scientist during the course of the funding application. It is therefore helpful for you to be the leading author of the written funding application. But you can rest assured that we will support you intensively in our role as sparring partner.
More on the individual funding programs as well as their prerequisites and conditions
Does the Max Planck Society invest in spin-offs?
Neither the Max Planck Society nor Max Planck Innovation have the option of seed investments in the form of capital. However, as a technology investor the Max Planck Society can waiver the payment of an upfront payment when allocating a license to an MPG spin-off, taking a company share in the spin-off instead. To protect the participation in a spin-off acquired by the technology transfer, the MPG can also commit financially to follow-up financing in individual cases.
What is crowdfunding?
Crowdfunding is also referred to as swarm or group financing in Germany. With this type of financing, capital can typically be gained for realizing business ideas and spin-off projects. That means equity capital or funds similar to equity capital can be provided by a large number of people (crowd), often in the form of loans or silent partnerships. The investors are usually recruited via the Internet.
Crowdfunding is not suitable for each company equally. Especially in the high-tech sector, financial sums are usually required, which are difficult to raise via crowdfunding. Max Planck Innovation will be pleased to advise you on the advantages and disadvantages of crowdfunding with actual reference to your specific foundation project.
Are founders personally liable for risks?
In a later company phase, you will be accompanied by external law firms in your potential function as a member of the management board or authorized representative, with possible risks and pitfalls being pointed out to you. Without being able to provide legal advice here, we shall be pleased to instruct you about any personal liability risks based on our longstanding experience during our cooperation. This can typically be in the “small print” of loans or securities, where there are intervention clauses on the personal shareholder level.
It is all the more important for you company to be founded as a capital company in the form of a stock corporation (AG) or limited liability company (GmbH). Here you have a liability limitation to the invested capital per se. In this context, we are keen to point out that a stock corporation is actually equal to a private corporation (German GbR) and hence non-incorporated firm until its entry in the commercial register. You are well advised to refrain from any economic activities during this phase, as you could be held personally liable for any debts.
As long as you abide by the law and do not act intentionally or with gross negligence, the personal liability risks will be clear and should not hold you back from your foundation plans.
Are there requirements for the division of founder shares?
To begin with, it should be the sole task of founders to define their shareholder distribution among the founder group itself and without interference from third parties. Nor are there any fixed specifications regarding this. However, a few ‘unwritten rules’ have become apparent, which should be considered at an early stage during the division. Thus key future actors in the company should be given essential shareholdings in order to incentivize them in favor of future company development. An unequal distribution that does not favor key future players would also be scrutinized critically by investors.
To avoid discussion, company stakes are not infrequently distributed evenly to the number of participating founders according to the watering can principle. However, if such a distribution of shares is done without taking the different performance contributions into account, subsequent conflicts are quite often preprogrammed. It is therefore advisable to approach and clarify such topics and discussions – sometimes regarded as unpleasant – preferably in the early (pre-)foundation phase. Smoldering ‘resentments’ should be tackled at an early stage before such conflicts become manifest in a later foundation phase, ultimately even leading to the end of the company in some cases.
How is Max Planck Innovation networked with the investor scene?
Since the 1990s, Max Planck Innovation has advised and intensively accompanied over 140 spin-offs from the MPG. At the same time, Max Planck Innovation has worked closely with many national and international venture capital companies, corporate venture partners as well as family offices and private investors over the years. The investor network established in this way is one of the core strengths of Max Planck Innovation, as we are normally granted personal access to this broad network of investors. Among the large number of business ideas or business plans, which investors receive daily, communication via Max Planck Innovation offers the advantage that the investors will assume a valid and very well prepared business concept based on top technologies. They can therefore be certain that their foundation idea will generally be evaluated promptly by the investors and with due attention.