Sep 3, 2026 · 18 min

How to structure company spinouts without ruining future venture capital funding

Becki DeGraw on spinouts, IP licensing & clean exits | Wilson Sonsini Startup Legal Basics

Improperly separating a new venture from its parent company can create toxic cap tables and intellectual property disputes that permanently scare away venture capital.

3 key takeaways

1Parent companies must avoid taking excessive equity to keep the spinout attractive to future venture capitalists.
2Every piece of intellectual property and technology must be formally transferred or licensed to the new entity.
3Clean documentation of employee transitions and asset ownership is critical to surviving investor due diligence.

Don't miss

Becki DeGraw explains how excessive parent-company equity demands can instantly ruin a spinout's cap table for future venture capitalists.

The brief

When a promising project built inside a company no longer aligns with the core mission, spinning it out into a standalone startup can unlock massive value, but only if the legal groundwork is laid correctly from day one.

Becki DeGraw warns that parent companies often ruin a spinout's cap table early on. Future venture capitalists will walk away if the parent entity retains too much equity or demands terms that stifle the new startup's growth.

Clean separation requires formal asset transfers and intellectual property licensing. Startups must document exactly who owns the code, trade secrets, and patents to prevent devastating ownership disputes during future fundraising rounds.

Before seeking outside capital, founders must ensure their legal house is in order. Complete documentation of employee transitions and IP assignments is the first thing sophisticated investors will scrutinize during due diligence.

What was said on this episode

14 statements · 6 positive · 7 negative · 1 mixed

Becki DeGrawon Previously built startup technologyPositive2:13
Previously built, tested, and validated technology accelerates starting a new venture.
“It's faster to start with that technology that has already been built and tested and validated.”
Listen at 2:13
Jason McCabe Calacanison Spinout equity allocationPositive5:12
The existing company should typically retain 20%, with the new team holding 80%.
“Typically I tell people, have the existing company keep 20%, let the new team keep 80%.”
Listen at 5:12
Becki DeGrawon Parent-company stake in a spinoutNegative7:26
An excessively large parent stake can create problems with attracting new co-investors.
“if it gets to be too large, that's where you are going to have potential problems going forward in new co-investors.”
Listen at 7:26
Becki DeGrawon Company SpinoutsNegative8:00
Large parent ownership stakes probably reduce spinout founders' motivation.
“If the old company— I'll call it parent or existing company— has an 80% stake or 50% stake in the company, and the founders have smaller stakes, they're probably less motivated.”
Listen at 8:00
Becki DeGrawon IP-licensing spinoutsNegative10:17
IP-licensing spinouts are less common because they create additional problems.
“I think less so, um, because it does create a lot of other problems.”
Listen at 10:17
Becki DeGrawon IP-licensing structureNegative10:23
Use an IP-licensing structure only when it is the sole way to complete the deal.
“only in the situations where it's like, this is the only way I can get the deal done, would you kind of resort to that”
Listen at 10:23
Becki DeGrawon License arrangementPositive10:54
A license arrangement can transfer IP and other assets between entities.
“certainly a license arrangement works.”
Listen at 10:54
Becki DeGrawon Intellectual Property TransferMixed12:13
An existing company may require a license-back when transferred IP remains operationally necessary.
“I need you to give me a license back because I still need to use it.”
Listen at 12:13
Jason McCabe Calacanison Spinout competition restrictionsPositive13:40
Time-limited competition restrictions can be fair in spinout agreements.
“And that seems fair to me.”
Listen at 13:40
Becki DeGrawon Spinout IP and customer listsNegative14:09
Spinout IP and customer information remain subject to confidentiality and existing-entity ownership restrictions.
“That means confidentiality restrictions apply with respect to it, the customer, any customer list, right? All of those things are owned by the existing entities.”
Listen at 14:09
Becki DeGrawon Founder-director fiduciary dutiesNegative14:39
Founder-directors may face fiduciary-duty issues during separation from an existing entity.
“If you were a founder director of existing entity, there may be fiduciary duty issues that you want to make sure really clear where those come into play”
Listen at 14:39
Becki DeGrawon Spinout separation documentationPositive15:16
Founders should document the separation before starting independent work on the new venture.
“get that papered before you just start go doing your own thing”
Listen at 15:16
Becki DeGrawon Company SpinoutsNegative15:21
Starting a new venture before separation may breach fiduciary duties and confidentiality provisions.
“that could actually be breach of fiduciary duty. It could be breach of your confidentiality provisions.”
Listen at 15:21
Becki DeGrawon Spinout intellectual-property chain of titlePositive17:22
Investors require a clean chain of title for spinout intellectual property.
“they want to see a clean chain of title to that IP.”
Listen at 17:22

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.

Books & mentions

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