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Investment negotiation between academic entrepreneurs and private equity investors: Examining factors affecting investment deal outcomes

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    Rights statement: © Gregson, G. (2011). Investment negotiation between academic entrepreneurs and private equity investors: Examining factors affecting investment deal outcomes. In Frontiers of Entrepreneurship Research.

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http://digitalknowledge.babson.edu/fer/vol31/iss1/1/
Original languageEnglish
Title of host publicationFrontiers of Entrepreneurship Research
Volume31
Publication statusPublished - Nov 2011

Abstract

The low level of private equity investment supporting university spinouts (USO) has attracted
much attention in recent years. While literature suggests “poor investor-readiness” on the part
of academic entrepreneurs and incomplete assignment of university intellectual property (IP) to
USOs as constraints to investment, few studies have examined the effects of the deal making process
itself on investment deal outcomes. This study examines the investor readiness profile of USOs
prior to investment negotiation and assesses the deal negotiation tactics deployed by academic
entrepreneurs, during negotiation with both universities and investors, to consider how they
influence investment deal outcomes. Findings lend support to previous studies suggesting a weak
investor-readiness profile of university spin-outs. However, this study finds a much more prominent
role played by academic entrepreneurs in contributing to the weak investor-readiness of their
enterprises and identifies adverse effects of poor negotiating tactics. The paper suggests the need
for third-party “term-sheet” coaching for academic entrepreneurs and much earlier deployment
of independent legal advice on deal structuring and deal negotiation.

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