As a pioneer of European seed capital for deep tech, Stephan Rauscher at Earlybird-X regularly encounters 8 IP hurdles

Four years into investing €75 million into spin-offs from European deep tech, Stephan Rauscher and his colleagues at Earlybird-X were making a multiple of over 3. Of their 20 investments, one was worth €100 million, following three funding rounds in quick succession; one had risen in value by ten; another by three; one went bust almost immediately; and one stalled following the unexpected death of one of the founders. Such highs and lows are an inevitable part of being such an early investor in deep tech.

Although it took persistence to reach this point, Rauscher remains convinced of the potential for Europe’s deep tech: it produces the same number of graduates as the US from its top 100 universities, but 30 percent fewer spin-offs and 75 percent fewer unicorns. There is little point in having a thousand horsepower engine, he says, if you only travel at 50 kilometres per hour.

For him, at these early stages, it’s less about identifying data points that translate into future value. Instead, it’s more about the system for identifying a stellar technology, matching it to a market of €10 billion or more and finding the right team of founders.

Writing in Managing Intellectual Property Today (2025 edition), he highlighted eight challenges in transferring deep-tech IP into spin-offs with the potential for high growth.

Timing

Spin-offs can only happen if everyone is transparent about their sense of timing: where do you want to go in the next one to five years? and what could limit you? Once you know where you would like to end up and how you might realistically get there, you can make better IP decisions. How, for instance, are you going to balance the competing objectives of commercialising your IP as early as possible and waiting long enough for it to be tangible and robust enough?

Ownership

At the start, ownership of the IP usually rests with a university, although others may have claims. Transfers happen through licence or by assignment to the founders. As no one can know for sure how the tech will perform, the terms of a licence are difficult to set and payments are often relatively high. Alternatively, the cost of buying the IP can drain a spin-off of cash that it might otherwise use for development.

University rights

A university may wish to retain some rights in the technology or exercise some restrictions over its use. It may be also be thinking about spinning off other ventures. It always becomes a major point of discussions, which can end up as a no go for the investor.

Protection

The spin-off has to line up its IP so it can withstand any challenge to its ownership. It’s worth spending time in the early stages to settle the future, rather than finding yourself compromised in two to three years.

Investor considerations

At the start, it is easy to promise to reward early supporters. Some public agencies might even expect a slice of the IP. However, for founders, it is essential to be aware of the impact of external investment and the dilution of their control. In each funding round, investors will become progressively less tolerant of any messiness or ambiguity.

Valuation

Opinions can vary widely about the IP’s value. As it is such an early stage, you can’t be too fixed in your assumptions. When so much is unknown, it is hard to rely on the discounted cash flow model and you don’t want to deter the founders by setting it too high. Instead, Rauscher and his colleagues take a view of the team, the tech and the market.

Regulatory

Approvals can vary widely from country to country, which is why it is such a significant part of the check that Earlybird-X makes. If, for instance, a technology is deemed part of a critical technical infrastructure, it might mean national partners joining the share register on unfavourable terms.

Follow-on rights

All these questions are not just a question for the university, the founders and the seed investor. If all goes to plan, they will have consequences for future rounds of funding to scale up. A seed investor might tolerate some messiness in the capitalisation table. Follow-on investors will be progressively more stringent.

• The full article by Stephan Rauscher, ‘Realising the value in deep-tech innovation’, appears in the the 2025 edition of Managing Intellectual Property Today, published by Novaro, ISBN: 978-1-0685644-1-3. See here for further details.