TT4D - Spinning Out Defense-Funded Innovations: A Guide for Researchers-Part 1

by Jeff Decker, PhD and Nilay Papila, PhD Technology Transfer for Defense, Stanford University

Jun 18, 2025

In our last TT4D post, we walked through how to win Defense Department research funding and advance your technology’s maturity to access additional funding. But what happens once your lab prototype is mature enough to become a commercial product or a deployable defense capability?

For many university researchers, this is the moment to think seriously about commercialization—whether by licensing the technology or spinning out a startup that serves commercial and/or government customers. Turning a defense-funded research project into a real-world solution is one of the most impactful ways faculty can extend the impact of their work. When a prototype reaches maturity, spinning out a startup or licensing the technology can bridge the gap between lab success and mission-ready capability.

This guide outlines what researchers should know when considering a spinout, especially for dual-use applications in both defense and commercial markets.

It’s Not Research vs. Startup—It’s Both

Commercialization isn’t a departure from academia—it’s a continuation of your mission to serve the public good. Spinning out can help get your innovation into the hands of warfighters while opening new opportunities in commercial markets. The Department of Defense (DoD) is betting not only on your ideas—but on your ability to transition them. Faculty-led ventures built around breakthroughs in fields from materials science to cybersecurity—often use SBIR grants and pilot programs as transition paths.

Licensing Campus Technology

Each campus has its own regulations for licensing research-based technologies, but most follow similar core principles. If you are with us at Stanford University, it’s highly recommended to meet with the Office of Technology Licensing (OTL) early in the process to understand your options. You can find detailed guidance and resources at Stanford’s OTL website.

There are five key components to understand when transitioning academic technology to the commercial and federal markets:

Ownership
Intellectual property protection
Inventor involvement
Licensing structure
Financial terms

Ownership

Under the Bayh-Dole Act, inventions developed using federal funds are typically owned by the university, not the individual researcher. Principal investigators (PIs) and research staff must disclose inventions to their university’s Technology Transfer Office (TTO), such as Stanford’s OTL. This disclosure triggers the formal process of evaluating, protecting, and potentially licensing the technology. Early engagement with the TTO clarifies rights, ensures compliance, and sets up a clean path for licensing or startup formation.

Ask yourself:

Was this invention developed with federal funding?
Have I filed an invention disclosure with my TTO?
Can I continue using the IP in my research?
Can I open source my research to avoid any conflicts of interest?

Intellectual Property

A sound IP strategy is key. For software or algorithms, copyright or trade secret protection may be more appropriate. The TTO manages this process and advises inventors on how to preserve rights (e.g., avoiding public disclosures before filing). Strong IP protection is crucial for attracting licensees or venture funding.

Ask yourself:

Is my invention patentable, or is another form of IP protection more appropriate?
When should I file for protection to avoid public disclosure conflicts?
Who pays for patent filing and maintenance?
How will IP protection impact future publications or collaborations?

Inventor Involvement

Faculty and researchers can remain deeply involved in a spinout, but roles must be clearly defined. Colleges and universities typically allow inventors to serve as scientific advisors or part-time founders but impose boundaries to manage conflicts of interest and maintain academic responsibilities. Early discussions with the TTO help clarify what levels of engagement are allowed, especially regarding sponsored research, student involvement, and use of university resources post-license.

Ask yourself:

Can I be a founder, advisor, or CTO of a spinout?
What are my school’s conflict-of-interest and time commitment rules?
Do I need special approvals to participate?
How do I balance academic and company responsibilities?

License Structure

Licenses are typically customized based on the commercialization path and vary depending on whether the licensee is a faculty-founded startup or an external company. They may be exclusive or non-exclusive, limited by field of use, geography, or duration. Spinouts often receive startup-friendly terms, such as milestone-based diligence clauses and preferential provisions for faculty/student founders. These ensure the licensee—whether a large firm or early-stage company—has both flexibility and accountability to commercialize the technology

Ask yourself:

Will the license be exclusive or non-exclusive?
What rights will be granted (e.g., field of use, territory, sublicensing)?
Are there special terms for campus-affiliated startups?
What happens if the startup doesn’t meet development milestones?

Financial Terms

Colleges and universities usually require a mix of upfront fees, milestone payments, and royalties on product sales (typically 1–5%). In startup scenarios, equity stakes may substitute for some cash payments, aligning long-term success with college and university returns. These terms vary based on the risk profile, market size, and development timeline. The TTO will typically structure the agreement to incentivize product development while protecting the school’s financial and reputational interests. These terms are negotiable and should reflect the maturity and market potential of the technology.

Ask yourself:

What upfront fees, royalties, or equity does the school expect?
Are there options to defer payments during early-stage development?
What financial obligations come with the license?
How are revenues (e.g., royalties) shared between inventors and the school?
Is equity a viable substitute for cash payments?

Know When You’re Ready(and When It’s Worth It) to Spin Out

A strong case for spinout includes a technology at TRL 4–6, clear mission alignment, demonstrated demand from end users, and competitive differentiation.

Spinning out isn’t just about being “ready”—it’s about having something worth spinning out. Ask yourself:

Is my technology at TRL 4–6, validated in a relevant environment?
Does it solve a well-defined problem—for a specific defense mission or commercial use case?
Have I received strong feedback or demand from program managers, end-users, or industry partners?
Have I assessed IP strength and commercialization potential with my OTL/TTO?
Is the solution 10x better or clearly differentiated from current solutions?

Takeaway

Commercialization is not a departure from academic work—it’s an extension of your impact. Faculty can play a critical role in driving real-world change by turning lab research into products ready for commercial and defense market deployment. The path to success starts with early engagement with your university’s technology transfer office to understand licensing, ownership, and commercialization options.

Knowing your rights, your role, and your technology’s readiness level is essential. Whether you choose to license or spin out, the transition will only succeed if it's grounded in a clear IP strategy, mission alignment, and market need. With the right preparation, your innovation can move from a research prototype to a mission-ready or market-driven solution—delivering value far beyond the lab.

In our next post, we’ll walk through how to align your startup with both mission need and market demand—a crucial move for any dual-use venture. From navigating SBIR transitions and forming the right founding team, to building traction with TRL roadmaps and defense tests and pilots, we’ll cover how to turn a campus spinout into a viable venture that delivers for both warfighters and commercial users.

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Technology Transfer for Defense (TT4D) at Stanford University specializes in matching Defense Department funding with academic research projects. In the past six years, TT4D has worked with numerous faculty members at more than a dozen universities to help them win Defense Department grants and with the Office of Naval Research, totaling more than $13 million, to support research funding and transition academic technologies from lab to defense capabilities. TT4D is based at Stanford University and is run by Jeffrey Decker, PhD, program director, Precourt Institute for Energy, Fu-Kuo Chang, Professor of Aeronautics and Astronautics, and Nilay Papila, PhD, senior program manager, Precourt Institute for Energy. To contact the TT4D team, visit techtransferfordefense.stanford.edu.

To read previous TT4D posts, see:

StanfordH4D’s Newsletter

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