Open Source Software Startup Good-Standing Agreement
UC Berkeley’s open source culture has fostered a remarkable track record of developing innovative software, open source-licensing commercial use of the software, and spinning-out companies that successfully leverage the software. An impressive number of the campus’s software projects and related startup companies have created products and entire industries that addressed societal problems or technological opportunities in ways that have improved our quality of life and driven our economic vitality.
Berkeley’s thriving open source community envisions ongoing, significant opportunities for innovation and entrepreneurship. To help achieve this potential, the campus established the Open Source Software Startup (OS3) Program. The program leverages the success of Berkeley’s OS3 companies to help fund the academic research and education that underlies this innovation and entrepreneurship.
The core of the OS3 Program[i] is its Good-Standing Agreement. Berkeley’s newly incorporated OS3 companies that optionally decide to enter into this simple, non-cash agreement can benefit from the agreement’s written confirmation that the university agreed to release particular software under an open source license; and accordingly, the company’s leveraging of the software is consistent with the mission of the university. (However, the agreement is explicitly not a University of California endorsement of any company or product.) This confirmation in writing can help startups with investors, corporate partners, strategic customers, and key hires because the statement can de-risk the possibility of a future copyright-related conflict between the company and the university.
The Good-Standing Agreement also acknowledges UC Berkeley’s: (1) role in fostering the development of the particular software and startup, (2) willingness to open source license the software’s copyright, and (3) written statement of good-standing. In recognition of these benefits, the Good-Standing Agreement grants the university 1% of the newly incorporated company’s stock[ii], and the right to invest in the company’s future rounds of funding (on the same terms as other investors up to its initial 1% ownership) [iii]. University income resulting from an OS3 Good-Standing Agreement is distributed evenly among the startup’s associated Berkeley lab, department, unit (e.g. college), and the campus (via the VCR Office).
The vision of the OS3 Program is that all Berkeley OS3 startups enthusiastically and proactively enter into the Good-Standing Agreement in order to help the campus fund academic research and education that will catalyze future OS3 opportunities.
The OS3 Good-Standing Agreement is available here: ipira.berkeley.edu/os3-good-standing-agreement.
For more information, contact ipira.berkeley.edu/concierge
[i] The OS3 Program’s activities include: (1) popularizing and executing the OS3 Good-Standing Agreement, (2) administering the agreements’ resulting stock equity and investment purchase rights – including potential assignment of purchase rights to VCs; and (3) potentially structuring the assignment of the purchase rights in ways that foster early investments in OS3 startups (before their purchase rights become valuable).
[ii] The rationale underlying the stock grant amount of 1% is based on the assumption that this grant will occur at, or soon after, the OS3 company is incorporated; and therefore the percentage will be highly subject to dilution. The percentage also reflects industry norms, such as the Salesforce 1% Pledge (salesforce.org/pledge-1/). Additionally, the initial 1% ownership corresponds to the future investment purchase rights of up to 1% in the company (see next footnote).
[iii] Including investment purchase rights in this agreement is a win-win for the company and university. To be clear, this right is not a grant of future stock to the university. Instead, it enables the university (or its assignees) to invest in the company under the same terms as other investors. This investment participation right has emerged as an industry norm – as exemplified by the participation rights in this online Stanford agreement template (see section 7.4 on page 7): otl.sites.stanford.edu/sites/g/files/sbiybj10286/f/exclusive_license_with_equity_forweb.pdf . The default hierarchy for exercising the participation rights is: first, the UC Chief Investment Officer; second, funds that share their profits with UC Berkeley (e.g. SkyDeck Fund I, and Berkeley Catalyst Fund I); and third, funds that are closely aligned with UC Berkeley (e.g. The House Fund, OUP, Bow Capital).
