What Biotech Founders Must Lock Down in Their Founder Agreements
Founder agreements are the architectural plans that hold your biotech startup together as it grows. When designed with foresight, a Founder Agreement protects your equity ownership, defines Intellectual Property (“IP”) rights and keeps your founding team aligned even through dilution, scale and investor control shifts.
This article offers strategic, biotech-specific Founder Agreement insights to help you learn about common founder-related issues. Whether you’re still in the early stages or refining your company structure for an upcoming raise, we’ll walk through actionable steps you can consider with your counsel to draft a formal agreement that secures control, incentivizes co-founders and clarifies ownership of related intellectual property from day one.
Why Is a Strategic Founder Agreement Essential for Biotech Startups in the Early Stages?
Let’s define what a Founder Agreement actually is before going any further. It’s a legal document that outlines the roles, responsibilities and ownership structure of your startup’s co-founders.
It clarifies who owns what, who does what and what happens if a founder leaves. While it may seem like something to delay until the business grows or equity becomes valuable, most founders who hold off end up regretting it.
Camaraderie and vision are not enough. A formal agreement protects your startup from unraveling when real decisions hit the table. Because the truth is, the most damaging problems show up when:
- You raise your first or second round of capital
- One of your co-founders wants to walk away
- A key patent or trade secret must be assigned to the company
- Founder equity becomes worth real money
- An acquirer or investor begins legal diligence
If you want your startup to survive and succeed, your Founder Agreement must be built for it.
What Does a Founder Agreement Do for Biotech Startups?
It Clarifies Ownership
In the early stages of a biotech startup, it is common for founders to rely on verbal understandings or handshake equity splits like “40/30/30 for now, we’ll sort it out later.” But as your company takes on IP, investors and risk, ambiguity around ownership becomes dangerous.
A strategic Founder Agreement turns vague assumptions into an enforceable structure. It defines each co-founder’s equity percentage, contribution basis (cash, IP, effort or lab resources), and the precise vesting schedule tied to roles or milestones.
For example, equity may vest over four years with a one-year cliff, or it may be milestone-based, unlocking shares once the Investigational New Drug (“IND”) application is submitted or a lead candidate clears preclinical benchmarks.
In venture capital deals, vesting for founders is frequently set at 25% upon the 12-month anniversary of issuance, and the remainder proportionately monthly over the ensuing 36 months.
The agreement should also spell out:
- What happens to unvested equity if a founder leaves, reduces his or her time commitment or breaches his or her obligations.
- How different share classes (e.g., Class A voting vs Class B non-voting) may apply to co-founders who join later or contribute in a limited capacity.
- Whether non-cash contributions, such as pre-incorporation IP, data sets or access to academic infrastructure, convert to equity or licensing agreements.
These details matter. Without them, the cap table may become unstable, co-founders may dispute entitlements or your startup risks losing credibility during diligence. Worse, unresolved equity confusion can block your ability to raise capital, accept licensing offers or close exit deals when it counts most.
It Aligns Expectations
In the early stages of a biotech startup, your founding team is often powered by vision and urgency. But while you may be aligned on what you are building, many founders forget to align on how you will build it together.
This is where your Founder Agreement does critical work: it replaces vague understanding with documented clarity about roles, time commitments and decision-making authority. A strong Founder Agreement aligns expectations by covering the following:
- Aligning purpose
Every company’s founders start with enthusiasm, but not always with the same endgame. Your Founder Agreement should define your shared goals. Are you aiming for a VC-backed scale-up? A licensing-driven exit? A strategic acquisition? Without consensus here, future decisions may trigger misalignment.
- Role clarity
Avoid startup chaos by defining each co-founder’s roles and responsibilities in writing. Who is managing lab operations? Who oversees regulatory milestones? What’s the expected weekly time commitment for the chief technology officer or chief operating officer? Your agreement should also describe how day-to-day decisions are made, who reports to whom and what happens if a founder fails to meet obligations.
- Commitment structure
Biotech co-founders often juggle postdocs, university affiliations or advisory positions. Your Founder Agreement must clearly outline phased engagement terms, such as start dates for full-time work or conditional equity tied to milestones. Include pause-and-leave clauses and what happens to founder equity during extended absences. Alignment only works when expectations are time-bound and specific.
It Helps Protect Your Startup IP
In the early stages of a biotech startup, most founders assume that any intellectual property created during brainstorming, lab work or design sessions belongs to the company. But under U.S. law, that assumption is wrong. Unless a person is an employee of a company, IP belongs to the individual who creates it, unless it has been explicitly assigned in writing.
Until your Founders are documented as employees of the venture, IP ownership is up in the air. Without a legal document transferring rights, your startup doesn’t own the data, discoveries or documents your co-founders have produced. And that can cause serious issues later, especially during diligence with investors or licensing partners who expect a clean chain of IP ownership.
Your Founder Agreement must include clear language assigning all related intellectual property to the company, both existing and future. This includes IP developed before incorporation, such as early experimental protocols, screening algorithms or draft patent ideas, as well as new inventions created as your company grows.
It Provides Exit and Buyback Rules
At the beginning of a biotech startup, everyone’s aligned, eager to build and convinced they’ll stay the course. But the only thing you can count on is change. A co-founder might need to relocate. Another could face burnout or accept an outside offer.
When that happens, your Founder Agreement needs to define what comes next. What happens to the departing founders’ equity? Do they keep their board seats? Do they retain voting rights? If your agreement is silent on exit rules, you are leaving your ownership structure vulnerable to breakdown just when your startup grows.
This is why your Founder Agreement must address both voluntary and involuntary departures. A voluntary clause spells out whether someone can walk away and under what conditions they lose or retain unvested shares. An involuntary clause protects the company when a co-founder violates the agreement or fails to meet expectations.
And just as important is the buyback formula — how much the company must pay to reacquire equity ownership from a departing founder. Define whether repurchase happens at fair market value, nominal value or a valuation discount. Without these terms, your company risks legal disputes, frozen cap tables and dead equity in later funding rounds.
It Defines Decision-Making and Conflict Resolution Mechanisms
As your biotech startup begins to scale, informal decisions made over coffee won’t be enough to hold the company together. Your founding team needs structure. A strong Founder Agreement creates the decision engine your business runs on. Getting things expressed in writing forces Founders to focus on what they need to accomplish in their roles.
- Day-to-day decisions
Your agreement should empower co-founders to act confidently within their assigned roles. For example, the chief technology officer can manage lab protocol without needing a vote, while the chief operating officer oversees vendor selection and lab logistics. These daily calls should flow through clearly defined roles and responsibilities to avoid operational delays.
- Major operational decisions
When it comes to hiring key staff, spending significant capital contributions or shifting suppliers, your Founder Agreement must require majority vote. This ensures that bigger moves have buy-in from the core team without paralyzing progress.
- Strategic decisions
Licensing core intellectual property, launching new ventures or raising your first priced round should only move forward with unanimous consent. These are high-risk, high-impact inflection points. If your company’s founders don’t all agree, you risk losing trust or worse, triggering founder conflict that damages long-term growth.
Beyond defining decision categories, your agreement needs to spell out how voting works. Do all co-founders vote equally or are votes based on founder equity percentages? What happens when there’s a tie?
Building in tie-breaker logic, such as rotating authority or escalation to a board or neutral advisor, helps resolve future contentious issues before they disrupt operations.
And when conflict does arise, your Founder Agreement must offer a clear path to resolution. Structured mediation, arbitration or majority vote mechanisms prevent tension from escalating into full-blown litigation. Defining dispute resolution now protects your company’s legal contract, ownership structure and internal morale later.
Final Words
Your Founder Agreement is the first real test of alignment. While excitement is high and roles feel obvious, it’s easy to skip structure. But the truth is, many founders only realize the value of that legal clarity when it’s already too late. A Founder Agreement startup document creates the rules of engagement: who makes decisions, who owns what and how to handle conflict, before you ever draft an operating agreement.
We’ve guided life sciences startups through formation, investment and scale — and it all begins with a strong agreement. If you’re ready to create something that lasts, start by making your agreements as intentional as your research.
This article is for informational purposes only and does not constitute legal advice. You should consult qualified legal counsel regarding your specific situation.