A practical guide to commercial routes following an iX challenge

What happens after you win an iX challenge?

The gap between a brilliant prototype and a commercial procurement contract is often called the “Valley of Death.” For an SME with a cross-sector solution, perhaps a sensor from the medical field now destined for an offshore wind turbine, Innovate UK Business Connect (IUK BC) and its Innovation Exchange (iX) programme act as the bridge across that gap.

Once you’ve “won” an iX challenge, the real work begins: defining the commercial and financial architecture of your partnership. In industrial sectors, there is no one-size-fits-all. The model you choose dictates who owns the Intellectual Property (IP), who takes the risk, and how you eventually get paid.

The three core commercial pathways

1. Direct buy / procurement (the “off-the-shelf” route)

This is the cleanest model, where the challenge holder identifies your solution as market-ready and enters a direct vendor relationship.

• How it works: The challenge holder buys the product or service directly, often starting with a smaller Purchase Order (PO) for a limited rollout.
• IP Position: You retain 100% of your IP. The challenge holder simply gets a product or service or a license to use a product.
• Best for: SMEs with a mature (TRL 8-9) product that requires minimal customisation.

2. Joint development project (the “co-creation” route)

When a technology needs adaptation for a specific industrial environment (e.g. hardening a drone for North Sea winds), a Joint Development Project is the standard.

• How it works: Both parties contribute resources – engineering time, facilities, or cash, to “industrialise” the solution. Where a funding gap needs to be filled, the companies can jointly apply for Innovate UK or similar grant funding.
• IP Position: This usually involves shared or partitioned Foreground IP (new IP created during the project).
• Best for: Cross-sector winners moving technology from an adjacent field into e.g. energy or infrastructure.

Strategic tip: Joint projects make stronger applications

If applying for Innovate UK grant funding, the strongest projects are those that are structured as joint projects. If this isn’t an option, the Challenge Holder you met via the iX programme could be a non-paid partner or provide a letter of support, showing commitment to the final product.

3. Equity investment (the “strategic alignment” route)

Sometimes a challenge holder (or their venture arm) wants more than a product and may offer to take a stake in your future.

• How it works: The challenge holder provides capital in exchange for shares. This often includes a Strategic Partnership Agreement giving the SME a “first look” at future tenders.
• IP Position: You retain your IP, but the investor has a vested interest in your patent portfolio’s strength.
• Best for: High-growth SMEs needing capital to scale manufacturing or global operations.

Who pays, who owns? The IP tug-of-war

In industrial partnerships, generally the one who pays usually takes ownership.

• Fully funded by challenge holder: If a challenge holder pays 100% of the development costs, they will often insist on owning the resulting IP. The SME might negotiate a “license back” to use the tech in other sectors (e.g. a utility company owns it for “Wind,” you keep it for “Rail”).
• Matched funding / grants: If the project is co-funded (e.g., via IUKBC-supported grants), IP ownership is typically more balanced. The SME usually retains ownership of the core technology while granting the challenge holder an exclusive or royalty-free license for their specific industrial use case.
• Funded by the applicant: If the SME “boot-traps” the pilot to prove the tech, they maintain maximum leverage and 100% IP ownership.

Funding your innovation: fuel for the journey

A “winning” solution often requires external funding to cross the finish line. Depending on your commercial model, funding typically flows from:

• Direct from the challenge holder: The industrial partner funds the trial from their R&D or operational budget. This “Customer-Funded R&D” is the ultimate validation.
• Innovate UK & public R&D grants: Many IUKBC challenges align with grant competitions. These provide “non-dilutive” funding (you don’t give up equity) but require the SME to provide “match funding” (often 30%–50%).
• Innovation loans: For SMEs with a clear route to market, Innovate UK offers Innovation Loans (typically £100k–£2m) with below-market rates and long repayment holidays.
• Venture capital (VC) & private equity: Winning an iX challenge with e.g. a major utility like National Grid or SSE is a huge “market signal” that makes you attractive to VCs.
• Self-funded (bootstrapping): Some SMEs fund the initial integration themselves to keep full control of the IP and move faster than a grant cycle allows.

Mapping the relationship: funding vs. control

The table below illustrates the “Power Balance” in industrial partnerships. As you move toward models funded entirely by the Challenge Holder, your immediate financial risk decreases, but the pressure to share IP ownership increases.

Key decision factors for SMEs

When reviewing this table, consider these three things:

1. The “who pays” rule: If you are using an Innovation Loan or VC money to fund the trial, you should fight to retain 100% of the IP. If the Challenge Holder is paying for 100% of your engineering time, expect to grant them at least an exclusive license for their specific niche.
2. Foreground vs. background IP: Always document your “Background IP” (what you brought to the project) in the contract. This ensures that even if a Joint Development Project goes south, the challenge holder cannot claim ownership of your original “Secret Sauce.” Protecting your background IP early allows you to be more generous with the Foreground IP (the trial outputs) to secure the deal.
3. The grant advantage: Using Innovate UK Business Connect to secure public R&D grants is often the best “middle ground.” Because public money is involved, the terms usually favour the SME retaining IP to encourage broader UK economic growth.

The SME IP & negotiation checklist

1. Define the “starting line” (background IP)
Before any data is shared or code is integrated, you must define what you already own.

• Inventory: Have you listed all patents, trade secrets, and proprietary algorithms existing before the IUKBC challenge?
• Evidence: Is there a “data room” or timestamped record proving this IP existed prior to the partnership?
• Protection: Are there Non-Disclosure Agreements (NDAs) in place that specifically cover “evaluation purposes only”?

2. Categorize the “new stuff” (foreground IP)

Trials often spark new ideas. You need to decide who owns the “tweaks” made during the project.

• Ownership by origin: Does the contract state that the party who creates the IP owns it? (This is usually the safest default for SMEs).
• Sector partitioning: If the challenge holder insists on ownership because they are funding the trial, can you limit their ownership strictly to their sector (e.g., “Offshore Wind”) while you keep all rights for Rail, MedTech, or Automotive?
• The “Improvements” clause: Does the challenge holder have rights to improvements you make independently during the trial period? (Avoid this if possible).

3. Align funding with IP rights

The more you pay, the more you stay (in control).

• Grant funding: If funded via an Innovate UK grant, have you cited the standard “exploitation” requirements which usually encourage the SME to retain IP?
• Innovation loans/VC: If you are using your own capital or loans, have you made it clear that the challenge holder is a customer, not a co-owner?
• Direct buy: In a procurement model, are you granting a License to Use rather than an Assignment of Ownership?

4. Establish “freedom to operate”

Don’t let a trial trap you.

• Exclusivity limits: If the challenge holder asks for exclusivity, is it time-bound (e.g., 12 months) and geography-bound (e.g., UK only)?
• Derivative works: Do you retain the right to use the methods learned during the trial to build products for other industries?
• Data ownership: Does the challenge holder own the raw sensor data, while you own the anonymised insights used to train your AI models?

The IP ownership spectrum

Depending on who is footing the bill, the “gravity” of IP ownership shifts. Understanding this helps you know when to push back.

Strategic tip: the “right of first refusal” (ROFR)

If a challenge holder is hesitant to let you walk away with 100% of the IP, offer them a Right of First Refusal. This means if you ever decide to sell the IP or the company, they get the first chance to buy it. It protects their infrastructure without stripping you of your assets.

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