Last year saw investors are throwing record dollars into startups, but recent geopolitical events, a projected rise in interest rates and other factors are slowing venture capital funding.
Since the start of the pandemic, intellectual property assets have risen in value and are increasingly becoming a focus for investors looking to issue their dry powder stock. For startups, it can be important to ensure that their intellectual property and commercial contracts are in order in achieving smooth financing.
Waiting to address these issues during a financing can cause delays, lead to time-consuming and expensive remediation and, in the worst cases, lead to lower valuations.
Below is a list of 10 intellectual property and commercial areas that investors look at during due diligence, and steps startups can take to better prepare for these issues.
Prevent former employers from claiming IP property
Investors are particularly concerned about startups that exclusively own their intellectual property. This exclusive ownership is often at risk when a founder takes advantage of their new startup while still employed by another company, especially if the former employer offers a competing product or service.
The best IP strategy is to apply for federal protection as soon as possible.
Ideally, a founder should start working on his startup after finishing all previous jobs. They must ensure and, if possible, document that they do not begin work on their new product or company during their former employer’s time, using the tools, client lists, or confidential information.
Founders must also carefully review all incomplete and non-recruitment provisions when starting a new business and hiring former colleagues or suppliers.
If a founder develops a product or service that will compete with their former employer, they must carefully document the development process and even use a cleanroom software development methodology to ensure that the product or service was created independently of their former employer.
Document IP created by employees and contractors
The fact that a person is employed by a company is usually insufficient to secure IP developed by the employee.
One of the easiest ways for companies to protect their IP is to have all employees, consultants, contractors, interns and other entities enter into written confidentiality agreements and invention assignment agreements. While these agreements are typically short and simple contracts that are not much negotiated, companies often fail to obtain them, which can result in them not owning important aspects of their IP.