The IP problem that turns up mid-raise

A client was days away from closing a funding round when the investor’s lawyers asked for something entirely reasonable.

They wanted the document showing the company owned a piece of technology that a contractor had helped develop before moving on.

The company believed it owned it, and in spirit it did, but all there was to show for it was an email exchange that implied agreement.

An email like that is not a strict assignment. Nobody had done anything wrong; the company had simply grown faster than its paperwork.

We managed to secure the necessary paperwork before the deal closed, but it shouldn’t have been a last-minute scramble. Eighteen months earlier, it would have been a five-minute job.

I now find myself telling founders some version of this fairly often. The IP issues that cost time and goodwill during a raise are rarely the complex ones. They’re the routine things that nobody got round to.

Three come up again and again:

1. Know-how that only exists in people’s heads

Patents protect the invention itself – the product, the method, the composition – and around that sits the know-how.

That’s the moulding temperature that gives better yields, the material that looked fine on paper but doesn’t work in practice, and the process tweak that stops a recurring defect.

Most of it lives in the heads of the people doing the work, which is fine until one of them leaves.

You don’t need an overly bureaucratic system for this, just a habit. When the team works out something valuable, someone writes down what it is, why it matters, who knows about it and stores it securely.

That record helps show the knowledge belongs to the company and has been kept confidential, which matters if you ever need to rely on it.

2. People joining and leaving before the paperwork catches up

Founders are often surprised to learn that a contractor or consultant generally owns what they create unless there’s a signed, written contract to the contrary.

Employees are usually more straightforward, but every technical hire should still have a clear, signed contract covering IP. Leavers should hand over what they know, and that does not just mean their laptop.

Both steps tend to get skipped when a business is small and moving fast. Unfortunately, that’s when the risk is highest, because there’s nobody else to catch it. A ten-minute check when someone joins and when they leave closes most of the gap.

3. Agreements that don’t say what people think they say

Common examples are an NDA that expired three years ago, a manufacturing agreement that’s silent on who owns improvements, and a consultancy agreement that lets the consultant reuse what they developed for you.

These come up in due diligence far more often than anything dramatic. Investors mostly want to see that the paperwork matches reality and, where it doesn’t, that there’s a sensible explanation.

Why it’s worth sorting before you raise

None of this needs a large legal budget or an in-house lawyer. It needs someone treating IP as a commercial asset from early on, rather than something to tidy up when a term sheet arrives.

The companies that handle this well tend to do three things consistently:

1. document as they go;
2. build IP paperwork into joining and leaving processes; and
3. get agreements reviewed before they’re signed, not after an investor queries them.

The founders who get caught out are usually just busy building the company, which is where their time should go. It helps to have someone who knows where the gaps tend to be.

If you’re planning a raise and want a second pair of eyes on your IP position, get in touch.