How Lack of IP Assignments Can Hurt Your Startup

Luca sat me down for some important questions around intellectual property (IP), in the preamble of ReaktorX 2024, where I'm happy to be a mentor.

One topic we tackled in this video excerpt is the IP assignments. For early-stage companies, it's a key point to have them right, since you don't have a lot of or any metrics to show for yourself. If you plan to raise money, investors will look to secure their investment by looking at how protected your company's assets are.

Some issues I've seen over the years pop-up during the investment due diligence process are:

1. Loss of intellectual property rights: Without proper IP assignment clauses, companies lost their rights to the intellectual property developed by former founders or collaborators, opening up the way to potential disputes and legal challenges. Investors are not fond of uncertainty. This particular kind of uncertainty leads to representations and warranties, plus additional liability protection for the founders to insulate the company and its shareholders from any such claims.
2. Legal claims and liabilities: Investors may be hesitant to invest in a company without clear IP assignment clauses. I haven't seen cases where early-stage investments didn't eventually go ahead due to this, but investors have asked for additional personal guarantees on behalf of the founders, a schedule to ultimately make the IP assignment a reality, or increased equity stakes to compensate for the risk.
3. Attracting investments: In some highly creative / inventive industries, a lack of proper IP assignment clauses can make it difficult to attract investments, as time to relevant metrics might be quite long. Think health tech or hardware, where most initial investment is spent on getting regulatory approvals, patents and/or initial prototypes - all of these assets are IP-heavy and companies need to get their IP in check.

One final word on ReaktorX. Registration for the 2024 cohort closes in 10 days, and after that we'll know the 5 startups in the CEE that get:

➡25K EUR in funding (SAFE deal, wire-transfer)
➡75K EUR in discounts/credits (AWS, Stripe etc.)
➡1 experienced Lead Mentor
➡Access to ReaktorX network
➡On-demand Helpers and Experts