Friday, April 20, 2012

Secure that IP


I sometimes advise early-stage startups and get to see some of the mistakes they make. Here's one of those mistake that's easy to make and hard to fix: Not getting early collaborators sign over intellectual property (IP) they create.

Imagine this: You're just starting out and informally collaborating with a friend. You're friends and trust each other: No need to sign anything. Yet a bit later you amicably part ways. Fast forward a year. A VC wants to invest in the company, or maybe you've signed a term sheet to be acquired. Due diligence will turn up that that your friend never assigned the intellectual property right for the code he wrote to the company. You give him a friendly call, only to find out that he wants millions of dollars for that signature.

This hostage scenario is so serious that YCombinator's application form asks if the cofounders own all IP created by the new venture.

By all means, get early collaborators to sign an IP agreement. If they don't want to sign even after you explain the hypothetical horror scenario above, don't work with them.

Protip for those in California: Some states require that people are compensated for intellectual property - signing away intellectual property completely for free won't hold up in court. Apparently even $1 of compensation will do the trick.

I am not a lawyer, and this shouldn't be construed as legal advice.

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