Almost every technology company we act for on a funding round has the same defect somewhere in its history: work produced by a contractor, a founder before incorporation, or an agency, without a valid written assignment of the resulting intellectual property.
Why a services agreement is not enough
A contract to perform work is not a contract to transfer ownership of what the work produces. In most jurisdictions copyright in a contractor's output vests in the contractor by default, and a licence — even an exclusive, perpetual one — is not ownership. Investors' counsel test this specifically, because it is the cheapest defect to find.
The usual sources
- Freelance designers and developers engaged before the company had templates.
- Work done by a founder before incorporation and never assigned in.
- Agency-produced brand assets, where the agency retained rights as standard.
- Open-source components with licence terms nobody reviewed.
Fixing it before diligence
Map the development history, identify every contributor, and obtain confirmatory assignments. Retrospective assignments are ordinary and usually uncontroversial — but only while the relationship is intact and the company has no obvious reason to need one. Once a round is announced, the leverage shifts.
The cost of remediating this in advance is a few weeks of administration. The cost of remediating it mid-round is a price adjustment or an escrow.
