Meaning
A formal investigation of a startup’s intellectual property assets and agreements is conducted by investor legal counsel before funding. The venture due diligence ip audit is designed to verify that the startup owns its technology and has no outstanding ownership disputes. Legal counsel will inspect all invention assignments, employment agreements, and contractor contracts.
This ensures that the investor’s capital is not used to buy into a lawsuit.
Audit Execution
Legal counsel reviews the early IP chain of title, founder agreements, and contractor contracts during the audit. They will check for the presence of present assignment clauses and verify that all contributors have signed assignments. This process helps to identify any potential legal risks or ownership gaps.
Remedial Curing
Discovering ownership gaps during this process results in required remedies before the investment is finalized. The startup may be forced to track down former employees or contractors to sign retroactive assignment agreements. This ensures that all gaps are resolved before the investment closes.
Funding Impact
Completing this analysis protects the venture fund from litigation after capital has been deployed. If the startup cannot resolve the identified issues, the funding round may be delayed or cancelled. This makes the audit a critical gatekeeper in the venture capital funding process.
