Founder IP Disputes: Mitigating VC Risk & Protecting Investments

In the fast-paced realm of venture capital, intellectual property (IP) is sometimes the most valuable aspect of a startup. Still, it can pose tremendous risk and exposure for both the entrepreneurs and their backers. As a venture capital firm, Evolve Venture Capital understands all too well the challenges that founder IP disputes pose, as well as the associated risks. In this guest blog, we will explain the pain points, offer a thorough analysis, and discuss how Evolve Venture Capital can assist in alleviating these concerns.

The High Stakes of IP Disputes

Consider for a moment pouring millions of dollars into a new company that promises to be the next big thing, only to find yourself caught in a legal fight claiming the very intellectual property that attracted you in the first place. This is not made up; this is the reality that most venture capital firms face today. Disputes regarding Intellectual Property have the potential to not only ruin the promise of a venture but to also cause significant financial losses to investors. The tension is palpable and caution is absolutely necessary.

The Common Challenges

Ownership Issues: Uncertainty about IP ownership is one of the most common problems that arise. This can arise either when a founder leaves the company or when two (or more) founders believe they have conflicting rights to invent and own IP. 

Infringement Risks: The startup may also run the risk of infringing on existing patents and/or trademarks, resulting in costly legal disputes and possibly a decrease in the valuation of their investment.

Licensing Agreements:Poorly written license agreements can lead to issues regarding terms and conditions, which can influence both the overall value of the IP and revenue streams.

Gaps in Due Diligence: If the IP portfolio is not appropriately due-diligence, it could be faced with unexpected liabilities and challenges later.

Understanding the Depth of the Problem

For VC firms to minimize their risk, they must take an intentional and thoughtful approach. The following list outlines the primary steps involved in managing risk:

1. Complete Due Diligence: The most fundamental part to mitigating risk with regard to the IP portfolio involves conducting thorough diligence by reviewing the entire IP portfolio. Making sure that patents, trademarks, and other forms of IP ownership rights are valid, owned by the companies founders or described are enforceable.

2. Clear Agreements: Making sure that agreements in which the IP is mentioned should be as straightforward as possible. This would include agreements between founders and/or co-founders, license agreements, and other agreements that concern IP ownership or use.

3. Active IP Management: Encouraging their startups to undergo regular IP portfolio audits and develop a diversified IP portfolio will reduce the opportunity for challenges related to the validity of theIP.

4. Legal Expertise: Consulting experienced IP counsel can set success and ensure legal compliance, while mitigating a chance of litigation.

Evolve Venture Capital: Your Partner in Mitigating IP Risks

At Evolve Venture Capital, we recognize the intricate details and risks of IP disputes. Our goal is to sit alongside our startups to help them with protecting and managing their IP challenges. Here's how we can help:

Due Diligence Assistance: We provide extensive due diligence services to conduct a thorough evaluation of a potential investments IP portfolio and identify and address possible risks

Legal Support: We have legal professionals who assist with drafting and reviewing IP-related agreements to optimize input while minimizing ambiguity and conflicting opinions that might lead to disputes

IP Strategy Development: We work together with our startups to develop a suitable IP strategy that includes regular audits and up front protections of their innovations

Dispute Assistance: In the case of a dispute for our start-up investments, we have the ability and experience in working with our investments to mitigate the effect of the potential negative impact of legal challenges we all face as it relates to IP protection.

Conclusion: Protecting Your Investment with Evolve Venture Capital

Intellectual property (IP) disputes can represent a substantial risk to any new venture and therefore to any venture capital investment. As a strategic partner to our portfolio companies, Evolve Venture Capital has a unique advantage to help our portfolio companies deal with the threat of IP risks by having an understanding of the risk, addressing it directly and collaborating with them in a proactive manner. Evolve Venture Capital's deep commitment to significant and comprehensive due diligence, enforceable legal agreements and proactive management of the IP as a strategic asset, positions our investment portfolio and individual investments for meaningful success.