You’ve built something real. The product works, early customers are excited, and you’re getting ready to raise your first round. Then someone on your advisory board says, “Make sure your IP is in order before you talk to investors.”
And you think: What does that even mean?
This comes up a lot in my practice. Founders who are weeks away from investor meetings suddenly realize they don’t know what IP due diligence looks like from the other side of the table. The good news is that it’s not mysterious. Investors check a pretty predictable set of things, and most of them are fixable if you know what to expect.
Here’s what they’re actually looking at.
Why Investors Care About IP at All
Investors aren’t IP nerds. They care about one thing: can this company defend and grow the value I’m investing in?
Intellectual property is part of that picture because it answers a few key questions. Can a competitor copy this? Does the company actually own what it built? Are there legal landmines hiding in the codebase or brand?
Here’s a number that puts it in perspective: startups that hold patents raise roughly 73% more capital on average than comparable startups without them. At the angel stage, patent-holding companies see valuations about 93% higher. That doesn’t mean you need a patent to raise money. It means investors see IP as a signal that the founding team is serious about building something defensible.
It depends on what you’re building and who you’re raising from. But either way, you need to know where you stand.
What IP Due Diligence Looks Like at Each Stage
The depth of IP due diligence scales with the size of the round. Here’s how it typically plays out.
Angel and Pre-Seed
At this stage, most investors aren’t hiring IP attorneys to audit your portfolio. But they are asking basic questions:
- Do you own what you’ve built? If a co-founder, contractor, or former employer could claim ownership of your core technology, that’s a problem. Investors want to see signed IP assignment agreements from anyone who contributed to the product.
- Is there a patent filing? Even a provisional patent application signals that you’ve thought about protection. It gives you “patent pending” status, which tells investors you’re taking defensibility seriously.
- Is the brand protected? A pending or registered trademark for your company name and product name shows you’re not going to get hit with a rebrand mid-growth.
If you prefer video, I cover why provisional patents matter for startups in this walkthrough. And if you want a quick primer on how patents work before diving into the due diligence details, this 7-minute explainer is a good starting point.
Seed Round
Now things get more structured. Seed investors (and their lawyers) will typically ask for:
- A list of all IP assets: patents, patent applications, trademarks, registered copyrights, domain names
- Copies of IP assignment agreements from all founders, employees, and contractors
- Any existing licenses (inbound or outbound) that affect your technology
- Confirmation that no founder is under a non-compete or IP assignment obligation from a prior employer that could reach your startup’s technology
This is where the most common deal-killer shows up. I see it constantly: a startup built its MVP using freelance developers who never signed IP assignment agreements. Without those signatures, the company may not legally own its core product. Fixing this after the fact is possible, but it’s more expensive and more stressful when an investor’s lawyers are waiting on the answer.
Series A and Beyond
By Series A, investors expect a clean IP portfolio and will often hire outside counsel to verify it. They’ll look at everything from the seed checklist, plus:
- Freedom-to-operate analysis. Are there existing patents that your product might infringe? This doesn’t have to be a full opinion letter at this stage, but you should at least know the landscape. If you haven’t done a patent search, now is the time.
- Trade secret protections. Do you have NDAs with employees? Is access to proprietary information controlled? Are there written trade secret policies?
- Open source compliance. If your product uses open source code (and it almost certainly does), investors want to know you’re complying with the license terms. Some open source licenses can require you to open-source your own code, which is a serious issue for a startup’s defensibility.
- IP-related litigation or disputes. Any pending or threatened claims, cease-and-desist letters, or opposition proceedings.
The Five IP Red Flags That Slow Down (or Kill) Deals
I’ve seen all of these come up during fundraising. None of them are unusual, and all of them are fixable, but they’re much cheaper to fix before a term sheet than after. These are some of the most common legal traps for businesses that I see founders fall into.
1. Missing IP Assignment Agreements
This is the number one issue. If your co-founder, early employees, or contractors didn’t sign agreements assigning their work product to the company, you have an ownership gap. The company might not own its own technology.
The fix: get retroactive assignments signed. It’s straightforward when relationships are good. It gets complicated (and expensive) when a co-founder has left on bad terms or a contractor has moved on.
2. Prior Employer IP Claims
Did a founder build the initial prototype while still employed somewhere else? Did they use their former employer’s equipment, time, or resources? Many employment agreements include broad IP assignment clauses that could give the former employer a claim to your startup’s technology.
This doesn’t always mean there’s a real legal problem. But investors will want to understand the facts and assess the risk.
3. No Patent Protection (When the Technology Warrants It)
Not every startup needs a patent (I talk about who actually does and who doesn’t in a separate video). But if your core value proposition is a novel technology or process, investors will notice if you haven’t filed anything. A provisional patent application, with professional help, costs between $3,000 and $5,000 and gives you 12 months of patent-pending status. For many startups, that’s enough to get through a fundraise.
If you’re not sure whether your invention is patentable, that’s worth sorting out before investor conversations start.
4. Trademark Conflicts
You’ve been building your brand for a year, and then due diligence turns up an existing trademark registration that’s confusingly similar to yours. Now you’re looking at a potential rebrand, right when you’re trying to close a round.
A trademark search before you go to market (or at least before you raise) can catch this early. It’s one of the most overlooked steps I see.
5. Sloppy Open Source Usage
Using open source code is normal and expected. But certain licenses (like GPL and AGPL) have “copyleft” provisions that can require you to release your own source code under the same terms. If your product is built on a copyleft foundation and you didn’t realize it, that’s a problem investors will flag.
The Pre-Fundraising IP Due Diligence Checklist
Here’s what I’d recommend getting in order before you start having serious investor conversations. Think of this as your IP data room prep.
Ownership and Assignments
- Signed IP assignment agreements from every founder, employee, and contractor
- Confirm no founder has a conflicting obligation from a prior employer
- Corporate IP ownership properly documented (IP belongs to the company, not individuals)
Patent Portfolio
- At minimum, a provisional patent application on your core technology (if it’s patentable)
- A basic prior art search to understand the landscape
- A clear record of your invention timeline and any public disclosures
Trademark Portfolio
- Federal trademark application (or registration) for your primary brand name
- Domain names secured
- Basic trademark search confirming no major conflicts
Trade Secrets and Confidential Information
- NDAs with all employees and contractors
- Written trade secret policy (even a simple one counts)
- Access controls on proprietary code and business information
Licenses and Third-Party IP
- Inventory of all open source components and their licenses
- Any inbound licenses for third-party technology you’ve integrated
- Any outbound licenses you’ve granted
What Does This Cost?
I’ll give you real numbers because I know that matters.
For an angel or pre-seed stage cleanup, you’re typically looking at $7,500 to $15,000. That covers getting assignment agreements in place, filing a provisional patent, and doing a basic trademark search and application.
For a seed round, expect $25,000 to $40,000. This adds more thorough patent work, freedom-to-operate analysis, and cleaning up any ownership gaps.
For Series A, budgets typically run $50,000 to $100,000, depending on the complexity of your technology and the number of issues that surface.
The biggest cost variable is fixing ownership gaps. If everyone signs their assignments without issue, it’s straightforward. If there’s a dispute, it gets expensive fast.
Here’s something worth mentioning. A well-organized IP data room reduces total adviser costs by 25-35%. Preparation is the single biggest lever you have for keeping these costs down.
FAQs
No. Plenty of startups raise successfully without patents. But if your technology is novel and defensible, having at least a provisional patent application filed shows investors you’re thinking about protection. It’s a signal, not a requirement.
Reach out and get one signed as soon as possible. Most contractors will sign a retroactive assignment without any issues, especially if the working relationship was positive. The longer you wait, the harder this gets. If the relationship is complicated, talk to an attorney before reaching out.
For a basic cleanup at the angel or pre-seed stage, 4 to 8 weeks is realistic. For a more thorough preparation ahead of a seed or Series A round, give yourself 3 to 6 months. The earlier you start, the less it costs and the less stressful it is.
Not usually. Investors understand that early-stage companies are works in progress. What matters is that you know where the gaps are and have a plan to fix them. What does spook investors is discovering problems you didn’t know about, because it raises questions about the team’s diligence and awareness.
At the seed stage, a basic landscape review is usually sufficient. By Series A, a more formal freedom-to-operate analysis is a good idea, especially if you’re in a crowded patent space. Your IP attorney can help you calibrate the right level of analysis for your stage and budget.
Next Steps
The founders who have the smoothest fundraising experiences aren’t the ones with the biggest IP portfolios. They’re the ones who took the time to understand what they have, what they’re missing, and what the plan is to fill the gaps.
If you’re thinking about this because you’ve got a raise coming up, I’d recommend starting the IP cleanup now rather than waiting until a term sheet is on the table. A few hours of preparation can save weeks of back-and-forth during due diligence, and it keeps you in control of the timeline.
If you’re getting ready to raise and want to make sure your IP situation is solid before investor conversations start, I’m happy to walk through it with you. Here’s a link to my calendar. Feel free to grab a time that’s convenient for you.
