IP diligence is one of the more mechanical parts of a financing. There is a list, counsel works through it, and items either check out or generate a follow-up.
What makes it painful is timing. It happens after the term sheet, when everyone wants to close, and every unresolved item becomes a reason the close slips. Nearly all of it can be handled months in advance, at a fraction of the cost and none of the leverage loss.
What Gets Examined
Chain of title. The first and most important item. Signed invention assignments from every founder, employee, contractor, advisor, and intern who contributed to the technology, with assignments recorded at the USPTO for filed applications. This is where most problems surface. It is covered in detail in who owns the IP your contractor built.
Prior employer claims. Whether founders developed any of the technology while employed elsewhere, and what those employment agreements said. A founder who built the prototype on nights and weekends while at a large company is a specific and recurring risk. If the prior employer's agreement covers inventions in its field of business, the claim can be real.
University entanglement. If any contributor was a student, postdoc, or faculty member, the institution's IP policy may claim ownership. Unwinding this is slow and sometimes impossible. Investors ask about it specifically.
Portfolio inventory. Every application and issued patent, with status, filing dates, priority chains, jurisdictions, upcoming deadlines, and who is prosecuting. Disorganization here reads as a proxy for how the company is run.
Freedom to operate. Whether the company can sell its product without infringing someone else's patent. This is a different question from whether the company's own IP is valid, and founders conflate them constantly. You can hold a perfectly good patent on your product and still infringe someone else's.
Trademark position. Whether the company name and product names are registered, cleared, or exposed. A rebrand forced eighteen months post-financing is expensive and entirely avoidable.
Open source compliance. What licenses are in the codebase and whether any copyleft obligations conflict with the company's licensing model. Investors in software companies always ask.
Trade secret hygiene. Whether the company has identified what it treats as confidential and implemented reasonable measures. Increasingly asked about, especially where the core technology is unpatented.
Encumbrances. Existing licenses, liens, security interests, government funding obligations under Bayh-Dole, joint development agreements that grant rights to a partner, and any prior grants of exclusivity.
The Gaps That Actually Delay Closings
In rough order of frequency:
Missing contractor assignments. Discussed above. Ubiquitous.
Founder IP never assigned to the company. The invention predates the entity and no contribution agreement was ever executed. The company does not own its own core technology.
Assignments signed but never recorded. Recording is not required for validity but it is what diligence checks, and unrecorded assignments create real risk against a subsequent purchaser.
"Agrees to assign" instead of "hereby assigns." Courts have treated the former as a mere promise creating equitable title rather than an immediate transfer of legal title. The distinction is one word and it matters.
A departed co-founder with no assignment. Now a third party with rights and no reason to cooperate cheaply.
Provisional applications about to expire with no plan or budget to convert them.
No freedom-to-operate analysis at all in a crowded space where the investor knows there are blocking patents.
A product name nobody cleared that conflicts with a registered mark in the same class.
What to Do Before the Term Sheet
Run the assignment audit. List every contributor since inception. Confirm a signed agreement exists for each and that it assigns patent rights, using present-tense assignment language. Paper the gaps now, while relationships are good and nobody has leverage.
Record everything at the USPTO. Assignments for all filed applications.
Build a real portfolio table. Application numbers, titles, filing and priority dates, status, jurisdictions, next deadlines, and docketing owner. Keep it current. Being able to hand this over in an hour signals competence.
Get the founder employment question answered. Review prior employment agreements for anyone who worked elsewhere during development. If there is exposure, address it deliberately rather than hoping it goes unasked.
Do a freedom-to-operate review if you are in a crowded field. It does not have to be an exhaustive opinion. Knowing the landscape and having a considered position is far better than a blank stare.
Clear and file your trademarks. Company name and lead product, at minimum.
Document your trade secrets. Written identification of what the company treats as confidential, plus the access controls and agreements that constitute reasonable measures.
Run an inventory of what you have not protected. Most companies hold considerably more intangible value than their patent list reflects: proprietary datasets, internal tooling, process know-how, customer intelligence, trained models. The Hidden IP Assets Checklist covers the categories that get missed, and the IP Value Audit is the structured engagement that documents them into a form diligence can actually evaluate.
Why the Timing Matters So Much
Every item above is cheap and straightforward when there is no deal pending.
The same items during diligence are neither. A contractor asked to sign an assignment while a financing is outstanding now understands they have leverage. A prior employer contacted about a potential claim is now on notice. A trademark conflict discovered during diligence cannot be fixed before closing. And every unresolved item is a lever the investor can use on valuation or terms.
Companies that treat IP as a pre-raise workstream rather than a diligence response consistently close faster and on better terms. The work is the same. The cost and the leverage are not.
Our startup law practice handles diligence preparation, and the Tech Founder's IP Playbook is a free walkthrough of the pre-raise checklist. To review your position before you go out, schedule a consultation.
This article is general educational information, not legal advice, and reading it does not create an attorney-client relationship. Patent law is fact specific and deadlines are unforgiving. For advice on your situation, schedule a consultation.