You’ve built a product people love. You’ve got traction. Revenue is coming in. Now you’re raising funds.

Then the term sheet arrives with one clause that makes your stomach drop: “Subject to satisfactory IP due diligence.”

Suddenly, investors want to see proof that you actually own what you’ve built. And if you can’t prove it clearly, the deal can fall apart—even if everything else looks perfect.

Let’s talk about what investors really look for when they dig into your intellectual property, and more importantly, how to make sure you’re ready.

Table of Contents

What Is IP Due Diligence in a Startup Funding Round?

IP due diligence is the process where investors verify that your startup legally owns its intellectual property—and that there are no hidden landmines that could blow up their investment later.

Think of it as a background check, but for your company’s most valuable assets: your code, your brand, your designs, your technology.

Why Do Investors Care About Intellectual Property Before Investing?

Here’s the thing: investors aren’t buying into your idea. They’re buying into assets they can own, sell, or use as collateral.

If you don’t legally own your IP, they’re essentially funding something that could be taken away. Imagine investing millions into a startup, only to discover the lead developer never assigned the code to the company. That’s a nightmare scenario investors actively avoid.

They care because:

IP often represents the majority of a startup’s value
Unclear ownership creates legal and financial risks
IP disputes can destroy companies overnight
Clean IP makes future fundraising and exits smoother

How Does IP Due Diligence Impact Valuation and Deal Terms?

Strong IP documentation gives you negotiating power. Weak IP creates leverage for investors to lower valuations or add protective terms.

If investors find gaps, they might:

Reduce the valuation by 20-30%
Demand that founders fix issues before closing
Add escrow conditions or holdback provisions
Sometimes walk away entirely

At Which Funding Stage Does IP Due Diligence Become Critical?

Angel rounds might be lighter on this, but by Series A, IP due diligence is non-negotiable.

Here’s the typical progression:

Pre-seed/Seed: Basic checks, mostly verbal assurances
Series A: Detailed IP documentation required
Series B onwards: Comprehensive IP audit with legal review
Acquisition stage: Extremely thorough examination

Don’t wait until Series A to get your IP house in order. Start from day one.

What Types of IP Assets Do Investors Look For in Startups?

Investors are looking at everything that gives your startup competitive advantage:

Patents: For novel technology or processes
Trademarks: Your brand name, logo, tagline
Copyrights: Source code, website content, design elements
Trade secrets: Proprietary processes, algorithms, customer lists
Domain names: Your web presence and variations
Software: All applications, tools, and platforms you’ve built

Even things you might not think of count—like your pitch deck design or internal documentation.

Do Investors Value Registered IP More Than Unregistered IP?

Yes, absolutely.

Registered IP (filed trademarks, granted patents) shows you’re serious about protection. It’s defensible in court and transferable to acquirers.

Unregistered IP Trade Secrets, (copyright in code, common law trademarks) technically exists, but it’s harder to enforce and creates uncertainty during due diligence.

Registration isn’t just paperwork, it’s proof of ownership that investors can verify independently.

How Do Investors Assess Core vs Non-Core IP Assets?

Core IP = Assets essential to your business model Non-core IP = Supporting elements

Example: For a SaaS company, the software platform is core IP. The website design might be non-core.

Investors scrutinize core IP much more carefully because that’s where the actual business value lives. If core IP has ownership issues, it’s a deal-breaker.

Is the Startup the Legal Owner of All Its IP Assets?

This is the first and most critical question. Ownership isn’t assumed, it must be proven through documentation.

Investors will literally go through your corporate records to verify that the company entity owns everything, not individual founders or employees.

Have Founders Formally Assigned IP to the Company?

Many startups skip this step early on, assuming that because founders built something “for the company,” ownership is automatic.

It’s not.

Legally, whoever creates IP owns it initially. Founders must execute IP assignment agreements explicitly transferring all rights to the company.

If you started coding before incorporating, or if founders contributed work without formal agreements, you have a problem that needs immediate fixing.

What Happens If IP Is Still Owned by Individual Founders?

This is one of the fastest ways to kill a funding round.

If a founder still legally owns the core technology:

Investors can’t actually own what they’re investing in
The founder can hold the company hostage
Future disputes could destroy the business
Due diligence fails, and the deal collapses

The solution: Execute retroactive IP assignment agreements immediately, ideally with legal counsel to ensure they’re airtight.

What IP Documents Do Investors Expect Startups to Have?

Do Investors Ask for IP Assignment Agreements?

Always. This is the first document they’ll request.

They want to see signed IP assignment agreements from:

All co-founders
All employees who contributed to product development
All freelancers, contractors, and agencies
Any advisors who worked on the product

No signature = no proof of ownership = red flag.

Are NDAs With Employees and Contractors Mandatory?

While not always legally required, investors expect to see confidentiality agreements (NDAs) with anyone who had access to proprietary information.

This includes:

Employees (often combined with employment agreements)
Contractors and freelancers
Strategic partners
Even interns who worked on sensitive projects

NDAs show you’re protecting trade secrets and confidential information, not letting them leak freely.

What Role Do Employment Agreements Play in IP Ownership?

Standard employment agreements should include:

IP assignment clauses: Anything created during employment belongs to the company
Confidentiality obligations: Can’t share company secrets
Non-compete clauses (where applicable and enforceable)

Without these clauses, employees might claim ownership of work they created, even if they were paid to do it.

Many startups use generic employment agreements from the internet. Investors know this, and they’ll check if your agreements actually cover IP properly.

How Do Investors Review Trademark Protection of a Startup?

Is the Startup’s Brand Name Legally Protected?

Your brand is often your most visible asset. Investors want to know it’s actually yours.

They’ll check:

Is the name registered as a trademark?
In which countries or jurisdictions?
What classes does it cover?
Is registration active or has it lapsed?

Are Trademarks Registered or Still Pending?

Filed but pending trademarks are better than nothing, but they create uncertainty. There’s still a chance the application could be rejected.

Registered trademarks are ideal—they prove you’ve done the work and have legal protection.

If you’re operating in multiple countries, investors will check if you’ve protected your brand in key markets, not just India.

What Risks Arise If Trademarks Are Not Registered?

Without trademark registration:

Anyone can start using your brand name
You can’t stop competitors from creating confusion
Rebranding later is expensive and damages customer trust
International expansion becomes legally complicated

Even worse: if someone else registers your name first, you might be forced to rebrand entirely. Investors hate this kind of preventable risk.

How Do Investors Assess Copyright and Software Ownership?

Who Owns the Source Code of the Product or App?

This is the million-dollar question for tech startups.

Investors will ask:

Who wrote the original code?
Was it written by employees or contractors?
Do you have documentation proving ownership?

The source code is usually your most valuable asset. If ownership is unclear, your valuation drops instantly.

Was the Code Developed by Employees or Freelancers?

Employee-written code: Generally owned by the company (if employment agreements are proper)

Freelancer-written code: Only owned by the company if there’s a written agreement assigning IP

Many early-stage startups hire freelancers to build MVPs. If those freelancers didn’t sign IP assignment agreements, they technically still own the code they wrote—even though you paid them.

This is shockingly common and completely fixable, but only if you address it early.

Are Open-Source Licenses Properly Disclosed and Compliant?

If your product uses open-source code (and most do), investors will check:

Which open-source components are used?
What are their license requirements (MIT, GPL, Apache, etc.)?
Are you complying with those licenses?
Could any licenses create future IP complications?

Some open-source licenses (like GPL) require that derivative work also be open-sourced. If your commercial product uses GPL code incorrectly, you could be forced to open-source your entire codebase.

Investors know this, and they’ll check.

Do Investors Check Patent Filings and Innovation Protection?

Does the Startup Need a Patent for Its Technology?

Not every startup needs patents, but if you’re in:

Biotech
Hardware/IoT
Deep tech
Pharmaceutical
Novel algorithms or processes

Then patents become critical for defensibility.

Are Provisional Patents Sufficient During Early Stages?

Provisional patents are acceptable early on—they establish a filing date and give you 12 months to file a complete application.

But if you’re raising significant funding, investors prefer to see:

Full patent applications filed
Patents granted (even better)
Patent strategy aligned with product roadmap

Provisional patents signal intention. Granted patents signal serious IP protection.

What Red Flags Do Weak or Missing Patent Filings Create?

If your technology should be patented but isn’t:

Competitors can copy your innovation freely
You have no legal moat
Valuation suffers because the business is easier to replicate
Investors worry about defensibility

If you claim to have patents but haven’t actually filed, investors will discover this immediately during diligence. Don’t exaggerate your IP position.

How Do Investors Evaluate IP Risks and Infringement Exposure?

Is the Startup Infringing Third-Party IP Rights?

Investors conduct freedom-to-operate analysis to ensure you’re not accidentally infringing someone else’s patents, trademarks, or copyrights.

They’ll ask:

Have you done IP clearance searches?
Are you aware of any similar existing IP?
Have you received any cease-and-desist letters?

If you’re infringing, investors either walk away or demand you resolve it before closing.

Are There Ongoing IP Disputes or Legal Notices?

Any active IP litigation is a massive red flag.

Even minor disputes create:

Legal costs that drain resources
Uncertainty about case outcomes
Potential for losing core IP rights
Distraction from business operations

If you’re in an IP dispute, disclose it immediately and transparently. Hiding it is worse than the dispute itself.

How Do Unresolved IP Risks Affect Funding Decisions?

Unresolved IP risks can:

Delay funding while you fix issues
Reduce valuation significantly
Add protective terms to the deal
Kill the round entirely in severe cases

Investors invest in certainty. IP uncertainty is their enemy.

How Important Are IP Clauses in Startup Contracts?

Do Customer and Vendor Contracts Protect Startup IP?

Your contracts with customers and vendors should clearly state:

Who owns work product created during the relationship
What IP rights are granted (licenses vs. ownership)
How confidential information is protected

If customer contracts accidentally transfer IP ownership to clients, you’re giving away your assets. Investors will catch this.

Are Licensing Terms Clear and Enforceable?

If you license technology to customers:

Are license terms clearly defined?
Are they limited or perpetual?
Can licenses be revoked?
Are payment terms tied to license grants?

Unclear licensing creates revenue risk and IP leakage.

Can Poor Contracts Dilute IP Ownership?

Yes. Badly written contracts can:

Accidentally transfer IP ownership
Grant overly broad licenses
Fail to protect trade secrets
Create disputes about who owns what

Every contract that touches your IP should be reviewed by legal counsel before signing.

What Are Common IP Red Flags That Scare Investors Away?

Founder-Owned IP Not Assigned to the Company?

This is the #1 red flag. If founders haven’t assigned IP, nothing else matters.

Investors will require this fixed before proceeding, often at the founder’s expense.

No NDAs or IP Agreements With Developers?

If you’ve had 10 freelancers work on your product and none signed agreements, investors see a legal nightmare.

You might not own anything you paid to create.

Brand Names Already in Use by Competitors?

If your brand name or a confusingly similar one is already registered by someone else, investors worry about:

Forced rebranding
Trademark infringement lawsuits
Brand confusion in the market

Always do trademark searches before building brand equity.

How Can Startups Prepare for IP Due Diligence Before Fundraising?

What IP Audit Should Startups Conduct Internally?

Before approaching investors, conduct your own IP audit:

Identify all IP assets: List every piece of IP you own or use
Verify ownership: Check who legally owns each asset
Find gaps: Identify missing agreements or registrations
Fix issues: Execute necessary agreements and file registrations
Organize documentation: Create a clean data room

Which Documents Should Be Organized in a Data Room?

Prepare these documents in advance:

IP assignment agreements (founders, employees, contractors)
Employment agreements with IP clauses
NDAs and confidentiality agreements
Trademark registrations and certificates
Patent applications and grants
Copyright registrations (if applicable)
Domain name ownership records
Open-source license documentation
Customer/vendor contracts affecting IP
Any IP-related correspondence or disputes

When Should Startups Consult an IP Lawyer?

Ideally, before you incorporate. Realistically, as soon as you start building anything valuable.

Critical moments to involve an IP lawyer:

Company formation and founder agreements
Before hiring first employees or contractors
Before launching your product publicly
6 months before starting fundraising
When any IP dispute arises

An hour with an IP lawyer now saves months of problems later.

What Is the Ideal IP Due Diligence Checklist for Startups?

Have All IP Assets Been Identified and Documented?

Create a comprehensive inventory:

Patents (filed, pending, granted)
Trademarks (registered, pending, common law)
Copyrights (registered and unregistered)
Trade secrets and confidential information
Domain names and social media handles
Software and source code
Brand assets and designs

Are Registrations, Renewals, and Filings Up to Date?

Check:

Are trademark renewals current?
Have patent maintenance fees been paid?
Are domain registrations up to date?
Have any registrations lapsed?

Lapsed registrations are embarrassing and fixable—but investors will notice.

Can Strong IP Accelerate Exits and Acquisitions?

Absolutely. Acquirers conduct even more rigorous IP due diligence than investors.

Strong IP:

Makes due diligence faster and smoother
Increases acquisition price
Reduces deal risk and escrow requirements
Sometimes becomes the primary reason for acquisition

Many acquisitions are essentially IP purchases with a company attached.

FAQs on IP Due Diligence for Startups

What is the first IP document investors ask for?

Founders’ IP assignment agreements. This proves the company actually owns what the founders built. Without these, nothing else matters.

Can startups raise funding without registered IP?

Yes, early-stage startups often raise funds before filing registrations. However, you must at least have proper ownership documentation (IP assignments, employment agreements). By Series A, investors expect some registrations in progress or completed.

Do investors fund startups with pending IP disputes?

Rarely. Active IP litigation creates too much uncertainty. Investors typically wait until disputes are resolved or discount valuation heavily to account for potential losses.

Is IP due diligence required for angel funding?

Angel investors usually do lighter diligence, but they still care about basic ownership. Institutional investors (VCs) conduct thorough IP due diligence from Series A onwards.

How early should startups start IP compliance?

From day one. The moment you start building anything valuable, you should have proper agreements in place. It’s exponentially easier to do it right from the start than fix it retroactively.

Get Your IP House in Order Before Investors Come Knocking

IP due diligence isn’t just a formality—it’s where funding rounds succeed or fail based on documentation you should have had from the beginning.

The good news? Most IP issues are completely fixable with proper legal guidance. The bad news? Fixing them after investors raise concerns is stressful, expensive, and sometimes too late.

Don’t let preventable IP problems destroy your funding round or tank your valuation.

Visit My Legal Pal to work with IP lawyers who specialize in preparing startups for investor due diligence. We’ll help you identify gaps, execute necessary agreements, and organize documentation that gives investors confidence in your IP foundation.

Because when investors ask “Do you own what you’ve built?”—you want the answer to be an unqualified yes.