Shelf Space: What’s a Little IP Among Friends? Why Founders Shouldn’t Wait on IP Assignments

Intellectual property is what makes your company your company. It is your veritable “secret sauce”; your defining moment. It is also increasingly where enterprise value lives, with intangible assets accounting for nearly 92% of the market value of companies in the S&P 500. Certainty over who — and who doesn’t — own that IP is critical, and it matters more than many founders realize at the outset.

The Awkward but Necessary Conversation Around Startup IP Ownership

There’s almost always some time that passes between the inception of an idea and drawing up IP assignments. No one brainstorms an idea with a nondisclosure agreement in hand (mostly). But there’s a good reason to keep that “in-between” period to a minimum — particularly as founders tend to drop out over time. In fact, data from Carta analyzing more than 22,000 founders found that nearly 23% of co-founders at venture-backed startups had left their companies within three years.

Given this trend, planning for the possibility of a co-founder disappearing sounds gloomy. But responsible founders have those conversations early and recognize that papering IP ownership is fair to everyone involved.  

Co-Founder Attrition and the Risk of Unclear IP Ownership

Attrition doesn’t have to be negative. Sometimes, leaner is better. But what founders want to avoid are IP ownership grey areas after someone exits the business. While apprehension about planning for a co-founder exit is reasonable, in practice, founders appreciate having certainty around their projects and often agree quickly to paper IP contributions.

To the extent the discussions are a bit tough — well, there’s value in that too. Founders learn how to work together under pressure. A win-win. Not to mention, formalizing the unspoken arrangement among co-founders is an easy way to build camaraderie, create momentum and establish a strong foundation for growth.

Why Fixing Startup IP Ownership Later Gets Expensive

We’ll hear quite often: “we’re not ready.” Fair enough. Assigning IP can feel like a big step. But, what’s the alternative?

I love the example: “If Mark moves to Bali, will he be able to sign?” Bali, in that scenario, is really a metaphor for everything unexpected — the good, the bad and the ugly. Things get complicated quickly when Mark — now from Bali — says “no” to your request for a confirmatory assignment. Consider the circumstances that trigger that request. An investment. An exit. An enterprise deal. If Mark is wise enough to ask, “why now?” he’ll quickly understand how much leverage he holds.

Why Clean IP Ownership Matters to Investors and Buyers

If IP is what you’re made of, then you can expect your stakeholders will expect you to own it. You’ll need the authority to license it, sell it and collateralize it — and it very well may be what makes your company valuable in the eyes of a strategic investor.

Securing ownership in the IP is easy, and it can be a team building exercise. But trying to recapture IP later can be demoralizing and frustrating.

So have the conversation early. Align in writing. Then leave the formalities behind and get back to building the business.