In a tech M&A deal, the buyer is acquiring your intellectual property. Their lawyers will scrutinize your IP ownership, open-source usage, legal history, and data practices to find hidden liabilities. The most common deal-killers are an incomplete 'chain of title' (not owning all your code), use of restrictive 'copyleft' open-source licenses, undisclosed legal threats, and messy data privacy or digital asset ownership. Proactive founders can de-risk their deal by auditing and fixing these issues long before an LOI arrives.
Key takeaways
- Audit your "chain of title" to ensure every contributor has signed an invention assignment agreement (CIIAA).
- Scan your codebase for restrictive open-source licenses (GPL, AGPL) and create a formal OSS policy.
- Disclose all past or threatened IP disputes to the buyer; hiding them is worse than the dispute itself.
- Consolidate all digital assets (domains, social media) under company ownership, not personal accounts.
- Review your privacy policy to ensure you have the right to transfer user data in a sale.
- Create a pre-diligence data room with all IP-related documents organized and ready for review.
Your IP Is Why They’re Buying You—Don’t Let It Become a Liability
In a tech acquisition, the buyer isn’t acquiring your office lease or your team’s winning personalities. They’re acquiring your code, patents, data, and brand. This intellectual property is the core of your company's value.
But for an acquirer, that IP is also a bundle of potential liabilities. A messy ownership history or a single poorly-chosen open-source library can turn your crown jewel into a toxic asset. During M&A, the buyer’s lawyers will put your IP under a microscope. If they find problems, the consequences are severe: a lower valuation, millions in escrow, a delayed closing, or a dead deal.
Your job is to get your IP house in order long before a buyer comes knocking. You need to switch from a "move fast and break things" mindset to a "prepare for scrutiny" one. This is non-negotiable for a successful exit.
Assume a buyer will find everything. Their diligence process is designed to uncover hidden risks, and their lawyers are experts. Most deal-killing IP issues fall into one of four categories. Here’s what they are and how to get ahead of them. 1. The "Chain of Title" Catastrophe
The Mistake: You don’t have clean, provable ownership of 100% of your own product.
The Non-Obvious Consequence: An acquirer must have absolute certainty you own everything they’re buying. An unbroken “chain of title” is the proof. A single missing signature from an early freelance developer can give a buyer leverage to demand a specific indemnity, holding back 10-20% of the purchase price in escrow for several years. Worse, they may walk away, fearing the developer could surface post-acquisition and sue for a share of the company's value.
Missing CIIAAs: Every single person who has ever contributed to your product—founders, employees, interns, and especially contractors—must have signed a Confidential Information and Invention Assignment Agreement (CIIAA). This isn’t just boilerplate; it’s the document that legally…
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Frequently asked questions
- What is an invention assignment agreement (CIIAA) and why is it so important?
- A CIIAA (Confidential Information and Invention Assignment Agreement) is a legal contract where an employee or contractor transfers ownership of the intellectual property they create for your company *to* your company. Without it, the individual might legally own the code they wrote, creating a fatal flaw in your 'chain of title' that can kill an M&A deal.
- What is the difference between a permissive and a 'copyleft' open-source license?
- Permissive licenses (like MIT or Apache 2.0) let you use the code with very few restrictions. Copyleft licenses (like GPL or AGPL) are 'viral'; they require that if you use their code in your product, you may have to release your own proprietary code under the same open-source terms, effectively destroying its commercial value.
- I have a former contractor who never signed a CIIAA. Is it too late to fix?
- It's never too late to try, but it's a serious issue. You need to contact them immediately, explain it's a standard legal cleanup, and get their signature. You may need to offer a modest payment ($500-$2,000) for their cooperation. Not having this signature is a major red flag for any buyer.
- How much does a full IP audit typically cost?
- Costs vary based on complexity, but a pre-diligence cleanup led by a startup law firm can range from a few thousand dollars for a simple check to $15,000-$30,000 or more if it involves remediating significant issues like tracking down multiple old contractors or replacing critical copyleft code. This investment is fractional compared to the deal value it protects.
