Invention Assignment Agreements: The Clause Startups Get Wrong Before a Fundraise

For startups, intellectual property can be one of the most important assets investors evaluate before a fundraise. But owning valuable technology is not enough. A startup also needs clear documentation showing that the company actually owns the intellectual property created by its founders, employees, and contractors.

This is where an invention assignment agreement startup uses can become especially important.

An invention assignment agreement establishes how intellectual property created during a working relationship is assigned to the company. When these agreements are incomplete, overly broad, or missing altogether, they can create ownership questions during investor due diligence.

The problem is often not that a startup has no agreement. It is that the agreement contains the wrong language or fails to address intellectual property that existed before the employee or founder joined the company.

What Is an Invention Assignment Agreement?

An invention assignment agreement is a contract that establishes the company's rights to certain inventions and intellectual property created by an employee, founder, or contractor.

For startups, these agreements can cover inventions, patentable technology, designs, software-related developments, discoveries, and other intellectual property created as part of the relationship.

The purpose is straightforward: the company should maintain a clear record of who owns the intellectual property underlying its business.

This becomes particularly important when the startup's value depends heavily on proprietary technology. If investors cannot easily determine who owns that technology, the issue may become part of the fundraising process.

What Is the Biggest Mistake in a Startup Invention Assignment Agreement?

The biggest mistake is often using a blanket clause that fails to clearly distinguish between company-related inventions and intellectual property created independently or prior to employment.

For example, a founder may have developed technology before forming the startup. An engineer may have created software before joining the company. A consultant may already own certain technical work before beginning a project.

A clause that simply states that "all inventions" belong to the company may not provide the clarity a startup needs.

A better agreement should clearly address the scope of the assignment and identify any prior inventions or other intellectual property that are excluded.

This creates a clearer record of what the individual owned before joining the company and what is being assigned to the startup.

Why Do Invention Assignment Agreements Matter Before a Fundraiser?

Fundraising often involves intellectual property due diligence. Investors may want to understand whether the startup owns the patents, technology, software, and other IP that support its business.

If the company has missing assignments or inconsistent ownership records, investors may have additional questions.

For example, a startup may have a patent application listing an inventor who never signed an appropriate assignment. Or a founder may have transferred technology to the company informally without creating clear documentation.

These problems can become more difficult to address when they are discovered immediately before closing a financing round.

That is why reviewing an invention assignment agreement startup has in place should happen well before investors begin their due diligence.

What Should an Invention Assignment Agreement Cover?

A strong agreement should be tailored to the company's relationship with the inventor and the type of intellectual property involved.

Depending on the circumstances, it may address:

• Inventions created within the scope of employment

• Intellectual property developed using company resources

• Patent rights and patent applications

• Prior inventions owned by the employee or founder

• Obligations to disclose inventions

• Assignment of relevant intellectual property rights

• Cooperation with patent filings and related documentation

The agreement should also work together with other company records rather than exist as a standalone document.

How Can Startups Avoid IP Ownership Problems Before Fundraising?

Startups do not need to wait until a financing round to review their intellectual property

ownership.

A practical review can begin with the company's founders, employees, contractors, and existing patent portfolio. Startups should confirm that:

• Relevant founders have assigned company-related IP to the business.

• Employees with important technical roles have signed appropriate agreements.

• Contractors have clear intellectual property ownership provisions.

• Prior inventions have been identified and documented.

• Patent applications and issued patents have consistent ownership records.

• Assignment documents are properly maintained.

• Potential ownership gaps are addressed before investor due diligence.

The earlier these issues are identified, the easier they are generally to resolve.

For patent-related assets, the USPTO provides procedures for recording assignments and changes in patent ownership. Keeping these records organized can also help establish a clearer ownership history.

We Help Startups Protect Their IP

For a startup preparing for a fundraise, reviewing invention ownership before investors begin their due diligence can help identify potential gaps early. Sleman and Lund LLP can help businesses evaluate their IP position and develop a strategy aligned with their broader business objectives.

Frequently Asked Questions

What is an invention assignment agreement for a startup?

An invention assignment agreement establishes the company's rights to intellectual property created by a founder, employee, or contractor under specified circumstances.

Do startup founders need invention assignment agreements?

Founders should document the transfer of relevant intellectual property to the company, particularly when the technology was developed before or around the time the startup was formed.

Can an invention assignment agreement cover prior inventions?

An agreement can identify prior inventions that are excluded from the company's ownership. Clearly documenting these inventions can help prevent later disputes about what belongs to the founder and what belongs to the startup.

Why are invention assignment agreements important during fundraising?

Investors may review IP ownership during due diligence. Missing or unclear assignments can raise questions about whether the startup owns the technology it considers a business asset.

Do contractors need invention assignment agreements?

Contractor agreements should address intellectual property ownership when contractors create technology, designs, software, or other valuable IP for a startup. The appropriate terms depend on the relationship and applicable law.