Tue, 12 April 2022
Diligencing the Legal Issues
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In diligencing the startup’s legal documents, ask the following questions:
For the intellectual property, ask what was filed and when?
Did they file a provisional patent or a utility patent?
It takes three years from the date of filing for the patent to be approved, so it most likely will not have been awarded yet.
Have there been any office actions yet?
The Cap Table represents the result of the term sheet and other documents related to ownership.
Review the term sheet to see if there are any unusual clauses.
What third-party contracts have been signed?
What obligations do those agreements require?
Check the employment agreements.
Has every employee signed a non-disclosure and non-compete agreement?
Are there any outstanding lawsuits against the company?
If so, what is the dollar amount involved?
Most startups do not focus much time on the legal aspects, so it’s important to check.
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