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Should A Startup Founder License IP To The Startup?

One issue that sometimes comes up with technology startups is a founder who wants to license her IP, rather than assigning it, to the startup. What this means, in simpler terms, is that the founder wants to keep ownership of the IP but let the company make use of it.

This can seem like an appealing option to a founder since it gives them more control over the technology and, by extension, the startup. But it often creates problems.

Related: Should Your Startup Incorporate In Washington Or Delaware?

For starters, if there are other co-founders, they may not accept this arrangement. After all, the other founders aren’t just licensing their time, efforts, etc. to the startup—they’re all in. Allowing a co-founder to hedge her bets on what is likely the primary asset of the startup is not something most other founders will go along with.


Even if other founders accept this arrangement, outside investors will likely be put off by it. Investors want to put their money into a company with value, and the main value of a technology startup is usually the technology. If the startup doesn’t own the technology outright, investors will probably assume the company isn’t as valuable as it could be. At the very least, they’ll probably assume the founder licensing the technology isn’t 100% committed to the startup. Most investors won’t be impressed by either of these things.

There are of course exceptions to this general rule. But if you’re a founder and you’re thinking about doing this, know you’ll need to have a good reason to justify being given special dispensation.

Also recognize that the type of license matters. For instance, a revocable license—that is, one that the owner can revoke—will be a very hard sell since it means the startup could lose the right to use the technology at the owner’s whim.

So, assuming the founders all agree to assign their IP to the startup, how is ownership transferred to the startup? Typically this will be done via a technology assignment agreement the founders sign when the startup is incorporated and stock is issued to the founders.

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