Sometimes issues surface during a due diligence investigation that create serious hurdles for finalizing an IP deal. However, it’s rare to come across an issue so serious as to kill the deal entirely. When they do arise, it’s typically due to broken trust, rather than a fatal flaw in the IP.
What sorts of things might ruin trust and cause a potential investor to walk away from a deal with your startup?
- Bad management of your IP portfolio;
- A rightful claim of ownership to your IP by another party;
- Unethical or “bad faith” actions in the IP’s history, including its prosecution; and/or
- Deceitful statements and/or actions from your side of the table in dealing with the investor.
Of these, it should come as no surprise that dishonesty kills more deals than anything else.
For any and all of these scenarios, the potential investor will have to decide whether to move forward based on whether it can trust your startup. Maybe the broken trust arose from someone that’s no longer with your company or your team is able to assure the investor that it was an isolated event.
In any case, the take-away here is to be forthright and raise any issues of which you are aware of early on in the due diligence process, while there might still be time to preserve and build trust with the potential investor.