Neal Bloom recounts an M&A deal that nearly collapsed because an inventor never signed away patent rights to the company. During diligence, lawyers must verify every person who touched the IP has signed assignment agreements, or departing inventors can demand payments at closing and tank the transaction.
I guess the war stories I tend to see where due diligence process didn't work out or maybe like had a breakdown would be when you get very close to the finish line of the deal. And then the one that sticks in my mind is we were very close. It was an M and A transaction. So a little different context, but nonetheless, we're very close to closing. And about two, three days before that scheduled closing, we realized that one of the inventors had not formally assigned over the patent rights to the company. And of course the buyer is not going to accept that, right? Like, they need the ip, and as an investor, you shouldn't accept that. And so in addition to the cap table, like after the cap table, for me, from a legal perspective, I'm looking at IP has. Every single person who's touched the IP of this company signed an agreement making it 100% clear the IP belongs to the entity. If you don't, then you end up in a situation like my war story, which is I'm calling this person and trying to negotiate. And of course they know they have leverage, right? Because they have the power to hold up or even kill this deal. Now, it's a game of chicken, because if they kill the deal, they get nothing. But you still have to play that out. And they got a payout, right? They didn't really deserve that payout. They should have just taken care of the paperwork before the company, should have made sure that the assignment was complete before they parted ways with this person. And yet here we are, the 11th hour before a deal, and this person is going to take a pound of flesh in order to get a signature page. That's the kind of situation you can end up with. And you just have to be careful that you don't go so far far that you'll make a bad deal in that situation.
