The term sheet is signed. The round feels done. Then a lawyer on the investor's side asks a boring question: can you show us the signed IP assignments for everyone who wrote code? The founder says of course, goes looking, and finds three gaps. The contractor from year one who built the payments flow. A co-founder who left before anything was written down. A freelance designer who also, it turns out, wrote some of the frontend. Now the deal is paused while the company tries to get signatures from people who have no reason to cooperate.
This is the most avoidable way to stall a raise, and it is the single most common legal issue found in startup data rooms. The technology looks great. The company might not own it.
Why this is the thing that stalls deals
Investors are buying equity in a company on the assumption that the company owns what it sells. If the core product was partly written by people who never assigned their work, that assumption is wrong. The startup holds a product it does not fully control, and a departed contributor could, in theory, claim rights to a piece of it.
No serious investor funds that without it being fixed first. So the round does not die, exactly. It freezes. And it freezes at the end, after the term sheet, when everyone assumed the hard part was over and momentum was on your side.
The people who create gaps
Founders assume their own work is covered. Often it is not, if the assignment was never signed as part of incorporation. Employees are usually clean because the paperwork is part of onboarding. The gaps come from the edges:
Early contractors and freelancers, hired fast, paid by invoice, never asked to sign anything beyond a payment agreement. Co-founders who left before the cap table was formalized. Agencies whose contract granted you a license to use the code rather than transferring ownership of it. That last one is subtle and expensive, and it is why I always check whether you actually own the code you paid an agency to build before anything else.
Fix it before you open the data room
The good news is this is fully fixable, and cheap to fix early. It only gets expensive when you find it late.
Build the ownership trail now
Make a list of every person who has committed code, designed a screen, or written anything that ships in the product. For each one, confirm there is a signed assignment on file that transfers their work to the company. Employees, founders, contractors, agencies, the friend who helped for a weekend during the first month.
Where a signature is missing, chase it while the relationship is still warm. A contractor you paid on time last year will usually sign a confirmatory assignment without drama. The same contractor, contacted for the first time in eighteen months during your funding round, has leverage and knows it.
For agency-built products, read the original contract. If it grants a license rather than assigning ownership, get a proper assignment executed. Do not assume paying the invoice settled the question, because legally it often did not.
Run a mock before the real one
The teams that never get caught by this ran their own diligence first. A month before you open the data room, have an advisor play the skeptical reviewer and demand the ownership trail. The missing signature you find in a mock is a phone call. The same signature, found by the investor's lawyer, is a two-week delay on a deal with a clock running.
This is one of several failure modes that show up under diligence pressure. I have written more broadly about the technical diligence red flags that quietly kill a round, and IP ownership sits near the top of that list precisely because it is invisible until someone looks.
What clean ownership actually buys you
Beyond not stalling the round, a clean IP trail is leverage. It tells an investor the company was run with discipline from the start, which colors how they read everything else in the data room. A founder who can produce every assignment on request looks like a founder who does not leave loose ends. That impression is worth more than the paperwork itself.
If you are not sure where your gaps are, that is a good afternoon of work with someone who has been through diligence from the reviewer's side. You can book a call and we can map your ownership trail before an investor's lawyer does it for you.
FAQ
What is an IP assignment and why does it matter for fundraising?
It is a signed agreement transferring the intellectual property someone creates to the company. It matters because investors buy a company on the assumption it owns its product. If contributors never assigned their work, the company may not fully own what it sells, and that unresolved question freezes deals during diligence.
Do founders need to sign IP assignments too?
Yes. Founder work is not automatically owned by the company just because you started it. The assignment should be executed as part of incorporation. Missing founder assignments are a common gap because everyone assumes their own contributions are covered when the paperwork was never actually signed.
An agency built our product. Do we own the code?
Not necessarily. Many agency contracts grant a license to use the code rather than transferring ownership, and paying the invoice does not change that. Read the original contract. If it does not clearly assign ownership to your company, get a proper assignment executed before you raise, because this is one of the fastest ways to stall a term sheet.
How early should we clean up IP ownership?
Before you open the data room, ideally months ahead. Confirmatory assignments are easy to collect when relationships are warm and nearly impossible when a departed contributor holds leverage during your round. Run a mock diligence a month out so any missing signature surfaces as a phone call, not a deal delay.