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Tuesday, September 14, 2010

Moonlighting (and IP transfer provisions)

As we are working with a number of deals at the moment, but without a lot ready to report, I thought it would be a good time to talk about one issue that has been a thorn in my side on past deals.  Moonlighting...

Now, don't get me wrong, I am not in the "you aren't committed if you don't quit your day job" camp, in fact, I think keeping the cash flow pressure off of the newco until it is ready is a sign of good thinking.  However, I have had situations where founders did a lot of work moonlighting on the front end only to realize that they had broad intellectual property ("IP") transfer provisions in their employment agreements.  What a disaster...and those provisions are very common for technical employees.

Of course, there are arguments that can be made and the founders may end up succeeding in court, but the cost/risk is significant and probably more damaging, the cloud from potential litigation can (and often does) run off any would be investors.

So, with that in mind... PLEASE, if you have a great idea, make sure and read your employment contract before you spend a bunch of time/money developing that idea.  Furthermore, if you find out that you do have language in your contract that is problematic, go see a proper employment law firm and talk to them about it because you may be able to fix it.

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