What investors ask about your patents

Investors and their lawyers look closely at a startup’s patents before they write a check. Patent due diligence for startups comes down to a short list of questions: who owns the technology, whether the inventors are named correctly, whether the claims cover the product, where the patents are filed, and what could get in the way. The same ones come up again and again.

This article is for founders preparing to raise a seed or Series A round. I walk through each question and end with a readiness table and a checklist. Knowing these questions early makes a financing smoother.

Key takeaways

• Ownership comes first: every contributor should have signed a present assignment, recorded at the USPTO.
• For university or grant-funded technology, investors read the license and check Bayh-Dole compliance.
• Inventorship is a legal question tied to the claims, not a list of everyone on the project.
• Investors compare the claims to the product and the roadmap, not just the number of filings.
• Deadlines, freedom to operate, trade secrets, code, data, liens and disputes all belong in the data room.

What is patent due diligence for startups?

Patent due diligence for startups is the review an investor’s counsel runs on a company’s patents and related IP before a financing closes. It tests whether the company owns what it says it owns, whether that IP protects the business, and whether anything could take it away. The findings shape the deal terms and the IP representations in the financing documents.

At seed, the review may be a short questionnaire. At Series A it is usually a data room and a document request list. Most problems I see are not about patentability. They are about paperwork never signed, a license nobody reread, or a missed deadline.

Who owns the technology?

Ownership is the first question because every other answer depends on it. Investors want an unbroken chain of title from each inventor to the company, shown by signed written assignments. A gap can mean the company does not fully own its core patent.

Founders, employees and contractors

Under U.S. patent law, an invention belongs to the inventor first. An employer gets rights only through an assignment, the written transfer of ownership. The Supreme Court made this point in Stanford v. Roche (2011). The case also shows that wording matters. A researcher’s promise that he “agree[d] to assign” his rights lost out to a later agreement in which he stated he did “hereby assign” them; the Federal Circuit gave effect to the later agreement, and the Supreme Court affirmed.

So investors look for present-tense assignment language in founder agreements, employee invention agreements and contractor agreements. They check that founders assigned work done before incorporation, the gap I see most often. A consultant who designed a qubit control pulse sequence should have signed the same kind of agreement.

Recording matters too. Under 35 U.S.C. § 261, a patent assignment must be in writing, and an unrecorded assignment is void against a later purchaser or mortgagee for value without notice, unless it is recorded within three months or before that later purchase. Recording through the USPTO’s Assignment Center is cheap insurance.

Co-ownership raises its own issue. Under 35 U.S.C. § 262, absent an agreement to the contrary, each joint owner of a patent may make, use and sell the invention without the consent of the other owners and without accounting to them. A former cofounder who still holds a share is a problem investors will want resolved.

University licenses and Bayh-Dole

Many deep-tech companies are university spin-outs. In that case the university usually owns the patents and the company holds an exclusive license. Investors read the license for field of use, territory, sublicensing, diligence milestones, royalties and termination triggers. A missed milestone can put the license at risk.

If federal grants funded the research, the Bayh-Dole Act and its implementing regulations apply. The standard clause at 37 C.F.R. § 401.14 requires the grantee to disclose each invention to the agency within two months after the inventor’s written disclosure, elect title within two years of that disclosure, and file an initial patent application within one year of electing title. The government keeps a nonexclusive, paid-up license. An exclusive licensee generally must agree that products for the U.S. market will be manufactured substantially in the United States, unless the agency grants a waiver.

The agency also has march-in rights under 35 U.S.C. § 203, for example where the invention is not being brought to practical application. Investors mainly want to see that disclosures and elections were made on time. My page on patent work for startups and university spin-outs covers how I approach these licenses.

Are the inventors right?

Inventorship decides who owns a patent at the start, so investors ask whether the named inventors are correct. An inventor is someone who contributed to the conception of at least one claim. Seniority, funding or running the experiments does not make someone an inventor, and leaving out a real inventor can leave a co-owner outside the company.

The USPTO’s guidance in MPEP § 2109 calls conception the threshold question. A person who only follows instructions is treated as a technician, not an inventor. Because inventorship follows the claims, it can change when claims are amended, so recheck it before a patent issues.

Inventorship errors can usually be fixed. Under 35 U.S.C. § 256, naming a non-inventor or omitting a true inventor through error in an issued patent can be corrected, and the error does not invalidate the patent if it can be corrected. The practical risk is different: a missing inventor who never signed an assignment may own a share of the patent. If your team uses machine learning to generate candidates, see AI inventorship and what the USPTO’s rules mean for R&D teams.

Does the patent cover the product?

A patent is only as useful as its claims, the numbered sentences that define what others cannot do. Investors compare the claims to the product you sell today and the one on your roadmap. They ask whether a competitor could design around them with a small change.

A common gap: the claims describe the version in the first paper, while the product moved on. A photonics company that claimed one waveguide taper geometry, then switched tapers for manufacturability, may find its claims miss the shipping product. A short claim chart mapping product features to issued and pending claims shows the gaps. Pending applications and continuations give you room to pursue claims that track the current product.

Where is it filed, and what deadlines are coming?

Coverage should match the markets where you will make, sell or license the product. Investors ask which countries you filed in, which foreign rights are still available, and what deadlines are coming. Foreign deadlines are strict, and a missed one usually cannot be undone.

Most startups file a U.S. provisional application first. Under the Patent Cooperation Treaty (PCT), an international application can be filed within 12 months of that earliest filing, and national phase entry is generally due 30 months from the priority date. The 30-month mark is when large foreign costs arrive, often near a Series A.

Investors also ask about public disclosures, since a paper or pitch deck shared without a confidentiality agreement can destroy novelty in countries without a grace period. I explain the timing in when to file: the clock starts earlier than you think.

What about freedom to operate?

Freedom to operate (FTO) asks a different question from patentability: can you sell your product without infringing someone else’s patent? Owning a patent does not give you the right to practice your invention. Investors ask whether you know of blocking patents and what you plan to do about them.

At seed, few investors expect a formal FTO opinion, but they expect you to know the main patents in your space. At Series A, a targeted FTO review of the core product is more common. Analysis prepared with patent counsel beats scattered internal emails speculating about infringement. If you have received a letter alleging infringement or offering a license, disclose it.

What is kept as a trade secret, and what about code and data?

Not everything should be patented. Manufacturing parameters, training data and process know-how are often better kept secret. Investors ask what you protect this way and how, and they ask about open-source code and data rights, which can limit what the company owns or sells.

Trade secrets

Under the federal definition at 18 U.S.C. § 1839(3), information is a trade secret only if the owner has taken reasonable measures to keep it secret and it derives independent economic value from not being generally known. Investors look for the measures: confidentiality agreements, access controls and a written list of what is secret. An annealing recipe for a thin film can be a valuable trade secret, but only if it was actually kept secret.

Open-source software

Know which open-source components are in your code and under which licenses. Some licenses attach conditions to distributing modified code. An inventory answers this question quickly.

Data rights

If a model or assay depends on outside data, investors ask where it came from and on what terms; some data is licensed for research use only. For drug discovery companies, this ties into how you protect the model and its outputs, which I discuss in AI drug discovery patents: molecule, method or model.

Are there liens, encumbrances or disputes?

Investors want to know whether anyone else has a claim on the IP: lenders’ security interests, licenses granted to partners, options, rights of first refusal, and pending litigation or USPTO challenges. Each can limit what the company can do with its patents.

A venture loan is often secured by the company’s IP, so investors search USPTO assignment records and state lien filings. They also read every outbound license and collaboration agreement; a broad exclusive license to an early partner can quietly remove a market. Disputes come next: litigation, demand letters, inter partes review petitions at the Patent Trial and Appeal Board, and ownership disagreements with former team members. A known issue with a plan is easier to price than a surprise.

How to get ready for patent due diligence before a financing

The fastest way to get ready is to review your IP the way an investor’s counsel will and fix what you find before the data room opens. The table shows what investors usually ask for and what a ready answer looks like.

Diligence-readiness table

Pre-financing checklist

1. Confirm every founder, employee and contractor agreement has present-tense assignment language.
2. Sign and record assignments for any gaps, including pre-incorporation founder work.
3. List each university license milestone, its due date and whether it was met.
4. Confirm Bayh-Dole disclosures and elections for every federal grant involved.
5. Recheck inventorship against current claims.
6. Prepare a claim chart mapping product features to claims.
7. Build a docket with priority dates, countries and next deadlines, including 30-month PCT dates.
8. List known third-party patents and any letters received.
9. Write down your trade secrets and how you protect them.
10. Inventory open-source components and outside data with their license terms.
11. Search for liens and confirm releases for repaid loans.
12. List outbound licenses, collaborations and disputes, with a one-line status each.

Frequently asked questions

When does patent due diligence happen in a startup financing?

It usually starts once a term sheet is signed and runs alongside the deal documents. At seed it may be a short questionnaire; at Series A, investor counsel typically sends a request list and reviews a data room. Preparing a few weeks ahead lets you answer from documents rather than memory.

Do I need issued patents to raise a seed round?

Not usually. Many seed-stage companies have only provisional or pending applications. Investors check that the company owns the filings, that they describe the technology well, and that there is a plan for the 12-month and 30-month deadlines. Clean ownership matters more than issued claims at this stage.

What happens if a founder never assigned an invention to the company?

The founder may still own it. The usual fix is a written assignment signed now, recorded at the USPTO. If the founder has left or disagrees, the fix is harder and may affect the deal terms. This is the most common gap I see, and it is easiest to close before a financing.

Does federal grant funding reduce what my company owns?

The grantee can usually keep title if it follows the Bayh-Dole rules on disclosure, election and filing. The government receives a nonexclusive, paid-up license and has limited march-in rights. Exclusive licensees generally face a U.S. manufacturing requirement unless waived. These are known terms that investors can work with when the paperwork is in order.

A short review is easier before a financing

A short review before a financing is easier than answering these questions in the middle of one. Most fixes are a signed document or a calendar entry. If you are planning a seed or Series A raise and want to check your IP the way an investor’s counsel will, I’m happy to talk it through.

This article is general information, not legal advice, and reading it does not create an attorney-client relationship. Patent law changes and every situation differs. Please talk to a patent attorney about yours.

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