<Venture Capital, IPR/Legal>

<Introduction>

This tedious title belies the importance of this area. Anyone who's ever been a lawyer will tell you that most of the time legal cases aren't worth the time, emotional effort and expense. That's just how every investor feels so make sure you don't throw up any nasty suprises. Some of the usual problems which crop up are:

1. Vague or ambiguous split of existing equity - Sort it out fast.
2. County Court Judgements - Explain them or they'll be discovered during due diligence.
3. Assumptions about use of code which come unstuck after an investor gets involved - get any agreements sorted first.

If your project has any element of software design or use it is vital to ensure that:

• If you made it you've got the rights to it. Perhaps the idea came to you at work and your ex-employer has a claim over it. Perhaps your previous buisness partner has a stake. Worst of all, perhaps it isn't clear.
• Your competitors have at best a worse right to its use, at worst the same right to its use.
• If you need to buy it in you have permission to. This is important as many technologies are distributed on an exclusive basis and just as your competiton will try to secure such an arrangement, so you should try for exclusivity yourself.

Oh yes, just to save a lot of time rebranding your idea, yup, its that old chestnut...are your intellectual property rights being infringed by misuse of the domain name system? Or haven't you bothered yet?

<Why?>

One of the first questions you will be asked is whether you have the IPR, or "intellectual property rights" to any code upon which you are relying. The last thing an investor wants is any legal hiccup, particularaly if you intend to go for a float long term. The stakes are enourmous and the better your idea the more incentive there is for an infringment. Don't rely on friendly or vague arrangements. As one Cisco millionaire told us "its disgusting what people will do when money starts pouring into a company. It actually shocked me, it was like nothing which had gone before was the truth."

Secondly, any contracts which the firm holds will influence the investment decision. This obviously includes any prior funding arrangements. Check EVERYTHING very carefully and if there is a problem an understanding funder or go-between will sort it out. Even CCJ's aren't a problem.

<How?>

Simple. Call in a lawyer. It is almost impossible to do it yourself unfortunatly as the area is fraught with legalese and beyond the scope of all but the best lawyers. Normally we wouldn't give them an inch but in this instance it really is vital, especially when the code is complex, or worse when it seems like such an "obvious idea". If you have a contract look for the following common mistakes:

Lack of consideration. An old trick. If no money changes hands, and no benefit passes between BOTH parties as a result of the deal, the contract is void for no consideration. It just means no meaningful exchange has taken place. Even nominal fees or consideration may validate such a contract. This is why you see things change hands for ridiculous fees like "$1" for a company.

Your definition of what is involved in the agreement. If you use terms which are too narrow, for example if you are planning a site for doctors, nurses and medicine and you say that the contract is to govern the production of "medicine" sites, many medical fields could arguably be excluded.

Upfront fees. An old scam. Taking upfront fees to obtain funding and then making certain that you don't meet criteria set out in the contract to void an agreement with a heavy fee penalty payable to the "fixer" has many guises but the intent is always the same. Avoid like the plague.