The vast majority of early-stage businesses operate in what I like to call “the hairy netherworld of in-between.” This is the stage where the founders have developed a fledgling concept, generated some excitement, done some early developmental work, but not all the founders have committed to the idea full time yet.
This is a natural state of affairs, as most entrepreneurs don’t want to commit to a project full time until they get a sense that the endeavor is worth the commitment. Unless you’re independently wealthy or have already had a few successful exits, there’s also likely a financial pinch involved. This leads to a catch-22 for the entrepreneur: It’s hard to work on a promising idea full time until you know it will come to fruition, but it’s hard to take a product or business concept to fruition unless you’re working on it full time, or more.
Sometimes early-stage funding can fill this gap, but frequently, a few of the founders must work day jobs while “moonlighting” for the startup.
This creates a unique set of issues, particularly for technical co-founders. Most notably, established technical companies usually require all their employees to assign all intellectual property associated with their work to the company.
For the moonlighting founder, this generates the question of whether the work done on the side for the new startup belongs to the other employer prior or the startup.
The first step is to carefully review any employment contracts or intellectual property assignment agreements that have been signed by the founders. This applies to not just current employers, but any employers from the past few years (as these agreements frequently survive an employee’s time at the company).
Here are some issues to consider:
- What is the scope of the agreement?
- Does it only cover work done that pertains to the Company’s actual or proposed businesses, products, and services, or is the language broader?
- Does it specifically address work done using company equipment?
- Are there time or place restrictions?
The scope of these agreements varies to some degree, so it’s critical that the founders understand whether there might be a conflict early in the process.
If there is a conflict, the next question is strategic: Open up a dialogue with the employer or hope the employer either doesn’t notice or doesn’t object? I’ve met many companies that have decided to ignore the issue and proceed, but my strong inclination is to confront the issue early in the process.
Many employers are open to discussion, and regardless of the employer’s reaction, at least you know from the beginning how much risk is involved. After all, the last thing you want is to spend years working on a great business, only to be faced with costly litigation or a claim that someone else owns the intellectual property that is the foundation for your business.