How does due diligence work for a startup's technology?


Suppose the main value of a startup is a breakthrough technology. It has no revenue, no customers besides early adopters and is purely living off VC funding at the moment to keep the research effort going.

Now a large corporation wants to acquire the startup. The corporation requested a detailed breakdown of how the technology is created and calls it a standard tech due diligence before writing a check.

From the startup's point of view, after revealing the details, the cooperation could duplicate the technology with their own engineers. Even though the startup might have patents pending for protection, it does not have the money to hire lawyers and play the litigation game.

From the corporation's point of view, it's natural wanting to make sure what they are really paying for.

What is the typical process of tech due diligence for a startup acquisition that protects both the buyer and the startup?

Answers: 2 public & 0 private

IP Consultant

Tech due diligence mostly by corporates to check patent landscapes etc to ensure you are not writing or working on existing technologies, your sources -open sources have you take the license, in short, you are not infringing other patent rights. Another hand the corporation also see the life cycle of patent I mean whats app have text chat then we move to what's audio and now call so how long your proposed tech will rule out to be old or no use, how much value of pay check should be a good deal , who else is working on similar or advanced or nearby technologies, your legal compliances etc , IPR rights of startup in place all these things allowed companies to make decision on buyout as safe investment or not.

Regarding startup, even if patent is pending but you still first to file and true inventor of patent product and you have patent rights against the universe, we understand the litigation is a time-consuming and expensive deal, but do you have any choice? I guess yes and maybe no, the first thing you should have IP litigation insurance and the second thing at this stage have a good contract with them before letting them due-diligence and cover confidentiality clause, existing technology, non-use what if deal cancel etc. Due diligence help startup to understand your legal rights and value of the product in a current market, understand the terms & condition of the funding, like sponsor exit strategy, product valuation of the business, market size, parental control of company, compliances, founder future role and authority etc. many documents need to be seen and made so both founder & sponsor have fruitful association and none of them feel cheated or undervalued in this new partnership.

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Subject Matter Expert

From my own opinion, the best answer is to consult your trusted lawyer or business consultant. Because it involves service buyer and startup protection. Just like freelance consultant have their worry of service provider and their freelance biz.

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