Intellectual property (IP) risk is rapidly emerging as a critical factor in corporate transactions. In 2023, 26% of global companies experienced an increase in overall IP-dispute exposure, with 40% reporting a rise in patent-related disputes. Looking ahead, 45% anticipate further IP conflict in 2025 (source: Norton Rose Fulbright).
Simultaneously, the M&A landscape is poised for resurgence. McKinsey forecasts a significant increase in deal activity in the second half of 2025, driven by cash-rich acquirers targeting technology-focused assets.
For founders, CFOs, and General Counsels, this convergence signals a shift: IP due diligence is no longer a routine legal formality. It has become a key driver of deal valuation—and a potential deal-breaker when IP fundamentals are not solid. Strategic IP assessment is now essential to unlock value and avoid costly pitfalls in the evolving transaction environment.
Why Deals Collapse: The Hidden Cost of Neglected IP
IP risks are a leading cause of deal delays, price reductions, and even failed transactions, often due to preventable issues. One such issue is a clouded chain of title, where ownership records are unclear due to missing assignments or gaps in contractor agreements. This creates hesitation among buyers, who may demand escrow arrangements or reduce the purchase price. In venture-backed startups, former employees or co-founders are the most frequent sources of early-stage IP ownership disputes.
Another red flag is the presence of narrow or geographically limited patent claims, which often result in downward valuation adjustments or contingent earn-out structures. Acquirers are more confident when patents have demonstrated value, paying premiums that are 22–30% higher when patents have been asserted or cited in third-party litigation.
Late-stage freedom-to-operate (FTO) surprises are another common pitfall. When unresolved, these can delay deal signing by 2–4 months and lead to the addition of complex closing conditions. These issues are especially prevalent in auto-tech and med-tech deals, where the regulatory and patent landscapes are particularly complex.
Finally, poor trade-secret hygiene—such as a lack of documentation, inadequate access controls, or insufficient employee training—can necessitate remediation efforts before the transaction is closed. In contrast, according to Trade Secrets Litigation Trends in the EU - EUIPO, companies with formal trade-secret management programs complete IP-based licensing or exit deals 35% more often than their peers, highlighting the tangible ROI of proactive IP governance.
This is particularly common among high-growth companies where speed-to-market pressures often overshadow foundational IP hygiene. But by the time a startup reaches Series B or prepares for exit, this oversight becomes a liability. In sectors like biotech, deep tech, AI, and semiconductors, where IP often is the business, such gaps can erode investor trust and slash valuations.
What Investors Scrutinise During IP Due Diligence
Investors no longer accept IP summaries that list assets without context. They are looking for strategic fit, commercial defensibility, and risk insulation. Here’s what they focus on:
Clear Ownership & Clean Chain of Title
Ownership clarity is the first gate. This includes:
- IP assignment clauses in employment and contractor agreements
- Signed inventor declarations and historical assignment records
- Clean IP transfers in M&A, especially involving acquired teams or third parties
For investors, a clouded title often equals a closed door.
Strength and Enforceability of IP Assets
Investors look past quantity to assess:
- Claims breadth: Are your patents protecting commercially relevant functions?
- Jurisdictional reach: Have you filed in markets that match your go-to-market strategy?
- Legal status: Are your patents actively maintained and enforceable?
Citation frequency and prior art relevance signal strength to both investors and competitors.
Competitive Positioning & Freedom to Operate (FTO)
FTO is not optional—it’s a must-have in IP-heavy industries. Investors expect:
- A mapped comparison of your products vs. third-party patents
- Identification of any infringement or design-around risks
- Evidence of active mitigation strategies, such as licences or partnerships
Deals in automotive technology, medical technology, and semiconductors are particularly prone to delays due to FTO complications. Pre-emptive analysis positions you as prepared and lowers perceived risk.
Trade Secret Management and Confidentiality Infrastructure
With the increasing value of non-patented IP—such as algorithms, formulations, and data sets—investors now examine:
- Internal confidentiality policies and enforcement mechanisms
- NDAs with suppliers, joint development partners, and external collaborators
- Tools for tracking access, managing trade secret lifecycle, and exit procedures
IP Valuation and Monetization Readiness
Investors expect a narrative of value, not just a list of assets. Sophisticated teams offer:
- Revenue attribution to IP, such as licencing income or defensive savings
- Benchmarking against comparable IP portfolios and recent deals
- Use of IP analytics tools that assess citations, litigation history, and market overlap
This helps shift valuation discussions from theoretical potential to evidence-based multipliers.
Strategic Recommendations: Build an Investor-Ready IP Strategy
To raise capital or close an acquisition on strong terms, treat IP diligence as a strategic function, not a last-minute scramble.
Here’s how:
✅ Conduct a Holistic IP Audit
Engage IP counsel or a third-party specialist to review ownership records, filing gaps, and strategy alignment. You can explore Evalueserve IP and R&D IP Audit services.
✅ Map IP to Products and Business Strategy
Don’t rely on vague “platform technology” claims. Demonstrate how each core asset safeguards a market-critical function or key business model component. Investors love clarity.
✅ Ensure Bulletproof Ownership
Have airtight assignment agreements with every contributor, including past contractors or co-founders. Retroactively fix missing links and archive all documentation centrally.
✅ Run a Formal FTO Analysis
Especially for commercial-stage or launch-ready products, proactively identify infringement risks. Offer plans for licences, design-arounds, or litigation reserves if necessary. Use platforms such as Searchstream to streamline this process.
✅ Institutionalise Trade Secret Protocols
Include confidentiality policies in your employee handbook. Track who accesses sensitive data. Set version controls for proprietary code or processes. Be able to prove protection.
✅ Craft a Valuation-Driven IP Narrative
Prepare an investor-friendly summary that includes valuation models, forward looking protection strategies, and benchmarks. Treat your IP portfolio as a pitch deck for investment.
Conclusion: IP as a Growth Lever, Not a Legal Form
The companies that succeed in fundraising and exits don't treat IP due diligence as legal housekeeping—they treat it as a strategic discipline. In today's investor climate, where every valuation is scrutinized and every acquisition is justified, a deal-ready IP portfolio is not just a necessity but a source of leverage, potentially propelling your business to new heights.
Building a robust, defensible IP position doesn't happen overnight. But the earlier you embed IP thinking into your operations, the more prepared you'll be when the right opportunity arises. This proactive approach can give you a significant advantage in the competitive world of fundraising and mergers and acquisitions (M&A).
Next Steps for IP Due Diligence
- Book an IP Audit aligned with your next funding or M&A milestone
- Engage IP counsel or a specialist team for ownership and FTO cleanup
- Build a compelling IP story—with metrics, visuals, and business tie-ins
