Acquisition Tidbits – Things I Wish I’d Known!
This is the first in a series of posts I hope to write on lessons learned through my sale of my company, Boondockers Welcome.
I knew a whole lot of nothing when I started my first company, and learned a ton while running it. But there are things that you really don’t even realize you’ve done wrong until you go to sell. There’s enough stress in the acquisition process already, spending time and energy to fix things you did wrong in order to ensure you satisfy your acquirer’s lawyers is not something I’d recommend.
To that end, here are some tips:
Make sure you get proper fully executed versions of each of an employment contract, IP agreement and NDA for any employee or contractor who does any work for you, ever.
This may seem obvious, but beware of third-party services like Upwork and Fiverr that provide you with blanket terms that by default give you ownership of all work done by contractors through their platform. While this is convenient, an acquirer will want to see documentation of these and the language that was agreed to by the contractor. If, for instance, the third party’s terms of service have changed since then, you may no longer be able to find the version that your contractor agreed to.
In my case, I had hired a contractor through oDesk, which was then bought by UpWork – I managed to find an old oDesk terms of service thanks to Google that our acquirers would accept, but I’d have been a lot less stressed if I’d just gotten my own version of these documents signed at the time of the work being done.
Make sure your IP assignments use “present-tense assignment”.
This was totally new to me, and luckily I was covered, but it was something our acquirers specifically called out that they wanted to see in our IP assignment. Essentially this means that the language should use phrases like “I hereby assign” ownership and rights, rather than the more vague future-tense language like “will assign” or “agree to assign”. You can read more about this lauguage requirement in this blog post from Private Equity Watch.
Prefer work-for-hire over licensed IP.
If you’re hiring a freelance photographer or videographer to produce custom work for you, often their default preference will be to sell you the rights to the works, but maintain ownership. Avoid this if at all possible. If your photographer signs a “Work for Hire Agreement”, then all copyright will be assigned to you. Find more details on Work for Hire Agreements on this blog post from Maker’s Row.
That said, many photographers will not agree to work for hire as they want to maintain copyright of their own work. If necessary, then you can license the work from the contractor, but you’ll want to make sure that the license meets some basic requirements, i.e. that it is exclusive, perpetual, irrevocable, freely transferable and sub-licensable, and royalty-free, that it allows you to use, reproduce, perform, display, transmit, disseminate, and distribute the work, as well as translate, alter, modify, edit, and compile it.
Hopefully, knowing these 3 tips when you start hiring contractors, freelancers and employees will help make sure you’re onside when your go to sell or take investors.