When teams of entrepreneurs come together for Startup Weekend- or hackathon-type events, they may only be coming together to work on the project for the experience, or some or all of the team members conclude that the project isn’t a viable business. But sometimes projects from such weekend events do end up blossoming into full-fledged startup businesses. However, sometimes in those situations, some of the team members have previously left the project.
Ideally, before embarking on a Startup Weekend or hackathon program, team members will have signed some sort of collaboration agreement with each other. But often signing agreements is the last thing on people’s minds. As a result, if one of those projects goes on to become a startup business after some of the team members have left, it can create a very messy situation with those departed team members, particularly when it comes to ownership of the intellectual property created by the project that is now going to be used by the startup. Those departed team members may have a viable claim to joint ownership of that property with the remaining founders — if the startup takes off it can create a lurking legal liability that can cause issues down the road, from an indirect effect such as scuttling an investment deal in due diligence, to actual litigation when the departed team members seek an equity stake or cash damages. Even trying to settle the issue from the outset before it becomes a problem can cost the startup cash or stock that it doesn’t want to have to give out.
So Startup Weekend or hackathon teams should sign some sort of collaboration agreement from the outset that lays out the rights and responsibilities for everyone, in particular if the project goes onto become an actual business. If team members can’t have an attorney draft the agreement, that’s okay — it is preferable to at least get the substance of the agreement on paper, rather than not put any sort of agreement on paper. If the team can decide from the beginning how the ownership issue will be settled, it can avoid a lot harder questions down the road.