To date, 3 Day Startup has educated over 2,000 university students by immersing them in its hands-on entrepreneurship program that builds entrepreneurial communities and kickstarts new companies. Since its inception, the 3DS nonprofit has helped participants launch over thirty companies that have collectively raised over $7.5 million in financing.
In many of our 3DS events, we have used a legal structure designed by a major international law firm. This legal structure aims to protect intellectual property (IP) generated by participants during their 3DS program so that it can then be used by those same participants as the basis of their newly formed companies. We often receive questions about this legal structure, so we wanted to take some time to answer a few of these questions for our audience of potential and future participants, mentors, and organizers.
Why have any legal agreements for a weekend entrepreneurship event?
To answer this question, it’s important to consider the potential outcomes of a weekend entrepreneurship event. If the primary goal of the event is to have something fun to do while also working on a few personal projects, then it’s likely that no legal structure is needed. Indeed, many events operate with this goal and without any legal structure. On the other hand, if a primary goal of the event is to help participants start companies, it is important to consider the process of that event and the resulting implications for founders of companies emanating from that event. For 3DS events, developers write code, business students devise business models, designers construct beautiful user experiences, and everyone talks to customers to collect important information to validate a business concept. By the end of the event, there is a quality presentation, a prototype, serious momentum, and an initial business hypothesis, all of which are good enough to carry forward and become a real business.
The question then becomes: who “owns” the end product(s), and by definition the components that make up the end result? At 3DS events, many participants work on numerous projects because we strongly encourage collaboration between teams. Often, we have a roving “design studio” that helps all teams, or we’ll have individuals who take it upon themselves to write code for every team, etc. (If you’re one of these serial helpers, you might be in the running for a Spirit of 3DS Award!)
Accepting that a dozen people had a hand in this creation, what legal steps should the founding team of two or three take to ensure that they have the rights to use what was created on the weekend to move their idea forward? Should they just not worry about it? Should they rely on a verbal “dude, its cool, you can use the logos I created, code I wrote, and the survey research I gathered?” Should they go to every one of the dozen people that worked on their team and have them sign IP assignment agreements? Should they give up small chunks of equity in exchange for the rights to use each individual person’s creation? Should they opt for a shoddily drafted, or poorly executed document, and risk a lawsuit later? All of these are possibilities–many of which have been tried by entrepreneurs in the past–but they pose risks that can be easily avoided. Our 3DS legal structure aims to minimize those risks for teams and companies whose conception can be traced to a 3DS event.
How does the 3DS legal structure work?
In order to address the question of who “owns” the end product(s), and by definition the components that make up the end result, 3DS worked with a major international law firm to create a legal structure that clarifies and creates a valid chain of title in all of the intellectual property generated over the course of a given 3DS event. The valid chain of title is necessary for the IP generated over a given 3DS event to be used by the teams that are founded coming out of the event. This is accomplished by a three step process: (1) participants sign IP assignments to effectuate a valid transfer of IP, (2) IP is temporarily held by the 3DS nonprofit, (3) the 3DS nonprofit transfers the IP to a startup company formed by individual participants (or teams) from a given 3DS event.
3DS regularly transfers IP back to teams or individuals that request the IP from their 3DS event. Over the last week alone, we transferred IP back to three founding teams. Upon request, we can provide contact information for teams that have experienced the 3DS IP transfer process.
Why does 3DS ever hold the IP?
Because some person or legal entity has to. Instead of having an individual person or a for-profit corporation hold the IP, a 501(c)(3) nonprofit organization built around helping students start companies is a sensible choice. Neither the Board of Directors of 3 Day Startup, nor any of the organizers ever holds an interest (ownership or otherwise) in any of this temporarily held IP. Furthermore, if the IP from any given concept at any given event is not transferred within one year, the 3DS nonprofit’s rights to the IP automatically expire.
Overall, what is the purpose of the 3DS legal structure?
We want students who participate in our events to be successful in creating new companies. To ensure this, the legal structure is designed to remove legal headache, and worry that participants may be sued down the line for using something that was created during a 3DS weekend. We’re fortunate that our alumni have founded over thirty companies. We’ve been told by our alums and by investors that they are glad that we have a legal process that makes the ownership of intellectual property clear. Indeed, investors are hesitant to invest in companies that have ill-defined equity and IP ownership. Understandably, they are not willing to take on the risk.