Every Engineer Was a Contractor. No IP Assignment.
A venture-backed hardware company paid its entire technical team as contractors with no IP assignment. How closing that exposure and rebuilding board reporting surfaced $437,800 in annualized value.
Venture-Backed Hardware & Connected Devices
Every Engineer Was a Contractor. No IP Assignment.
A venture-backed hardware company had a working product, a real pipeline, and an institutional board. It also had no signed agreements with the people who built the technology, and no intellectual property assignment from any of them. A Financial Discovery Assessment identified $437,800 in annualized value, most of it in exposure the company did not know it carried.
Venture funding buys speed, and speed is usually paid for in documentation.
Hardware companies carry a burden software companies do not. They have inventory, a supply chain, and physical units in the field, on top of every governance obligation that comes with taking institutional money.
This company had built something that worked. Customers were deploying it, the technology was differentiated, and the next financing conversation was already underway. The founders had moved fast, which was the correct instinct, and had documented almost none of it, which was the cost.
The most significant exposure was the one that had never been treated as a finance issue. Every person building the product was engaged as an independent contractor. There were no executed agreements, no confidentiality terms, and critically, no assignment of intellectual property. The company was spending a substantial sum every month on people who, on paper, owned what they were creating. In a business whose entire valuation rests on proprietary technology, that is not a paperwork problem. It is the asset.
Alongside it, the company was preparing to raise. The data room did not reconcile to what investors were being told, the accounting records carried thousands of uncategorized transactions, and recorded equity did not tie to the capitalization table. Board reporting was assembled ad hoc, in a different format each time, for a board that expected consistency. That's when they called us.
The Assessment
What we found when we looked at the company the way a diligence team would.
The product was not the risk. Everything around the product was.
A full technical team engaged with no agreements and no IP assignment
The entire engineering and product organization was engaged as contractors. There were no executed contracts, no confidentiality provisions, and no assignment of intellectual property to the company. Substantial sums were being paid monthly to people who retained legal claim to what they produced. Papering the relationships with proper agreements and securing retroactive IP assignment before the next financing round identified $286,000 in annualized value, measured in avoided remediation cost, protected valuation, and the diligence failure it would otherwise have caused.
Projected Annualized Value: $286,000
Hardware in the field with non-paying customers and no inventory record
Physical units had been deployed to evaluation customers, several of whom had stopped paying. There was no inventory management system tracking what had shipped, to whom, or on what terms, and no process for recovering units from lapsed accounts. For a company whose devices can be examined and reverse-engineered, unreturned hardware is both a balance sheet issue and a competitive one. Establishing unit-level tracking and a recovery process identified $23,000 in annualized value.
Projected Annualized Value: $23,000
Aged payables with no rule for who gets paid
A material balance of payables had aged past ninety days with no forecasting tool and no prioritization policy. Payment decisions were made transactionally, which strained the supplier relationships the hardware roadmap depended on. Implementing a rolling cash forecast and a documented payment hierarchy identified $18,500 in annualized value through recovered early-payment terms and reduced expediting cost.
Projected Annualized Value: $18,500
The data room did not match what investors were being told
Materials assembled for the raise were incomplete in places and inconsistent with the narrative being presented in meetings. Nothing about it was deliberate. It was the predictable result of assembling a data room from records that had never been reconciled. Rebuilding the room against clean financials, with a single reconciled source for every figure quoted, identified $44,800 in annualized value in avoided diligence delay and preserved negotiating position.
Projected Annualized Value: $44,800
Ad-hoc reporting to a board that expected a standard
There was no defined reporting package and no consistent cadence. Each board meeting received a differently structured set of materials, which made period-over-period comparison impossible and consumed executive time in the assembly. Establishing a standard monthly package with a fixed close calendar identified $36,000 in annualized value in recovered leadership time and improved board confidence.
Projected Annualized Value: $36,000
Thousands of uncategorized transactions and equity that did not tie to the cap table
The accounting records held a large volume of uncategorized transactions, and recorded equity did not reconcile to the capitalization table maintained separately by counsel. Either issue alone would surface in diligence. Together they would have raised questions about every other number in the file. Cleaning the ledger and reconciling equity to the cap table identified $29,500 in annualized value.
Projected Annualized Value: $29,500
A hardware company's valuation rests on owning its technology. Paying the people who build it is not the same as owning what they build.
Is This Your Company?
If a raise is coming, the diligence questions are already answerable or they are not.
A Financial Discovery Assessment finds what a diligence team will find, while there is still time to fix it.
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