Many software and product companies, whether through licensing or commercialization of intellectual property products and services, are being built predominantly upon their intellectual property. Moreover, intellectual property plays a fundamental role in companies’ investment decisions. Intellectual property can be used as collateral to obtain financing, for valuation purposes in an equity offering, and can be the impetus for a merger or acquisition.
Start-up companies seeking to incentivize founders and retain key employees often present such individuals with equity in their companies as part of the individuals’ overall compensation packages. Equity-based compensation is intended to align the interests of the employees with the interests of the company’s shareholders and investors.