Moonlighting Founders: 5 Steps to Help Protect Your Company

For founders, moonlighting on a day job can be thorny.  It isn’t lost on us that the vast majority of entrepreneurs have to start somewhere, and usually that somewhere is during his or her day job, but avoiding some common issues can help set your new venture up for better outcomes.

The most important piece of the puzzle here is the intellectual property you’re creating while you’re moonlighting and who owns it.  Under the vast majority of “standard” proprietary information agreements in use with most intellectual property intensive companies (from start-ups to name brand public companies), any intellectual property created that relates to the business of the primary employer, or the reasonably anticipated business of the primary employer, even if created on your own time and without any of your employer’s materials, is owned by your primary employer.  Keep in mind that ideas, business plans, know-how, customer lists and other “every day” things, not just codes and patents, are all intellectual property in this context.

Investors in your new business generally will want to see a clean break from your employer and reasonable evidence that what you’ve been doing in your free time should not be competitive with, or otherwise interesting to, your employer.  The goal is to avoid any claims by your soon-to-be-former employer that they own your intellectual property or otherwise should have a stake in your new venture.

If you’re able to get your employer’s express blessing on your new/outside gig, and acknowledgement that the employer doesn’t own any of the intellectual property you’re creating, terrific.  For the rest of you, though, that’s often not feasible or realistic (and, as with many things, perhaps better not to ask for permission if you’re not sure you’ll get the answer you want).  With that in mind, the sooner you can exit stage left from your day job to work full time on your new venture the better.  The earlier the kernel of the idea is when you depart, the less there is for your employer to claim any ownership.  On the flip side, the closer you are to a viable product or service the higher the risk profile on this issue.

Here are some basic things to keep in mind as you navigate this tricky time:

1. Review all your agreements with your current employer (offer letter, proprietary or confidential information agreement, employee handbook, and the like) to determine what the rules of play are for your day job.
2. Keep your head down and keep getting your day job done, respecting that in fact, that’s your place of employment unless and until you leave.
3. Be honest and careful about overlap between your day job and current employer’s business/prospects and those of your new venture. Regardless of any overlap (and again, less is more there), do not use any of your employers materials, equipment or facilities to conduct business or planning for your new venture.  Also, do not work on your new venture during working hours at your current employer.
4. Keep good records.
5. Get out as soon as you reasonably can.

There is unfortunately no silver bullet here that will absolutely protect you from claims by your employer; however, by being savvy you can help mitigate the likelihood and severity of any issues and hopefully increase the fundability of your new venture.