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Negative pledge on IP

What is a negative pledge on IP?

A negative pledge on IP refers to a contractual agreement in which a company promises not to use its intellectual property (IP) as collateral for any debts. This is often a clause found in lending agreements, particularly in cases where the company's IP is a significant asset.

The purpose of a negative pledge is to protect the lender's interests. It ensures that the company can't leverage its IP to secure additional financing that might jeopardize its ability to repay the original loan. From a founder's perspective, while this might limit some fundraising options, it also prevents overextending the company's liabilities and potentially losing control over valuable IP assets.

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