A tech company seller represents that it owns or has licensed all IP necessary to operate its business, that no third party has a claim to the company's technology, that all employees and contractors have assigned their IP rights, and that the company's products do not infringe third-party IP. These representations are among the most heavily negotiated in tech M&A because IP is often the primary value driver and infringement claims can be catastrophically expensive.
IP representations are the most critical and most heavily negotiated provisions in technology acquisitions. The seller typically represents that it owns or has valid licenses to all intellectual property used in the business, that no third party has claimed infringement, that no open source software has been incorporated in a manner that would require disclosure or licensing of proprietary source code, and that all employees and contractors who contributed to the company's technology have executed valid invention assignment agreements. In Gurpreet Bal's experience, the IP representations are where the greatest percentage of post-closing indemnification claims arise in technology M&A, particularly around open source compliance issues and gaps in employee IP assignment documentation that surface months after closing.
Tech sellers must represent that they have complied with all applicable privacy laws including GDPR, CCPA, and any sector-specific regulations, that their privacy policies accurately describe their data practices, that no material data breaches have occurred, and that they have appropriate data processing agreements with vendors. Privacy reps have become increasingly important as regulatory enforcement has intensified and data breach liability has grown.
Privacy representations have expanded significantly in recent years as regulatory frameworks including GDPR, CCPA/CPRA, and sector-specific regulations such as HIPAA have created compliance obligations with material financial consequences. The seller represents compliance with applicable privacy laws, the adequacy of its data security measures, the absence of data breaches, and the validity of consents obtained for data collection and use. For AI companies, privacy representations increasingly cover the provenance and licensing of training data, compliance with data subject rights, and the lawfulness of automated decision-making processes. Gurpreet S. Bal advises buyers to conduct targeted privacy diligence and to negotiate specific indemnities for known privacy compliance gaps rather than relying solely on broad privacy representations.
Sellers represent that their financial statements were prepared in accordance with GAAP, fairly present the company's financial condition, and do not omit material liabilities. Tax representations cover the accuracy of all filed returns, absence of material tax deficiencies, and no pending audits that could result in material additional liability. Financial and tax reps are typically subject to longer survival periods and higher indemnification caps than other representations.
The seller represents that its financial statements have been prepared in accordance with GAAP and fairly present the company's financial condition. Tax representations cover the timely filing of all required returns, payment of all taxes due, absence of pending or threatened tax audits, and the company's qualification for favorable tax treatment such as QSBS status under Section 1202. In Gurpreet Bal's practice, tax representations have become increasingly important as buyers seek assurance that the target company's equity compensation practices comply with Section 409A and that outstanding SAFE and convertible note instruments have been properly reported for tax purposes.
Representations and warranties insurance shifts breach claims from seller indemnification to an insurance policy, allowing sellers to distribute deal proceeds immediately rather than holding money in escrow. Buyers pay the insurance premium and file claims directly with the insurer. R&W insurance has become standard in deals above $50 million and has significantly reduced the escrow amounts and survival periods that sellers must accept.
Representation and warranty insurance has become a standard feature of mid-market technology M&A, allowing sellers to limit their post-closing indemnification exposure by transferring the risk of rep breaches to an insurance carrier. The buyer purchases the policy, with the premium typically shared between buyer and seller or borne by the buyer as part of the deal economics. R&W insurance covers losses arising from breaches of representations and warranties in the purchase agreement, subject to policy exclusions for known issues, fraud, and certain forward-looking statements. Gurpreet S. Bal advises on the interaction between R&W insurance coverage and the indemnification provisions in the purchase agreement, including the sizing of retention amounts, coverage limits, and exclusions that affect the practical allocation of post-closing risk.
R&W insurance is a nice escape — for sellers. It caps post-closing exposure, accelerates the release of escrow, and lets founders walk away clean. Gurpreet's reminder: the escape only works if the reps were accurate when made. The policy does not cover known issues, and underwriters conduct their own diligence. If something is in the data room, assume they found it.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on mergers and acquisitions, venture financings, IPOs, and cross-border transactions. He has advised on more than 50 M&A transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.