A surprising amount of operational risk starts with a vague vendor agreement. Startups move fast and often work with freelancers, dev shops, SaaS providers, or outsourced teams to get things done. The contracts tied to those relationships can either protect what you’re building or leave it exposed. If you’re hiring third parties to deliver key services or build parts of your product, your vendor agreements need to be airtight, especially when you’re raising capital or preparing for acquisition.
Non-Negotiables for Every Vendor Deal
Intellectual Property (IP) Ownership
Every deliverable, whether it’s code, a brand asset, a landing page, or a database schema, should belong to your company. That means the agreement must clearly state that all work created is considered “work for hire” and, where needed, include an assignment of rights clause. This ensures legal transfer of IP even if “work for hire” doesn’t apply in your jurisdiction.
Be specific: describe what’s being created, who will own it, and whether the vendor has permission to reuse it elsewhere (they shouldn’t). If you skip this step, you may find yourself negotiating usage rights to your own product when you’re trying to close a funding round.
Confidentiality and Data Protection
If a vendor touches internal data, like source code, designs, strategy documents, customer info, or user data, your agreement needs to say how they’ll protect it. Include a clear confidentiality clause and require the vendor to comply with relevant data privacy laws (such as GDPR or CCPA). Also include a breach notification requirement with a defined timeline for reporting.
Scope of Work (SOW)
Your agreement should leave no room for interpretation. Define deliverables, timelines, milestones, and technical requirements in detail. “Build our website” leaves too much to chance. “Deliver a responsive React-based front-end for a DTC e-commerce app integrated with Shopify APIs by October 15th” sets expectations that can be enforced.
Limiting Liability
Cap your startup’s liability, ideally to the amount you paid the vendor. Most vendors will accept this if it’s mutual. Push for indemnification clauses that cover IP infringement or data breaches caused by the vendor’s negligence. This protects you if they use third-party code without permission or mishandle user data.
Termination Terms
Your vendor contract should allow for early termination, with or without cause, on 15 to 30 days’ notice. If the relationship isn’t working, you need the ability to end it without legal gymnastics. Lock-in periods may work for enterprise giants, but startups should avoid anything that restricts flexibility.
Worth Negotiating: Clauses With Some Flexibility
Payment Terms
Vendors often default to Net 15 or require partial payment upfront. For startup cash flow, Net 30 or milestone-based payments provide breathing room. If a vendor pushes for 100% upfront, offer to structure the deal with an initial deposit and a holdback tied to final delivery.
Exclusivity and Non-Competes
Watch out for exclusivity clauses. If a vendor restricts you from working with their competitors, make sure the contract offers something meaningful in return, like price, speed, or strategic value. If they plan to work with your competitors, you can request a conflict-of-interest clause to limit how your confidential information is used.
Smart Structuring for Repeat Use
Use a Master Services Agreement (MSA) to cover general terms and a Statement of Work (SOW) for each project. This allows you to reuse core legal language and only update deliverables as needed. Legal templates from your general counsel resource can help as a starting point, but every vendor engagement is unique.
When you’re scaling a funded startup, every agreement should reduce risk, not introduce it. If you’re signing contracts that touch your product, your user data, or your capital runway, they deserve a legal review. Fridman Law Firm works with high-growth startups to ensure vendor agreements protect the company’s IP, cash, and reputation, without slowing you down.