From A Tech Law And AI Law Perspective, How Does Artificial Intelligence Impact Business And Change Dealmaking For California Businesses, Startups And Technology Companies?

You’ve probably heard that if you don’t incorporate artificial intelligence into your business plans, you’re likely to get left behind. The same may be true for your business deals. AI is fundamentally changing the ways that companies must evaluate, structure and negotiate their deals. In the current environment, it is vital that you understand the benefits and risks of AI as it relates to data privacy, security, intellectual property (IP) and operational considerations.

Startups and technology companies can no longer think of AI as a feature of their products. It is a core value driver that can affect head count, costs, fundraising valuations, intellectual property strategies, long-term competitive advantages and mergers and acquisitions. As a result, businesses should shift their approaches to deals in three key ways.

Due Diligence, Data Privacy And Cybersecurity

From a deal-making perspective, the first shift is due diligence. The use of AI can open up questions of ownership and property rights, so investors and acquirers must now scrutinize how AI systems are trained, what data the systems use and who owns the outputs. Questions around data rights, model governance and regulatory exposure are becoming as important as revenue and growth metrics. Companies that cannot clearly explain their AI stacks or data provenance often see valuation pressure or delayed transactions.

In our transaction work with AI-driven companies, diligence repeatedly prevents serious problems. In one growth stage acquisition, we uncovered the fact that a core AI model had been trained on third-party data without clear usage rights. This discovery allowed us to restructure licenses and disclosures early, avoiding a delayed closing and valuation hit. In a fundraising round, we identified that AI tools were ingesting customer data in ways that were inconsistent with published privacy disclosures, but we were able to keep the round on track by correcting policies and representations before investors raised concerns. We have also seen situations where teams were using public AI tools with proprietary content or where ownership of AI-generated outputs was unclear. Addressing these types of gaps preemptively through guardrails and IP provisions can resolve buyer concerns and preserve the momentum for your deal.

Intellectual Property

From a deal-making perspective, the first shift relates to intellectual property:

• Proprietary datasets
• Workflows
• Fine-tuned models
• Contractual rights around outputs

AI forces a rethinking of what constitutes protectable value, and the ways you safeguard your business uses of AI can be as important as traditional patents or copyrights. Structuring your ownership and licensing correctly from the start can make a material difference in fundraising efforts and M&A outcomes.

Risk Management Using AI

The advancement of AI is also leading to big shifts in fundraising dynamics. Sophisticated investors are looking beyond innovation toward the discipline that must accompany it. Investors want to support companies that can scale their use of AI responsibly – with clear policies, contracts and risk management frameworks. Taking the time to develop strong AI governance often accelerates deals rather than slowing them.

As the old saying goes, “An ounce of prevention is worth a pound of cure.” We advised one startup to formalize AI oversight, data controls and ownership documentation before entering a fundraising process. When investors later focused on AI risk, our client had already addressed these issues that often stall deals, turning a potential delay into a point of confidence that helped the round move forward more quickly.

On the M&A side, AI introduces both opportunity and risk. Acquirers are increasingly cautious about inherited liabilities:

• Privacy violations
• Bias claims
• IP gaps tied to AI systems

Buyers are demanding deals structured with enhanced representations and warranties, indemnification, and post-closing covenants to address and mitigate these risks. It is not uncommon to see expanded reps on AI data sources and ownership, special indemnities for privacy or IP exposure, and ongoing governance and audit obligations baked into the transaction structure.

The Need For A Clear And Coherent Strategy

If you want to give your business every possible advantage, you need an integrated approach to AI. Your legal strategy must work hand in hand with your product design, capital strategy and business development. 

As someone who has helped businesses navigate emerging technologies since the development of cloud computing, I have seen companies lose deals or suffer valuation pressure because AI risks surfaced late, ownership was unclear or data practices could not be defended. I have also seen companies succeed when AI governance, IP ownership and compliance were addressed early, allowing them to answer diligence questions quickly, reduce friction and close transactions on favorable terms. The best outcomes typically come when businesses align their AI law, technology law, corporate law and financial strategies early on.

AI is no longer just a product feature. Nor is it any longer just a product. It is now a core part of how businesses partner, make deals, raise capital and exit. Companies that understand these intersections and plan for them are the ones that will command premium valuations and forge durable deals.