You have some well thought out reasoning, but I have to respectfully disagree with a couple of points. (Obligatory IANAL.) An unpaid developer normally cannot

You have some well thought out reasoning, but I have to respectfully disagree with a couple of points. (Obligatory IANAL.) An unpaid developer normally cannot sue for copyright infringement, even when the work has not been paid for Again, IANAL but I do not believe this is true. First, in America anyone can sue for just about anything even if the basis is flimsy in the extreme. So the developer could potentially sue no matter what the circumstances. Now, if he was unpaid he can sue with a real chance of winning. Even if the contract states that the IP belongs to the company, they break the contract by not paying him in the time specified by the contract, and since they broke it he can argue that it is invalid and that he therefore owns the product of his work, even if they paid for most of it. It is similar to the fact that a mortgage company can repossess even if you are down the last payment if you fail to make that payment. As to the VC and their due dilligence, you are completely correct, but there is a caveat. Most developers (remember he has a reputation on the line as well as stock or options in the company to think about) would be quite willing to formally sign over the IP after the fact if they had been treated well. This becomes doubly true if that developer talks to his attorney and is told that the company probably has implied ownership (or at least full rights to modify) under Numbers Licensing, LLC v. bVisual USA, Inc as is pointed out in the original article. And finally: In practical terms, this scenario is mutual self-destruct for the contractor and for the startup unless they settle up, which means they likely will. This is probably what he is looking for. I am guessing here, but he is probably hoping for a combination of more equity and some secured bonds. The first will give him a big (or bigger) payoff later if the company does well, and the second will give him first (or at least very early if others also hold secured bonds) shot at the scraps if the company folds.