IP Considerations for Entrepreneurs when dealing with Potential Investors

IP Considerations for Entrepreneurs when dealing with Potential Investors
Adam Tracey, March 2013

I am often asked by my entrepreneurial clients about the relevant considerations to make relating to intellectual property (“IP”) issues when meeting with and pitching to potential investors. My views on the matter are not necessarily profound, however the following considerations are not always something that budding entrepreneurs turn their minds to during the early days of building their start-ups.

Do your Homework!

Conducting thorough due diligence inquiries not only gives potential investors peace of mind that the investment opportunity will not run afoul of any third party IP rights, but further demonstrates that entrepreneurs truly understand their space, their possible competitors, and any potential legal pitfalls that could otherwise go unheeded.  

Due diligence can take many forms, and is greatly facilitated when the client has a close working relationship with its IP counsel. This means that the lines of communication must remain open, and both lawyer and client must be willing to challenge one another’s thinking and preconceived notions.

Further, many IP due diligence tasks (particularly prior art searches and review) can be performed more efficiently and cost-effectively when the client (who is the expert in the space and their business) takes an active role in the process.   

Protect your Assets

Investors want assurance that the financial risk they are considering is mitigated as much as possible. One of the most direct ways to mitigate the potential risk surrounding any start-up is to ensure that the core IP concepts of the business are protected from potential competitors in the space.

IP protection can take a wide variety of forms depending on the particular start-up business model, but one thing remains constant:  If you plan on pitching to investors, be prepared to answer the question – “What have you done to protect the IP surrounding your business.”

From my experience, if you are not prepared to answer this question fully and completely, you risk scaring off the very capital that you need to grow your start-up to the next level.

   
Build your Portfolio

With a strong IP portfolio that covers the core concepts surrounding its business, a start-up can not only ensure it has the freedom to operate unfettered in its space, but can create additional revenue streams from licensing the protected IP assets in tangentially-related spaces that are not in direct competition with the start-up.

It is not hard to see that when additional revenue streams can be demonstrated in addition to a start-up’s core business model, the investment opportunity becomes even more enticing. Investors certainly want to help get exciting start-ups off the ground with their experience and capital, but there is still one goal in the end: to grow into an economically viable business.  

Generating additional revenue streams through the strategic licensing of an IP portfolio simply makes a start-up’s business case that much more attractive to potential investors.

IP Strategy is an Investment that Grows your Business

As we all know, potential investors are reassured when they see entrepreneurs have personally invested in their start-up opportunities. In my view, taking the steps to properly consider the IP landscape around start-up businesses merely drives home the point that entrepreneurs are truly savvy to the world they are entering into and intending on competing in.

In short, intellectual property protection should not be viewed as merely another cost associated with starting a business, but rather as a direct investment in growing the business that can underpin its future success.

To learn more please contact Adam Tracey