intellectual-property, investment, venture-capitalWe know that venture capitalists keep a keen eye on the intellectual properties possessed by a company in order to make investment decisions in it.
Do the intellectual property really matters if we are starting new? OR In order to gain capitalists’ interest in the startup, what are the most important intellectual property to have with startup (among these: domain names, copyrights, patents, patents pending, trade secrets, trademarks) ?
This is somewhat subjective based on your type of business, but I would say that patents are the most important, just because they generally have the most coverage and usefulness. But really, it’s just all dependent on the type of business you’re hoping to build. It’s generally best to speak with an attorney (a patent attorney, specifically) to assess what IP is right for your business. This conversation should certainly happen before any investor meetings, too. Just make sure you have an NDA signed with whomever you choose to disclose your inventions to.
Trademarks and Copyrights
Copyrights are immediately present once you create your artwork, and trademarks are immediately present when you start using your name in commerce. They aren’t incredibly enforceable until you register them, but you have them. In general, if you have something to copyright that you’ll be putting out there a lot, however, it’s better to do it. In the United States, a copyright is an easy application with a fee of $35, but if you need it expedited due to an upcoming lawsuit, that price rises to–I believe–$800. So it’s a good investment if you’re worried about people copying your artwork. Trademarks are good if you’re working on a website, or something that will be used nationally, because they prohibit any other companies in the nation from starting with the same name as you.
Patents
On the other hand, patents are not implicit. You need to apply for a patent and, in fact, if you make a public disclosure of your invention, you’ll be risking your patentability long-term. Because of that, it’s important to make sure you have the right protection before you even speak with potential investors for your own good, even aside from whether it will increase their likelihood of investing. Just remember, obviously, that you can only patent something that’s patentable. So if you have no novel processes or inventions (that’s a bad description of patentability, but that’s more a question for Ask Patents anyway), that’s not super useful. In essence, I’d say the rule of thumb to follow is you should get a patent if: one, your invention is patentable, and two, you intend to make over a hundred thousand dollars from it. That’s an arbitrary number, but I’ve heard it quoted before and it’s pretty reasonable, I’d say.
Trade Secrets
Trade secrets are a bit different since there is no, of course, registration process. They tend to happen over the course of natural business, if you let them. The idea of a trade secret is that if you have a process that can’t be reversed engineered and that not many people have to know about, your IP will inherently be kept yours until you tell someone about it. You can read more on that and patents on an answer I once posted on Ask Patents.
Domain Names
Domain names are good practice to buy just on principle. For something like $13, you can be sure nobody else will buy out your name online for a year. It’s a worthy investment on just about any type of business.
The most important thing to investment is traction(commitment of people in using the solution that the startup is proposing). There are a recent example of this, Yo app. Intellectual Property is just important to protect something that can be easily made and used by another company, like a process of doing something.
Investors look more to the team or traction rather than the IP.
If you have a solid team with experience then the VC’s know that you are capable of pulling something off. If you have traction they can also see you have the know how.
IP very rarely comes into play, especially in the software game, it holds more weight in the hardware start-up scene but traction and team are just as important.
In terms of domain names, trademarks and company names, people register these every day and are not valuable in an early stage start-up. You need to have them but if you don’t have any brand equity behind you, they hold little value.
The areas of focus depend on what business you’re in. If you’re a software startup, you’ll be focused on the software, which means, for the most part, copyrights and trade secrecy. If you’re a biotech startup, patents are going to be absolutely key. Get patent advice early to be sure you don’t blow anything. On the other hand, software patents have become much less important after a series of recent Supreme Court decisions and the America Invents Act whittled them down and made them easier to challenge.
No matter what field you’re in, though, you need to be sure that all contributors have assigned all related IP into the company. (If you haven’t formed a company yet, do that!)
For founders, the “right” way is for your founders’ stock to be issued in exchange for your IP and labor. All those diagrams on napkins, all that code you wrote at 2am, all the ideas in your head – those are why you get to own a big chunk of the company. Get it all assigned to the company, in writing, ASAP.
You also need IP agreements with all your employees and contractors. I have seen deals fail, or take a lot more time and money to close, because this wasn’t done right. As Ben Franklin said, “An ounce of prevention is worth a pound of cure.” To put that in more tangible terms, $1,000 of legal “prevention” done now can save you $10,000 in “cure” work – if it’s even possible – when your $50M deal is on the line.
Also data.
A successful company operating in a particular field is gradually amassing a wealth of data about the behaviour of customers within that particular field.
While you don’t own the right to use that data in any way (see personal data protection legislation for your region) and you may not be able to protect it using traditional avenues, it can still be considered a valuable, protectable asset and a start-up should consider how it is gathered and what they can get out of it
Probably you should also consider reading this pretty well formed article on the same topic here: https://www.fundable.com/learn/resources/guides/startup-guide
It consists of a well organized startup guidecovering these topics in detail:
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