Take your idea seriously before others see its value
Intellectual property (IP) underpins the value of most startups on a rapid growth trajectory. It is easy to get this wrong in the early stages. Once others see the value, it can be much harder to correct earlier missteps.
Almost by definition an entrepreneur starts with an idea. Some solution to a pinch point in industry, commerce or everyday life. Oftentimes, that idea emerges long before there is a business or even a company to house it. It can float along in that state for quite some time before an opportunity to exploit it emerges. When that time does arrive, things can move along very quickly, as the entrepreneur finds friends and family investors, builds a team and a network of suppliers and distributors. Things can suddenly move pretty fast.
It’s not until the entrepreneur approaches their first professional investors that they are asked in some detail about their idea again. Questions like this:
“So you thought up the idea before you founded the company. So, do you own the IP or does the company? Because if you own it, I’m not investing in your company. Same goes for your partners — if any of them have not transferred thier rights to the IP to the company then I’m out.”
“You developed the idea whilst working at your previous employer? What rights do they have to the IP? Because if they have any rights to it, I’m not investing in your company.”
“So its your idea, but it only works if we use the coding your friend developed? Do you have a perpetual licence to that code? Because, if not, I’m not investing in your company.”
None of the above problems are insurmountable. However, if you wait until you have a viable business that a professional investor is interested in, the cost of curing the situation can increase dramatically.
Here are a few key tips to be thinking about with your idea and your startup.
Keep it in the company
As soon as you establish a company that will exploit the IP, make sure it has a clear right to do so. For example, this can be either by way of transfer of the IP rights to the company or granting a perpetual licence to use it. In the latter case, the transferee will ordinarily retain the right to sell the IP to others. In the former, the company will ordinarily obtain this right. This should include all those who contributed to the development of the IP — in some cases, it may be necessary to demonstrate contributions by a paper trail, so keep good records.
Think about the interests of other institutions
As noted above, previous employers will often have rights to IP developed by persons whilst under their employment. This is particularly the case with universities. Be sure to check your employment contract and any relevant policies. Where restrictions do apply, the best time to negotiate a waiver of them is before your idea has crystallised into any value. These negotiations can be tricky, but without addressing this issue you could be leaving your future venture hamstrung.
Protecting the IP once its secured
Intellectual property can be protected in two key ways: be law and by good practice.
In terms of law, IP broadly falls into one of three categories — copyright, trademarks and patents. Copyright arises inherently with the idea (e.g. a manuscript), with first in time generally taking precedence in claims of ownership. To that end, be sure to keep records of your idea somewhere safe (and secure). Trademarks and patents, however, must be registered with government bodies to protect them. That protection can be for a limited time and scope so care with the precise application terms is necessary. It may also be necessary to register in multiple countries to take advantage of international treaty recognition. Specialist help is needed (not all lawyers can credibly do this).
At a more granular level, it is important that all who interact with the business and the idea are subject to confidentiality restrictions. This should be built into all employment, director and consultant contracts and non-disclosure agreements with suppliers, distributors, potential investors and other business partners.
In terms of good practice, your idea can be protected by keeping a close circle of trusted partners. Because IP rights can be expensive to enforce — so it’s all the better that less people know the idea well enough to steal it (even if doing so is illegal). For example, as your team grows, it can be prudent to ensure the different workstreams are only privy to that part of the IP relevant to their role.
Remember, your idea is often the key ingredient to future value. So treasure it and protect it. Before others do.
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At Osney Capital we are focussed on de-risking our investments by providing expert advice on key risk management challenges startups face. This helps our partnered-firms avoid unnecessary mistakes and realise their potential sooner. By guiding you through these common missteps, our invested capital works harder for us and harder for you.
For more information on our approach and how to apply for funding, please visit www.osneycapital.com or contact apply@osneycapital.com.
Intellectual property was originally published in Osney Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
