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Insight Place the IP Horse Before the VC Cart – and the Money Will Come to You

By Philip McKay, Bradlee R. Frazer,

You have an idea for a new app or service or product. You form an LLC, and you get a bank account. Now what?

All start-ups hear the same refrain from well-intentioned onlookers: raise money! Meet with angels! Get VC money! Crowdfund! Do it now!

Many voices contribute to the refrain, but in our experience, this is putting the cart before the horse. Simple attention to fundamentals will cause the money to come to you because you are building equity in your asset, instead of your having to chase money and funding before you are ready.

Investors wish to invest in an app or idea or product or service because they believe they will get a return on their investment. A return on investment is more likely when a start-up has ALREADY started to build value by using the power of intellectual property to create assets.

Intellectual property is like found money. The principals in a start-up can literally create assets—assets that are appealing to investors both as a means of securing their investment and creating equity that can be sold as part of an exit—by looking around and “finding” items to turn into patents, trademarks, domain names, copyrights and trade secrets. This bundle of core intellectual property rights turns ideas into actual balance sheet items that will resonate with investors. Moreover, by proactively protecting your IP, you are creating barriers to entry that dissuade competitors, which is again attractive to investors.

Many times IP is given the back seat because it is rumored to be too expensive, and scarce financial resources must be conserved and spent on R&D or human capital.  However, nominal expenditures upfront to secure basic IP will result in larger returns via (1) faster access to investment dollars; (2) a more robust balance sheet more quickly; and (3) a stronger asset for purposes of an exit, since buyers want all the IP to be tied up in a neat bundle, not scattered among various owners and interests.

The steps are easy:

1.      Form an entity

2.      Identify the IP

3.      Own the IP

4.      Protect the IP

5.      Monetize the IP

For purposes of this article, we recommend focusing today on step 2: identify the IP. Sit down and either literally or mentally place all your existing and, to the extent you can, future intellectual property into one of four buckets: patents, trademarks/domain names, copyrights and trade secrets. They are all different, and they all do different things, but they work together, when properly orchestrated in a cohesive IP strategy, to protect the intellectual capital in your start-up and to show investors that you have already begun to build value.

Do not listen to the disparaging voices of those who tell you that you do not have any IP!  You do, and it is a straightforward matter to identify it and place it in one of the buckets so you may thereafter protect and monetize it, all to the delight of your new investors.

Place the IP horse before the VC cart—and the money will come to you. Let’s meet for a free initial consultation, and let’s put some stuff in buckets.

Brad Frazer and Phil McKay chair Hawley Troxell’s IP and Patent groups.  They can be reached at 208-344-6000 or via email at bfrazer@hawleytroxell.com and pmckay@hawleytroxell.com.

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