IP Strategy Can be Key to Attracting Venture Capital
In an excellent and comprehensive article, Steven C. Furlong of Altera Law Group, explains that clearly connecting a company's intellectual property strategy with its business plan can secure a vital link to venture capital funding. The article focuses on Newco, a hypothetical medical device company, but has broader application. Among the many useful nuggets of information and takeaways are the following:
“Most medtech companies seeking funding know that a solid strategic plan is vital, but many do not appreciate the important, and sometimes pivotal, role that the development of a comprehensive and defensible IP position plays in that plan. Most realize that they need protections for their IP, but many don't understand that all protections are not equally important or necessary. In fact, appropriate choices regarding how and what to protect can be a valuable asset that enables a company's market strategy to play out successfully. Conversely, a poor strategy can be fatal to the chances of attracting capital, thus dashing hopes of building a successful business...
Companies often view the formulation and deployment of an IP strategy as a necessary evil, giving this function only minimal attention and resources. This ignores the reality that companies get to reap their rewards only if they have managed IP right. Investors know this, so they pay particular attention to it…
Venture investors will always look for the strategy behind the IP portfolio and the choices that are implied in the strategic plan. They'll want to see what IP protections are being deployed (trademarks, utility patents, business method patents, copyrights, and so on) and what they cover. They'll also need to know whether the inventions covered are the right ones to protect. Perhaps some aren't worth protecting. Patents may properly be used offensively, defensively, or both ways. The company should determine up front if they are constructed to accomplish the right mission. When the correct approach is established, the patents should be deployed accordingly...
Newco should make deliberate choices regarding the use of IP to implement the business strategy, including what to patent, trademark, or copyright, and how to craft each type of protection. Broad patents are valuable and often necessary, but narrowly framed patents might also be required. Neither is better than the other; they just serve different ends. All patents create obstacles for competitors to overcome. The main thing is that each patent in a portfolio should be an essential element in a comprehensive plan to enter and defend a market space…
Attracting a venture capitalist is mainly a matter of instilling confidence that the start-up will fulfill its promise in four key areas. First, the investor must be confident that Newco's management team competently plans its business, assesses realities, and makes choices... Second, the investor has to have confidence that Newco has a great invention that will succeed in an attractive market...
Third, of prime importance to the investor is confidence that Newco will get its invention to market effectively and efficiently. IP protections should be sufficient to ensure that the invention enters the market without undue and costly dispute over who owns the space it claims….Fourth, and as critical as any of these concerns, the investor has to be confident that what is now Newco's will stay Newco's; that is, that Newco's invention, which makes the whole enterprise possible, is adequately protected, and that the nature of the protection serves the company's business strategies.”
