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Qi3 Accelerator Insight

Advice for Entrepreneurs: Part Three – Intellectual Property

Investors and entrepreneurs alike face real problems in the role of Intellectual Property (IP) in technology businesses. IP represents a defence, a barrier to entry and source of sustainable competitive advantage if competitors find it hard to copy or work around your IP. But the cost of worldwide filing for a single patent is in the high tens of thousands of pounds. This is hardly money that entrepreneurs have access to in most circumstances.

Very few companies come to us with a portfolio of granted worldwide patents at the stage we meet them. So what’s the acceptable level of preparation required by people like us?

Patents filed without the assistance of a patent lawyer worry us, as it’s easy to make mistakes that narrow or invalidate your claims. We can help you to find a decent, commercially focused patent lawyer, or even better a commercial IP consultancy that can undertake the following:

  • Independent analysis of your IP. This should be presented to us, together with your responses. This should provide some confidence in your approach to date and in your ‘freedom to operate’ without infringing IP held by others.
  • Strategy for developing a strong IP position. This should address (a) filing strategy (scope, territories and likely costs for your business plan), (b) landscape and freedom to operate and (c) likely work-around strategies that could be deployed by competitors.

We tend to take a simple approach:

  • Does the IP provide a fundamental barrier to competitors? This is usually evidenced by simple, fundamental and broad claims that have passed examination and preferably reached PCT stage.
  • Alternatively, does the IP only protect the particular means of producing your product or service? In this case, competitors will use alternative approaches to work around your IP. You will need to demonstrate reasons why you will dominate the market before they catch up.

If you can present this material to us at the outset of stage 2 evaluation, you’ll be giving us confidence in the validity of your approach and in the defensibility of your technology.

I know IP is troublesome and expensive. But it’s essential nowadays, and it shows your professionalism if you take it seriously at an early stage. There’s also no reason to go overboard – you need to do enough to convince your investors, not more.

Capturing the vital six per cent

A recent NESTA report focuses on the 6% of companies in the UK that exhibit high growth rates of over 20% in a year.  These 11,000 businesses are responsible for over 50% of new job creation, vital in these days of austerity and high unemployment.

Interesting findings are:

  • High growth doesn’t just result from technological invention.  High growth businesses are spread across many sectors
  • High growth mainly comes from businesses over 5 years old

Of course, the skills, ambitions and characteristics of  owners and managers is the key.  Entrepreneurial attitudes towards innovation in technological and business processes correlate with growth performance.

The report’s conclusions are sadly somewhat more public sector focused and predictable.  It argues that government should:

  • Remove regulatory obstacles to growth
  • Support ‘access to finance’ through measures such as co-investment funds
  • Develop a skilled workforce
  • Support flows of knowledge and collaboration
  • Improve demand for innovation by harnessing the government’s own £200bn annual spending on products and services

That’s all very well, and it’s hard to argue with much of this.  But (and you should have felt a ‘but’ coming) I have some concerns about this approach:

  • Government is extremely bad at removing regulation – look at the discussion over the past weeks about the impact of April 2011’s new regulations on microbusinesses.
  • I’m a huge fan of using government’s expenditure to favour innovative solutions, but with the laudable exception of small amounts of SBRI funding, the drive in government procurement is leading towards favouring large businesses through a series of insidious barriers to entry.
  • Tax isn’t mentioned.  Whilst the new government is encouraging entrepreneurship and risk investment, entrepreneurs face considerable penalties for earning above average salaries.
  • Most importantly, the NESTA report focuses its recommendations on the supply side (government intervention).  I feel that it should be rather more focused on what makes people want to put themselves out on a limb, move out of their comfort zones and grow their businesses.

Anyway, I’m off to try to find another one of those 6% of businesses to invest in.

Advice for Entrepreneurs: Part Two – Due Diligence Material

This is the second in a series of blog entries intended to give advice to entrepreneurs who approach Qi3 Accelerator.

Think about it from my perspective.  It’s much easier to invest in a proposition if you have already thought through all of the questions that people will ask you, and prepare concise written material to release to potential investors who show serious interest.  Your preparation will thus look professional, and save me time scratching my head.

When I invested in On-Sun, one of the Anglo Scientific stable of companies, I was impressed that the entire due diligence pack was available for download from a secure web site.  This made the investment process so much easier, and gave the immediate impression of competence and preparedness.

The obvious checklist of due diligence information includes:

  • Corporate structure, shareholdings, articles of association
  • Past financial accounts and up to date management accounts
  • Service Agreements with key staff
  • Evidence of contracts and grants in place
  • Schedule of Intellectual Property with status
  • External market assessment
  • External technical assessment
  • External IP assessment
  • Appendices to the Business Plan, showing how assertions were arrived at

In the case of On-Sun, the due diligence pack also included the directors’ responses to the external assessments, so I was able to feel a conversation going on and understand more.

In contrast, it’s amazing how some entrepreneurs seem to expect the potential investor to dig out all of this information themselves, and not get bored or give up in the process.  Due diligence should be a matter of reducing risk and confirming one’s interest in a business.

This may seem daunting from the entrepreneur’s perspective.  But I can assure you that a well prepared due diligence pack speeds up the evaluation process and leaves a good impression.

 

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