Monday, July 23, 2007

Startup Patents: Questions Every VC Should Ask

One of the key elements to any pitch for money is your explanation of your company's "unfair advantage" - that is, the barriers to entry that prevent other competitors from challenging your position in the market. For companies seeking venture capital to grow, the unfair advantage almost always hinges on your trade secrets and technology.

Many companies seeking money pitch an intuitive technology story. They discuss the unique features and functionality they've created, describe the patent protection they've applied for, and....stop.

In my view, the more compelling pitch is one that explains your intellectual property strategy. Selling your view of the technology landscape and your strategy for carving a defensible niche can be a compelling part of the pitch. Your story can shape part of the VC's investment thesis for him and, more importantly, they showcase your analytical rigor and credibility. Here are the questions I suggest my clients answer in any pitch to VCs:

1. Who are the prospective infringers of your technology? (Be sure to include any likely infringers outside of your industry.)

2. Have you drafted your patent applications so that, if the patents are issued, these potential infringers would be direct infringers of your rights?

3. Have you organized your patent applications to facilitate future licensing strategies? (For example, filing a patent that combines claims for an embedded solution)

4. Trade secrets: Do you have proprietary manufacturing processes? How are you protecting these? (Since process is not readily discoverable by examining your product, you may not wish to make that process public in a patent. However, this decision needs to be made in context. Have your competitors filed for patents on manufacturing processes? If so, you need to explain why you are/are not following that trend.)

My two cents.

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