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The Top 5 IP Questions Potential Investors Ask Startups

by Patents Integrated
March 24th 2021
All investors have questions when meeting with startup founders. How scalable is your business model? How fast are your revenues growing? How experienced is your te... More
Hello and welcome to the novel and non obvious podcast where we discuss the intellectual property topics impacting the startup world. My name is Yoriko mori to the host of this podcast and founder of patents integrated today, we are going to be counting down what I believe are the top five I. P. Questions you'll get asked by investors when you're fundraising. When I say I. P. Questions though, some of these questions aren't going to sound like they're related to intellectual property but they kind of actually are. So that's what we're going to talk about today. All investors have questions we're meeting with startup founders, such as how scalable is your business model, how fast are your revenues growing or how experienced is your team? How long have you been working together, that sort of thing. Although some of these questions may not seem like it at first. Many of these questions that we're going to talk about have an I. P. Component. What investors really want to know is whether or not your organization is building something that is strong enough and differentiated enough to eventually exit.

So with that in mind it can be easier to address some of the more common questions that potential investors are likely to ask when meeting with founders. So we're gonna start with number five, who else have you talked to about your idea? So that sounds like just a general question that's about maybe your networking skills or what other accelerator programs you've visited or what investor meetings have you pitched those sorts of things or are there other investors interested in your company? What they really want to know is if you have talked with other people about your idea, do you regularly use a nondisclosure agreement so that they'll know that the core idea, essentially your secret sauce is still safe and confidential. Or have you publicly disclosed your idea before considering I. P. Protection. So there are certain things, for example, in the patent law where if you have publicly disclosed your idea, then you will no longer be able to obtain foreign rights and you have essentially a one year time clock that's ticking before you have to file for a patent protection.

So these are the kinds of things that you're investor maybe trying to explore by asking you, who else have you talked to about your idea? Another part is heavy disclosed. The secret sauce to anyone outside of your company. So if you're doing that just nearly willie talking to anybody and everybody in coffee shops and at meetups about your idea without having protected it at first. That could lead to problems down the road. So investors are trying to figure that out the next question. Another one that doesn't sound like an I. P. Question, but it kind of is, do you use open source code? What investors are not asking here is, are you using the latest and most efficient coding techniques? Obviously using open source code can be a time saver for you and or your developers if you're incorporating code that's already been written, that can be a time saver, especially if you're a startup tech company and you're trying to generate new rebs of your software as quickly as you can.

They're also not asking, how skilled are your developers, are they aware of the existence of open source code and how that can save you time those sorts of things. What they really do want to know though is do you understand the implications of different open source licenses? So they're safe and not safe ways of incorporating open source code into your own code. For example, if you incorporate existing open source code into your code, there are certain licenses that force your code to also become open source, which may or may not be your intent. So that's something that you will have to be mindful about when you are considering using open source code. The other part is do you really own your code? So that's part of the question where the investors want to know is your code all original? Have you pulled resources from various places that may or may not cause you to lose ownership of your code?

So these are the kinds of questions that they are asking you with this number four question. Do you use open source code. Now moving to # 3? And this is kind of a tricky one. This is definitely an IP question. Do your competitors have iP? So, but they're not asking in this case is have you done a patent search or have you gotten a non infringement opinion from a patent attorney? So those types of activities, if you are going to pay an attorney to do that can cost tens of thousands of dollars easily. Whether or not it makes sense for a startup company to have spent that kind of money. That's something that an investor will want to know. Essentially. They're trying to figure out whether or not you are spending your resources in a intelligent way. What investors really do want to know though? By asking, do your competitors have I. P. Is how I. P. Savvy are your competitors or are you going to get sued as soon as you start selling products?

So do you understand how your competitors protect their competitive advantage? Or the other part is is your industry very litigious. Certain markets are very litigious in nature in that the various competitors, various players in that market tend to sue each other all the time for a variety of reasons whether it's copyright infringement or patent infringement, trademark infringement. So what the investors are trying to understand by this? Do your competitors have IP question is, do you understand what sort of market you're playing in? And are you protecting yourself adequately in comparison to your competitors as an example if you are in a field where none of your competitors have filed for patent applications, there may be it wouldn't be a smart decision for you to spend tens of thousands of dollars on filing patent applications before you have your product on the market.

So maybe your competitors, it position tells you something about the nature of your business. So as a reminder, my name is Jericho Marita, this is the novel and non obvious podcast and we are counting down the top five I. P. Questions. You'll get asked by investors when you are fundraising and we are up to number two. Now this one is related to number three because this question, does your company have any IP is also related to? How does your I. P. Fit in with your competitors? Which is the focus of the previous question specifically related to this question of does your company have any, it what investors are not asking you is how many patent applications have been filed or how much money have you spent on your I. P. Attorneys or do you have that super fancy? I. P. Attorney that everybody coming out of these major accelerator programs use or do you have any trademarks or copyrights? That's not the question that investors are asking you?

What they really want to know is are you protecting the assets that make you unique? Do you understand your competitive advantage? And are you adequately protecting that? What makes your company better than your competitors? And what is going to prevent your competitors from simply copying your product? Finally they're also trying to gauge, are you making strategic I. P. Expenditure decisions Kind of like with the previous example of why spend a lot of money on I. P. Protection if your competitors are not on the flip side. If your competitors file tons and tons of I. P. Then maybe you should consider setting aside that money in your budget as well. So then we get to the number one question that investors ask which really also tends to freak out start ups quite frequently. And that number one question is what's your I. P. Strategy? So that sounds like a really big question. Right? What investors are not asking is do you have I.

P. Council have you spent a lot of money on I. P. Have you spent a lot of money on I. P. Filings? Have you spent a lot of time and money talking with attorneys? That's not what they're asking you. What they really want to know is have you thought about it at all? Do you understand how you may be able to protect your competitive advantage? I know a lot of startup companies hate this question because they don't really know what to say. A lot of times. Early stage companies are so busy trying to execute on their product but they just don't think too much about intellectual property like patents or trademarks or even their own company name If it's used by someone else because they haven't really needed to yet. The good news here is that the investors are not asking about your I. P. Council or how much you've spent on your I. P. They're trying to understand whether or not you have thought about I. P. At all. What they want to know is that you do understand the I. P. Implications of the product that you are creating and that you have an action plan in place to protect your product going forward so that you can keep that competitive advantage.

So to sum it up the top five questions that you would generally get asked by investors when you're talking to them about fundraising. Number five, who else have you talked to about your idea? No. four Do you use open source code? Number three. Do your competitors have IPP number two, Does your company have any iP? And then finally the top question that investors ask when you're fundraising is what is your I. P. Strategy? And really at the end of the day, what investors want to know with these questions is that you have your business fundamentals, that you are building a product that your customers will buy. You know how to protect that product from competitors and you understand the competitive landscape in which your company is operating. So I hope the next time you hear some of these questions you'll think beyond the surface of the question that is being asked and that you are able to formulate your answers in a holistic way that takes into account not just your legal strategy but also your product development and your business strategy as well.

We hope you enjoyed this episode of the novel and non obvious podcast. Feel free to send us comments or suggestions for startup. Then I. P. Related topics you'd like us to discuss on this podcast at info at patents integrated dot com. Our producer is Joel Davis of analog digital. Our marketing specialist is tim Sprinkle of Layup content. Our theme music is the Workday Takata from A Life In a Day used with permission composed by sherry slider and performed by Michelle Stanley on flute, Jeff le Quattro on guitar and yours truly install. Here's our obligatory disclaimer. The content of this podcast is informational only and is not intended to to be legal advice. The novel and non obvious podcast is a production of patents integrated and all rights are reserved. See you next time, mm hmm.

The Top 5 IP Questions Potential Investors Ask Startups
The Top 5 IP Questions Potential Investors Ask Startups
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