As an angel, you play with your own money and make bets on your dime. You take calculated risks and take precaution steps to reduce known risks. That’s how you protect your investments and improve the odds of success.
Product risk is one of the investment risks inherit in angel investing. You want to reduce risks by making sure the product 1) solves problems, 2) hasn’t infringed other companies’ intellectual property (IP), and 3) is protected by IP to keep competitors out of its turf.
Granted, betting on companies with patented ideas isn’t a sure-win. But you could easily lose your entire investment investing in one whose competitive edge isn’t protected by IP. Resourceful competitors can copy the unprotected invention without breaking a sweat, and chew up your startup investee like it’s a delicious snack.
Venture Hype interviewed Tom Williams (@RealGTom) of McGarry Bair (@McGarryBair) to explore the implications of IP for angel investors.
Tom Williams is a patent attorney at McGarry Bair. Obsessed with law and tech, the enthusiastic lawyer frequently brainstorms new ways to make IP law painless and profitable (did you know that’s even possible?).
McGarry Bair is a new-gen IP law firm that leverages technology to get the job done. The firm’s lawyers talk IP, sports, music, tech toys, good eats, and etc. — you know, things that are “in.” And at 10 a.m. sharp every Wednesday, they hang out to socialize and indulge in milk and cookies.
The firm is fun, no doubt, but it means serious business when it comes to IP cases. McGarry Bair is hailed as “An Innovative Law Firm for Innovative Clients” by Forbes; “Go-To Law Firm® for the Top 500 Companies” by Fortune Magazine; “one of the top 20 most innovative law firms” by Michigan Lawyer’s Weekly; and “Top Trademark Law Firm” by Intellectual Property Today.
Without further ado…
The various forms of IP differ widely. The type of IP protection your investee needs would depend on the nature of the product and how it’ll be used.
Williams provides a quick summary:
Patents provide your investee the exclusive right to (a) make, use, sell, or offer for sale; or (b) import devices, systems, methods, and even plants and ornamental designs (inventions) in return for a public disclosure of the invention.
Trade secret is the opposite of a patent. Rather than publicly disclosing the technology in a patent, a trade secret protects information. The information is maintained in confidence and gives your investee a commercial advantage over the competition.
Trademarks are your investee’s brands. They protect nearly any symbol used in commerce, so a consumer can identify the goods or services sold under your investee’s symbol.
Trade dress is related to trademarks and protects the look and feel of a product’s design, styling, and appearance.
Copyright is a bundle of individual exclusive rights that prohibit others from reproducing, distributing, performing, displaying, or even making derivative works (works based on another work) of your investee’s original work.
The long and short of it is that the various forms of IP, when used most effectively, can optimize the protection of your investee’s creative output and reduce the risk of your investment.
“IP is an asset of a company like any other kind of asset,” states Williams. Your investee’s IP can be bought, sold, or rented/licensed for royalties.
But the startup’s IP can also protect its revenue streams, as it prevents others from encroaching into the company’s market.
Williams adds that the company can use IP
Stay tuned for Part 2 of the interview, where Williams describes some common mistakes startups make, provides an overview on IP insurance, and points out why most startups don’t have it.
* VH: Special thanks to Greg George of GTI Advisors for recommending Tom.
* For series, references are published in the last installment of the series.
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Love Venture Hype’s website and the very interesting articles. Nice broad selection of topics and perspectives.
