5 Ways To Be The Savvy Entrepreneur Investors Look For

By Mary Juetten, forbes.com, 14-08-2014

Fundraising becomes a top-of-mind issue for most entrepreneurs in the summer, particularly as they start to plot their strategy for the fall and ensure adequate funding runway for the rest of the year.

As I’ve written about before, failure to protect intellectual property (IP) from day one can be a huge disaster for a startup. This is especially true when a company begins fundraising

and starts pitching their ideas left and right in an effort to raise funds. I noticed at a recent conference I attended in Las Vegas last May that one judge in particular continued to ask questions around patents and trademarks. In some cases, the inventor that answered that judge’s questions included trade secret protection as means of protection.

Investor presentations, pitch competitions, or incubator and accelerator applications all include questions on IP and about barriers to entry for your market. Nothing is worse that watching a passionate founder bomb when asked about IP protection and/or what their strategy is to protect their intangible assets. As an aside, it’s important to note that a live, public presentation can be problematic if your IP has not been first protected or if you are selling securities.

Here are five things every small business should do before fundraising:

1. Use a Non-Disclosure Agreement (NDA) whenever possible

Using NDAs whenever possible and not limiting them to just potential investors is an important fundraising tip, and the subject of a previous piece I wrote titled, “Should Startups Really Skip Legal Protection.” Of course, it helps to know your audience because professional investors will not sign NDAs. However, if your company’s product or solution depends on outsiders, they should be under NDA. You do not wish to share your secret sauce with potential partners, suppliers, or customers in preparation for funding and have them steal your idea.

2. Have solid co-founder agreements in place

Investors want to know that all is good with the management team and that their various deals around compensation and ownership are clearly spelled out in writing. Nothing will distract a team more than co-founder strife, plus you are risking any potential investment without solid agreements.

Co-founders are creating and contributing all the intellectual property to the startup. That IP must be in the company name and all agreements must be crystal clear about ownership. Just ask the Winklevoss twins how important it is!

3. Know your IP strategy

I am not saying that you must have every trademark, copyright, and patent filed. Instead you must be prepared when asked to articulate the barriers to entry for then competitors in your market. Bonus tip––never say that you don’t have any competition!

The key is to be prepared with an answer, even if that means saying you cannot afford patent or trademark protection at this time. You should outline your plans to protect your valuable intangibles, which can include trade secrets–the unsung heroes of IP. Demonstrating the knowledge of the value of your IP is critical.

4. Own everything all the time

This does not just mean to be confident when presenting but you also need to ensure that your company owns all the IP you are using (or that you are otherwise properly licensing someone else’s IP). This is not a time for embellishment.

Almost every angel investor has a story of how they were once, and likely only once, foiled by a company not owning their IP. Company name and source code ownership was even a plot line in this season of Silicon Valley, an HBO show. Some investors catch it in due diligence but not all angels perform detailed due diligence. Venture capitalists will.

5. Be careful when publicly pitching
I like to say that I do not look good in orange (that is, I never wish to violate any securities laws and wear orange prison garb). There have been changes to the rules around public solicitation of investment but this is an area where it is wise to get legal advice before you pitch.

Further, if you are presenting without any IP protection in place, whether public or private, make sure you do not disclose too much. I cannot stress enough that seeking some legal advice is strongly encouraged. The same applies when you are filling in an application to an accelerator, incubator, or competition. You need to determine if the application information will be kept confidential or released publicly.

Fundraising is hard, so being prepared and having your IP strategy (including all your contracts, co-founder agreements, and plans) in place will help you succeed.