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« Annotated Term Sheet and the Secret Prize | Main | Execution Play vs. The Black Box »

January 16, 2007

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Thank you for this. I have been wondering and not wanting to offend.

Excellent information thanks Rick
Now tell us more on the translation service,what a product!
Unless of course you are under N.D.A :-(

Thanks for sharing. There are always different perspectives, and I've been wondering how some of that thinking happens on different sides of the table (or the same sides, depending on how you view it all).

You could have probably been able to mash together the technology for that translation application for quite some time.

At what stage would it be reasonable to require an NDA for Angel Investment, based upon a situation that a patent application might be possible (and theoretically will be made), but hasn't been undertaken?

Andy,
Thanks for stopping by. Obviously, I made up the example but to your question.

With respect to an angel/seed idea that has potential patent possibility, there are a couple of things you can consider. The first is what is called a disclosure document. You file a simple form/letter with your lawyer which basically establishes the timeline, etc. It's not completely mandatory but if you do it, you are better protected when you talk to funding partners from the perspective that you have some minimal structure in place and you can legitimately say "I've got the patent process started".

The Angel Investor, or any funder, is going to have a diligence process that, at a certain state, will need enough information to assume risk. Once they get to that state and you are comfortable with a potential business relationshiop, you should be able to get some confidentiality provisions in place.

Andy,

I'm working on a business plan that involves a company that (as far as I can see) has little or no secret sauce. The only long term sustainable advantage that I can see is that I find it doubtful that there could be multiple clients servicing my market and I want to be there first.

The advantage I have right now is that it is an open ocean.

Am I doomed to fail? To speak to your point, I know that getting a VC to sign an NDA early is nigh impossible, but what advice would you give to someone who just sees an untapped market, but sees no secret sauce?

Thanks. Brad

Brad,

there are many many business that are "execution plays" vs. pure technology/secret sauce plays.

In that case, I would maintain that if you have a solid plan to make money for you and the investor, explain the plan and try to give as much information as possible on what you are solving, how it makes money, etc, and explain it is an execution play requiring speed/smarts. There are many VCs out there that do this stuff and I'd argue that 90% of WEB 2.0 companies are mostly execution play.

Excellent article Rick.

One other thing to add in here to those who disagree: in all reality, if your idea is so early stage that the only way you think you can protect yourself is via NDA, you should'nt be going to VCs anyway. Go get some angel money from trusted sources.

To me, the only important NDAs are those related to huge corporate initiatives (e.g. iPhone) where media-related activities are the issue. Ideas are just too hard to protect by a little piece of paper.

Thanks for the good info and insight, Rick.

If I may offer another approach for your readers to consider which I'm using myself...

Because what I came up with--a new form of (PPC) advertising--could (as Bill Gross and his GoTo.com team did with their paid search creation back in 1998) clearly be IP protected, I choose to file a patent first (#11/250,908); then begin the process of presenting it to those companies and VCs I felt were best qualified to bring paid match to market...confident in the knowledge that my secret sauce, while publicly visible, was also well protected.

My approach also differs in that, because I'm not a coder myself and am unwilling to put my and my family and friends assets in play (I've been quoted 500k-1 million to build a fully operational system), I'm offering to license this new system; with the resultant lion's share of the profits accruing to the company which brings it to market.

As I'm fine with such a small piece of the pie (like paid search, paid match is going to be a very, very big pie), what's frankly surprised me about this logical approach is the (so far) general lack of foresight and vision by those who regularly proclaim how creative, innovative, and forward-thinking they and their firms are...yet seeming to have great difficulty grasping something with such a clear value proposition...without seeing the ad system in actual operation.

This is in spite of the fact that our own US Dept of Labor already runs a very visible, very successful system (over 500,000 users/month)--GovBenefits.gov--with a number of the same operational factors as paid match.

Thankfully, (though I'd of course like to see it in use sooner rather than later) because I will have strong IP protection once the patent issues, I'm not under the same kind of time pressure most new "no IP protection available" companies are to get to market.

Hope this approach (common in the biotech field) can help others desiring--and able--to follow the same path I am.


Hi Steve,
Thanks for the comments. I've seen a couple of people take this approach. It can be a very smart thing to do.

best,

Good article, Rick. As the director of a tech incubator in Boulder, CO I am in a similar situation and plead the same: no NDAs, but no need to show me the sauce bottle. Virtually all of the mentorship/advising we do is around basic business 101 block and tackle. Not digging into their technology.

However, Brad above brings up an interesting situation in "the pure execution play". I occasionaly run into such companies and they want me to sign an NDA before disclosing the play, 'cause, that IS the sauce. In order to understand the the business model, they have to give up the execution and the market they've identified. That takes away the "don't talk about what's under the hood yet" point.

Thus far, I've just told 'em I don't do NDA's at this level and either they can trust me and continue or not and stop there.

Any thoughts you have on this specific need for disclosure?

Thanks!!!

Jim

Rick, many thanks for your answer.

One of the hurdles I have to face is that my "secret sauce" is the business process and the way certain technologies can be integrated.

I might actually be in a similar position to Steve in some ways because I am also not a coder, and my "play" is also in the monetization arena.

I am in the process of preparing an Investment Memorandum for a group of Angel investors in the UK who have agreed to forward my proposal to their membership for consideration.

As a check, I provided the latest draft to a colleague I trust in a similar line of work, and his response to the first "vague" document was "Andy, that doesn't tell me anything".

I forwarded him a second version, that was what I intend to be sent out. It is less vague, but there are obvious holes in the information.

Those holes unfortunately are the ones that might be the key way of demonstrating future success, and that showed in the feedback I received.

I am not in a position to start the patent application process. I am trying to find a way I can fill in the holes in my presentation materials.

In the investment memorandum I have stressed that 30,000 of the 100,000 in funding I am looking for is intended for the patent process, and that my ideal investor would fulfil the role of CTO.

I am technically competent enough to define the ways various components are glued together, and how many of them work, but someone with higher technical skills and experience in the patent process needs to be the one producing the documents.

Andy,
Send me an email and let's see if I can't help you a bit on this paper and some navigation.

rick at jlaventures dot com

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