Monthly Archives: January 2012

Know When to Hold ‘Em – IP Edition

If you are managing a start-up, sooner or later you may be asked to share information about your company’s intellectual property with another party. If a company is interested in investing in, or acquiring your start-up, they will want to examine your IP. If a company wants to buy some of your patents or patent applications, they will expect access to those patents and patent applications before they close their purchase.

The process of a party investigating your company’s IP before making a purchase is called “IP Due Diligence.” Normally, you don’t want to enter into IP Due Diligence without getting some advice from an experienced IP lawyer. One issue you’re likely to encounter is that a potential buyer may ask you to share confidential information, trade secrets and even attorney-client privileged information.

As a general rule, you should disclose information in stages based on how serious the buyer is. For example, you might first share issued patents and published patent applications with the buyer. Both of those are public so there’s no real risk in sharing them. If there is continued interest, then you might consider sharing unpublished patent applications and just enough trade secret or non-public information of your company necessary for them to commit to their purchase. If so, you will want to have the buyer execute a non-disclosure agreement (“NDA”) or similar agreement where the potential buyer agrees to keep the information secret.

The toughest issue arises if the buyer asks to see attorney-client privileged information – a privilege that may prevent disclosure of such information in a later legal proceeding. For example, your IP attorney may have prepared a “freedom-to-operate” analysis that indicates you can likely commercialize your technology without violating the IP of others. Or your IP attorney may have prepared a patentability analysis showing your invention will likely be patentable over the state of the art. It’s important to remember that if you share privileged information with the buyer, you will likely lose the legal protection of the privilege. NDAs alone are normally not enough to save the privilege. So before you share privileged information with a buyer or, for that matter, anybody else outside your company, check with your IP attorney.

This post on Intellectual Property was authored by Steve Schreiner.

Founders Flash

Founder’s Flash

This weeks articles highlight the increasing importance of angel investors, profile a VC fund’s approach to funding, share important entrepreneurial lessons gathered by video start-up Capture Your Flag, and feature a Q&A with a man who went from medical student to entrepreneur.

Angel Investors Play Big Role For Start-Ups, Think Tank Says – Angus Loten, Wall Street Journal

Angel investors are an increasingly important source of capital to early stage companies, including in Europe, one recent report says.

New York’s Zelkova Ventures Tries an Evergreen Approach to Funding Startups – Ben Popper, VentureBeat

An evergreen fund allows for success with smaller returns.

The 3 Life Lessons Every Entrepreneur Needs to Learn – Karlee Weinmann, OPEN Forum

An entrepreneur’s takeaways from a year of interviewing up-and-coming professionals.

Meet the Start-up Doctor – Tim Donnelly, Inc.

What do hyper-creatives, emergency room nurses, and CEOs have in common? Dr. Aaron Blackledge has identified a particular neuro-chemical pattern. Do you have “entrepreneur brain?”

This post was authored by Founders Workbench.

YES Boston 2012: What’s the Big Deal about Big Data (and Analytics)?

Date: February 23rd
Time: 6PM Reception | 7PM Panel Discussion
Location: Harvard Innovation Lab (i-lab)

The Yale Entrepreneurial Society and Goodwin Procter LLP will co-host YES Boston 2012: What’s the Big Deal about Big Data (and Analytics)?, an evening networking reception and panel discussion that will delve into Boston’s tech scene and its data landscape. We hope to discuss and engage further on not only the current, thriving data and analytics start-up scene, but also its future in Boston and what seem to be the trends moving forward. The panel will include Justin Borgman of Hadapt, Mina Hsiang of General Catayst Partners, Chris Lynch of Vertica Systems, Inc., Steve O’Leary of Aeris Partners, Swapnil Shah of FirstFuel Software and Dr. Bill Simmons of DataXu. Bill Schnoor, partner and co-chair of Goodwin Procter’s Technology Companies Group will serve as Moderator. Click here to register for the event.

This post on Networking was authored by Founders Workbench.

NVCA Data for VC Fundraising, M&A Markets and IPOs Released

The National Venture Capital Association (NVCA) released its data, available on its website, on VC fundraising and liquidity events for Q4 2011 and 2011 as a whole. The data showed another solid year in mergers and acquisitions and consistency in VC fundraising and an up-and-down year in initial public offerings with a glimmer of hope in Q4 IPO data.

In 2011, 169 venture capital funds raised $18.17 billion, which is a 32% increase compared with 2010. In Q4 2011, only 38 venture capital funds raised money (compared with 48 venture capital funds in Q4 2010), the lowest by quarter since Q3 2009. The trend of first-time fundraisers representing the greater percentage of total funds continued in 2011, with 29% of all funds being first-time fundraisers, compared with 30% in 2010, 24% in 2009 and 23% in 2008.

Fifty-two venture-backed companies went public in 2011, down from 75 in 2010, but up appreciably from the dog years of 2009 (12) and 2008 (6). Some would point to the average offer amount of $190 million, up from $101 million in 2010, as a real bright spot, but the average offer amount has been fairly volatile the last few years ($136 million, $78 million, $120 million and $89 million in 2009, 2008, 2007 and 2006, respectively) and the blockbuster Yandex and Zynga offerings likely inflated the 2011 average.

The NVCA also points out that the 11 Q4 2011 IPOs give hope for 2012, after only 5 IPOs in Q3. Although admittedly small sample sizes, in both 2009 and 2010 there were also high numbers of offerings in Q2 and Q4, so the Q4 2011 performance may be a result of the seasonal business cycle rather than true improvement (although one can always hope).

The 2011 data tells a much more consistent growth story in the M&A markets. The total number remained consistent at 429 venture-backed M&A deals, as compared to 436 in 2010, and the average M&A deal size rose to $150 million in 2011 from $145 million in 2010. These numbers continue the upward climb from 2009 (273 deals, average deal of $136 million) and 2008 (348 deals, average deal of $116 million) and represent the rosiest of the data sets.

This post was authored by Founders Workbench.

Founders Flash

This week’s articles highlight Brooklyn’s first VC fund, consider why cheap startups require expensive funding, explore how Fab.com failed before it became a successful startup, and feature a Q&A for entrepreneurs on pitching VCs.

Former First Round Capital Principal Charlie O’Donnell Launches Brooklyn Bridge Ventures, a Seed Stage Fund – Nitasha Tiku, BetaBeat

According to Charlie O’Donnell, Brooklyn “has the potential to be the very best place in the world to start a technology business.”

Why are cheap startups so expensive? – Kevin Kelleher, Reuters

If it’s cheaper than ever to fund a startup’s growth, why are some Web companies receiving hundreds of millions of dollars in financing?

In Tech, Starting Up by Failing – Jenna Wortham, New York Times

Every entrepreneur hopes to start the next big thing, but sometimes the first try doesn’t go as planned.

This VC Has Heard 10,000 Pitches: Here’s What Works – Boonsri Dickinson, Business Insider

What entrepreneurs need to know about pitching VCs.

This post was authored by Founders Workbench.

Patent Moneyball …..

In September 2011, President Obama signed the Lahey-Smith America Invents Act which implemented some of the most fundamental changes to patent law in decades. And certainly for the daily patent practitioner, there are many changes that impact patent practice. However, for a fresh new start-up trying to make a name for itself in the fast-moving technology sector, does the implementation of this new law really change basic patent strategy? In many cases, the answer is no. File early, file often, make liberal use of the provisional process, and be as comprehensive as possible in describing your invention and its possible variants. But, there is one provision that small, “thrifty” start-ups can use to their advantage – the prioritized examination process.

The conventional wisdom in drafting patents has always been to “swing for the fences” – i.e., draft claims that are as broad as possible, and narrow the claims as necessary during prosecution. While this approach works well in many instances, it has a tendency to drag on and cost a lot of money, often extending beyond the company’s desired exit strategy.

The new accelerated examination process, which has a stated goal of a final disposition (i.e., final rejection or allowance) within a year, requires only the payment of an additional fee ($2,400 for small companies) and adherence to some basic practice rules to participate. One strategy for using this process, however, turns patent practice on its ear by starting narrow rather than broad and submitting claims that are detailed and directly describe a specific embodiment of the invention.

This significantly increases the likelihood of a favorable examination and provides a great opportunity to discuss the claims with the examiner in a positive light. In the end, a patent covering a narrow, but important aspect of your technology is far more valuable than a pending application that is years away from its first substantive exam.

This post on Patents was authored by Joel Lehrer.

Founders Flash

This week’s articles highlight why a successful entrepreneur decided to become a VC, discuss the classic definition of entrepreneurship, share the results of the World Bank’s Doing Business 2012 report, and feature a Seattle group created for young entrepreneurs.

So You Think You Can Be a VC? – Ben Rooney, Wall Street Journal

Why successful entrepreneur Max Niederhofer, founder of Qwerly, decided to become a VC.

What’s an Entrepreneur? The Best Answer Ever – Eric Schurenberg, Inc.

This classic 25-word definition pares entrepreneurship to its essence and explains why it’s so hard. And so addictive.

10 Best Countries For Starting A Business – Alicia Ciccone, The Huffington Post

The World Bank’s ranking of the 10 countries that provided the greatest ease of doing business.

Young Entrepreneur Social: Seattle Has to Stop Eating its Young – Curt Woodward, Xconomy

Brayden Olson founded the Young Entrepreneur Social, a Seattle-based group aimed at bringing successful under-30 entrepreneurs together for networking events and mentorship programs.

This post was authored by Founders Workbench.

Two Months to SXSW! Don’t Forget to Register!

We are thrilled to take part in SXSW Interactive 2012 in just under two months (March 9-13) and we want to see you in Austin! The next deadline for discounted registration is January 13.

SXSW Interactive announced this year’s keynote speakers including co-founder of Jack & Jill Politics and Director of Digital for The Onion, Baratunde Thurston, Geoloqi.com founder Amber Case, legendary entrepreneur and “restless genius” Ray Kurzweil, and Code for America’s Jennifer Pahlka.

Check Founders Workbench frequently for SXSW updates and information on our Founders Lounge. We’re counting down the days!

This post on Networking was authored by Founders Workbench.

Angel Group Valuation Survey Shows Relatively Stable Market

No matter which side of an early-stage financing you find yourself on, pre-money valuation is certainly an important be the single most important business term to negotiate. I also find it is the term that lends itself to positional bargaining with the greatest frequency, primarily due to the imperfect information both sides are working with. Thanks to the folks over at Bill Payne and Associates some limited data on the pre-revenue company investment market are available. The data are based on survey responses from an Angels and Entrepreneurs workshop.

Notably, the pre-money valuations tend to sit between $1.5 and $2.5 million and, of the 35 groups responding, nearly as many perceived the trends in pre-money valuations as increasing as those perceiving valuations as remaining flat or decreasing. This shows what appears to be a relatively stable market.

Another noticeable trend is that the valuations were higher in the hotbeds of start-up activity, namely Silicon Valley, Boston and New York City. This is the second year that Payne has done this survey, so here’s hoping for another in 2012.

Thanks to Judy Robinett, an angel investor who attended the Pipeline Fellowship session in Goodwin’s Boston office in December for the tip.

This post on Company Financings was authored by Ryan Sansom.

New Law Allows Venture Capital-Backed Small Businesses to Qualify for SBIR and STTR Grants

Last month Congress passed the National Defense Authorization Act (HR 1540), which included Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) reauthorization to help fund small innovative companies on the brink of new technologies and discoveries.

The SBIR/STTR programs expressly permit VC-backed companies to compete for funds provided by participating agencies for the first time, addressing the capital raising challenges often faced by early-stage technology oriented companies.

What does this mean for your business? Click here to learn the key elements of the provisions.

This post was authored by Founders Workbench.