Angels, Entrepreneurs, and Gadflies: How Angels View NDAs

Many entrepreneurs ask angel investors to sign non-disclosure agreements (NDA) prior to discussing their businesses. They never hear back from the angels and wonder why.

One reason may be that, initially, angels only want enough information to determine whether a deal interests them. All they want to hear about are the problem(s) solved and the benefits of the entrepreneur’s approach. Rarely do angels want more, much less detailed disclosure of the entrepreneur’s intellectual property (IP).

Indeed, too much early information can hurt the angel. For instance, if a play has widespread applicability, an NDA might preclude the angel’s participation in other deals. Also, pre-existing deals can ensnare the angel in a conflict of interest if they learn too much about a competitive approach under an NDA. Besides, if a deal comes to the angel through an investment screening group, the information usually carries with it a condition of non disclosure.

Thus, often, an entrepreneur-NDA-request goes something like the following. The entrepreneur confronts an angel with an NDA. The investor thinks, “They don’t have any IP protection! Otherwise, they wouldn’t need my signature.” Next the angel thinks, “What will this group do at go-to-market time? Haven’t they thought through their IP position? They are going to get ripped off.” From many angels’ perspectives, therefore, NDA-bearing entrepreneurs are gadflies.

As a result this blog recommends that, prior to fund-raising, entrepreneurs develop and begin executing an IP plan. Of course, not everything must immediately be formalized into a patent, copyright, or trademark application prior to speaking to financiers. Many elements of a business can be held as trade secrets during pre-launch fund-raising. Then, once an angel becomes interested in a play they will ask for more information and won’t mind signing an NDA.

Hall Martin (Vice Chairman of The Baylor Angel Network, Director of The Wilco Angels Network and Director of The Texas Entrepreneur Network) co-authored this article. 

For more information about entrepreneurship in general see The Texas Entrepreneur Network.  

For more information about developing and executing an IP plan see www.villhardpatents.com or call The Villhard Patent Group at (512) 897-0399.

A Lot of Zeros for Patents

$12,500,000,000. That’s a lot of zeros to pay for intellectual property (IP). But that was the price Google paid for Motorola Mobility and, mostly, for their patent portfolio.

In light of the Google/Motorola deal, it bears repeating that investors and companies in the market for acquisitions often look for some combination in their targets of a good idea, a good management team, a developing (or complementary) market, and the existence or creation of entry barriers (e.g., intellectual property). Typically, it takes a measure of all four elements for a start-up or other small or mid-sized business to get on the radar screen of an angel investor or venture capitalist (much more, one of the Fortune 500 companies).

Without passing judgment on them, and as with any M&A activity, I would be willing to bet that not much of the target’s (Motorola) management team will be around in the new Google in one year. For their part, Google claims that Motorola cell phones and other mobile products will remain on the market. Of course, whether you believe that a software company will plunge deep into the hardware market is another matter. That leaves only Motorola’s IP on the table for the apparent reason for the deal.

Thus the Motorola deal shows, with its focus on Motorola’s patents, that an IP portfolio (in its own right) can make or break a deal. The news of the Motorola deal should therefore prompt entrepreneurs throughout Austin (and those throughout Texas and elsewhere) to assess their IP portfolios.

If you would like experienced help with your IP assessment and subsequent IP strategizing, we at the Villhard Patent Group would enjoy helping you. For more information about intellectual property in general, and patents in particular, please contact us at (512) 897-0399 or visit www.villhardpatents.com.

3 Bizarre Things About Patent Applications

Sometimes a business owner, eager to see the company’s first patent application, opens the draft -- and barfs. Never have they paid for such gobblygook.

Many things about patents might strike the entrepreneur as odd. This article is too short to go into all of the reasons for this situation. But, let’s start with why patent drawings tend to look cartoonish. First, patents rarely require detailed engineering drawings. Instead, patent attorneys try to graphically break down the ideas to help others understand the inventions. Many drafters also drop unnecessary detail that might obscure the inventions. Additionally, the Patent Office imposes their traditional and odd stylistic requirements. WYSIWYG!

Secondly, the writing style in many applications strikes many as stilted and mealy-mouthed. In the written description, the drafter tries to balance two contradictory requirements: being specific and avoiding specificity. Ironically, depending on the words chosen, specificity can limit an application’s scope. But, being vague can invalidate an application for failure to adequately describe the invention. Patent attorneys therefore spend their days agonizing over what to put in, what to leave out, and how to phrase what’s left.

For being bizarre, though, patent claims take the cake. For starters, a would-be-infringer will almost certainly use every word of the claims against the patent owner. Thus, many drafters place a premium on brevity. On the other hand, the claims must describe the invention well enough to alert would-be-infringers of the scope of the claims. That requirement necessitates words and, often, many of them.

Additionally, patent attorneys also try to comply with over 200 years of case law that seems openly hostile to drafters. Perhaps that is why the Supreme Court once said, patent applications are “the most difficult legal instruments to draw.”

We at the Villhard Patent Group caution entrepreneurs that patent applications hold many traps for the unwary. We would be happy to discuss how to protect your ideas. For more information about us visit www.villhardpatents.com or call (512) 897-0399.

Things Entrepreneurs Should Look For in a Patent Attorney

Shopping for a patent attorney may seem pretty simple.  You simply find one with expertise in your technical area.  Right?  However, focusing on the technical qualifications of a candidate alone might not be adequate.

Sure.  Your patent attorney needs to know your technology.  But regardless of who you select, you will still likely be the technical expert for your application.  No one will know your concept better than you. 

Therefore consider some other factors.  Does the candidate you are considering understand your business model?  Does the candidate have a feel for how you will be using your intellectual property; where it fits into your business activities; and the alternatives (including the current state of the art) to your idea?  Moreover, does the candidate understand who your competitors are; who they might be in the future; and how your idea might give you an advantage over them?  Similar questions can be asked about the candidate’s knowledge of your customer base.

Also, has the candidate worked with clients of your size?  Understanding the needs of Fortune 100 companies is one thing.  However, using a patent attorney who grinds out one patent application after another –the model followed by most Fortune 100-based patent attorneys -- might result in a cookie-cutter application that shirks interesting aspects of your idea.  Instead, entrepreneurs might be well advised to look for a patent attorney who regularly deals with other entrepreneurs and understands that your patent application might be your crown IP jewel and deserving of individualized treatment.

Having satisfied these concerns, entrepreneurs can then move on to the more mundane considerations.  How many years of patent related experience does the candidate have?  What sorts of recommendations does the candidate have?  Can the candidate communicate?  Does a match exist between your personality and the candidate’s personality? 

We at the Villhard Patent Group would like to have the opportunity to discuss your intellectual property prospects with you.  Please contact us at (512) 897-0399 or visit www.villhardpatents.com for more information about us.