Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Use Patents to Protect Your Intellectual Property and Create Value for Your Start-up Company

To be successful, all start-up companies need to differentiate themselves in the market with their technology, product or service offering.  In addition, these same start-up companies also need to create a long-term sustainable advantage in the market that is defendable.  One way to accomplish this is to develop, file, and prosecute a number of broad patents to protect your start-up company and its underlying intellectual property. Although necessary to create a strong and defendable position in the market, the requirement of developing, filing, and prosecuting patentable ideas is often prohibitively expensive for these same start-up companies. With limited funds, the necessity of securing a number of patents to protect your intellectual property has generally not been a viable option for these same start-up companies. This is primarily due to the prohibitively high costs of patent attorneys ($250 to $500+ per hour). Today, with the development of “off-shore” service companies offering substantially similar services to traditional patent attorneys and patent agents, the ability to secure a number of patents with a limited amount of funds is now a viable option for your start-up company. This article addresses the value of constantly innovating, determining the potential of patentable ideas and using alternative approaches to develop, file, and prosecute patents to create a long term sustainable advantage in the market.

Constantly Innovate

Venture capitalists and angel investors want to be assured that their investment in an early-stage company not only provides a competitive advantage in the market, but is protected to create significant economic return in accordance with the risk of their investment. This is generally accomplished with patents covering the underlying and core intellectual property of your start-up company.  With the ability to offer 20 years of protection, patents can provide these same investors some level assurance that their start-up company has developed a unique and protected position in the market, with the possibility of substantial financial returns. 

Entrepreneurs also need to create value for their investors and their start-up company, by continually innovating and subsequently protecting their company and its intellectual property by filing patents.  A number of companies have developed very successful competitive market positions by developing massive patent portfolios to define and defend their technology and their unique position in the market.  One excellent example is Qualcomm, San Diego, CA.  Although Qualcomm did not invent CDMA technology, they pioneered its use in the digital-cellular phone market. To protect its position, Qualcomm has amassed a substantial portfolio of patents as they relate to CDMA technology and its application to the digital-cellular phone market.  This has uniquely positioned the company by offering a proprietary technology that currently has a significant percentage of the cellular phone market worldwide.  So, as a start-up company you need to continually innovate and develop new patentable technologies, products and service offerings to uniquely position and subsequently defend your start-up company, providing a long-term competitive advantage in the market.

Determine the Potential Value of Patentable Ideas

Not all ideas are patentable and in addition, even among those ideas that are patentable, not all of these same ideas provide any significant potential value to your start-up company. So, as a start-up company with limited funds, you need to determine which ideas have the potential to be patented and among those ideas, which patentable ideas are broad enough and significant enough to bring substantial value to your start-up company. Therefore, you need to take the time to evaluate the merits of each idea to determine the broad protection implications of the underlying intellectual property as they apply to your start-up company and its technology, product or service offering.  If an idea does not really add any specific protection to the “core competencies” of your start-up company and its technology, product or service offering, then it is probably not worth the cost of developing, filing, and prosecuting a patent.  On the other hand, if you believe that this new idea will provide broad protection and help to uniquely position your start-up company and its technology, product or service offering in the market, it is probably worth pursuing. Alternatively, if your potential patentable idea has the ability to open up and substantially protect new business opportunities that can add significant long-term economic value to your start-up company, again they are worth pursuing. Therefore, take the time really understand the potential value of patentable ideas to your start-up company’s long term competitive position in the market. This will allow you to determine which potential patentable ideas are worth pursuing for your start-up company.     

Lower the Cost of Developing, Filing and Prosecuting Your Patents

It is well known that developing, filing, and prosecuting patents are very expensive.  Often it is prohibitively expensive for start-up companies with limited financial resources.  With patent attorney fees ranging from $250 to $500+ per hour, the cost of just filing a single patent can break the bank for your start-up company.  Fortunately, there are alternatives out there that allow your start-up company to take advantage of “off-shore” patent attorneys that work with “on-shore” law firms, offering a proven and economically viable alternate that will allow your start-up company to do patent searches, as well as to pursue patent development, filing and prosecution at rates that are substantially less than the traditional patent lawyer or patent agent alternatives.  Two firms that offer inexpensive alternatives to the traditional patent development model include Brain League (www.brainleague.com) and Lexntech (www.lexntech.com).  Both firms have proven track records for researching, developing, filing and prosecuting patents both domestically and internationally.  Each offer a slightly different business models, but both offer viable “off-shore” based alternatives to the traditional high hourly rate-based “on-shore” law firms.  So, as a start-up company looking to protect your intellectual property and to uniquely position your company in the market, it is worth looking into these two “off-shore” alternatives, as they will substantially lower the costs associated with searching, developing, filing and prosecuting your start-up company’s patents.

As a start-up company that desires to uniquely position itself in the market and at the same time be assured that it has protected its intellectual property, you need to develop patents that protect the underlying intellectual property associated with your start-up company’s technology, product or service offerings. By doing so, you will create long-term value to your start-up company and to your potential investors.  Accordingly, as a start-up company with limited funds, looking to create a unique position in the market, you need to constantly innovate, determine which patentable ideas create significant value for your start-up company and at the same lower to costs associated with the developing, filing and prosecuting your patentable ideas.  To do this, currently the most cost effective approach is to work with patent firms that provide a combination of “on-shore” presence, with “off-shore” patent execution.  This will provide your start-up firm with the ability to cost-effective develop a portfolio of patents to develop a unique and defendable position in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.

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May 31, 2010 Posted by | Venture Capital | , , , , , , , , , , | Leave a comment

Contract Negotiations Require Three Things to be Successful

Start-up companies often look to partner with third party companies to help them create become a successful company and at the same time create a presence in the market.  Whether it is a strategic technology partnership, a sales channel development relationship, or a key customer, all of these potential engagements will require contract negotiations to ultimately secure the relationship. As such, it is often at the contract discussion point of the relationship when one party tries to negotiate an advantage over the second party, and is where these same potential relationships often break down.  This jockeying for the upper hand does not work in any contract negotiations and often results in one or both parties walking away from the contract negotiations. In the end, both parties lose, since neither party will then have the ability to use their unique technologies, products, or services to bring value to the relationship and create a unique position that brings ultimate economic benefit to the parties involved.  This resultant breakdown in contract negotiations can often be avoided if both parties are honest, respectful and negotiate in “good faith” during their contract discussions.  The following addresses the importance of these three important tenants of successful contract negotiations.   

Honesty is the Best Policy

As in any personal or professional relationship, honesty is the best policy. If either party is not honest, then the other party cannot “trust” the first party and hence there is no solid basis for developing a strong relationship.  This is especially true for start-up companies.  Often entrepreneurs, in an effort to close an important strategic deal for their start-up company, present themselves, their company or their technology, product or service offering in a manner that does not always represent their true status of their underlying technology, development progress or competitive advantage in the market.  This intentional misrepresentation can cause problems down the road and may end up killing any contract negotiations.  In addition, if the other party finds out that your start-up company has not been honest regarding its representation, then all bets are off and often any contract negotiations will incur irreparable damage.  As such, one party will walk away, because their confidence in their potential partnership has been undermined.  So, as a start-up company it is best to be totally honest during contract negotiations, as the risk associated with the misrepresentation of you, your  company and its technology, products or service offering will often result in severed contract negotiations and a failed relationship.

All Successful Relationships Require Respect

All successful relationships require respect. This is especially true regarding the relationship between start-up companies and their potential partners. If this respect does not exist on the behalf of both parties, then there is no real reason to enter into a relationship. One party may respect the other company’s technology prowess and the other company may respect the other company’s marketing genius. In the end, both parties have to believe that they are engaging with a company that they respect and ultimately brings a technology, product, or service offering to the table that results in a strong competitive advantage in the market.  This mutual level of respect is required and is the true essence of a successful relationship. So, as a start-up company engaging in a number of potential relationships, you need to be sure that you engage with companies that earn your respect and bring significant value to your potential relationship.  

Always Negotiation in “Good Faith”

Negotiation is an art.  It also can ultimately be the downfall in contract discussions.  From the beginning of contract negotiations, both parties must enter in to all associated discussions in “good faith”.  This means that both parties must be negotiating to develop a mutually beneficial relationship, in which in the end both parties will ultimately benefit as a result of the relationship.  This necessity to negotiate in good faith will bring both parties to the table weighing not only the benefits of entering into such a relationship, but the downside of not securing a relationship. These “good faith” negotiations should not be clouded by jockeying for an advantage, misrepresenting the truth, or unfair legal contracts. No, negotiating in “good faith” is exactly what it means – negotiating with a potential partner such that both parties will ultimately benefit from the final relationship.  By negotiating in good faith, you will gain the respect of your partners and ultimately end up with a stronger contract and relationship.

Contact negotiations can be a long and arduous task.  All start-up companies that seek to enter in to a mutually beneficial relationship with a third party will need to enter in to contract negotiations with this same third party.  To help the process along, run smoothly, and in the end ultimately be successful, during negotiations, both parties need to be honest, respectful and negotiate in “good faith”.  By taking this approach to all of your contract negotiations you will ultimately end up with a much stronger relationship and a contract that is mutually beneficial to both parties.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

May 24, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment

Three Things to Consider When Developing a Successful Strategic Partnership for Your Start-up Company

Strategic partnerships can be extremely beneficial and profitable for both large and small companies.  In addition, for start-up companies, a well conceived and executed strategic partnership can be the difference between ultimate success and probable failure in the market place.  Accordingly, strategic partnerships are invaluable to start-up companies as most if not all of these same companies are resource limited.  This can affect many of the necessary requirements for success in the market, including their product offering, go to market strategy, availability of development resources, as well as their ability to establish a market presence and create market traction.  As such, a well conceived and executed strategic partnership can create significant value for your start-up company. It can also provide high levels of value for your strategic partner, large or small.  To develop a successful strategic partnership, as a start-up company you need to consider three things, including:

  • Does your strategic partnership help to complete your product offering?
  • Does your strategic partnership enhance the value proposition to your customers?
  • Is your strategic partnership a “win-win” for both parties?

If you answered “yes” to these three questions, you are well on your way to a valuable and successful strategic partnership.  On the other hand, if you answered “no” to any of the above questions, you should reconsider entering into this strategic relationship, as it most likely will not ultimately provide your start-up company with the necessary success you desire in the market.

Does your Strategic Partnership Help to Complete Your Product Offering?

As a start-up company, more often than not you do not have all of the necessary resources to develop the complete product offering you desire to bring to the market.  Accordingly, you will need to look for potential strategic partners to help complete your product offering.  A simple example of this would be a strategic partner that offers “protocol stack” software to complete your start-up company’s “chipset” hardware product offering.  More often than not, the cost of developing a protocol stack can be significant to a chipset hardware vendor. On the other hand, in order to have a “complete” product offering in the market, your start-up company requires a proven, bug-free protocol stack that will allow your customers to drop the chipset in to the end product application design.  The value of providing a complete “protocol stack/chipset” offering to your end customers can differentiate your product offering in the market and at the same time accelerate your end customers development time and allow them to get their end-product(s) to market much faster.  Therefore, as exemplified here, looking to identify a strategic partner to help “complete” your product offering can provide your start-up company a significant competitive advantage in the market.  It also significantly reduces your time to market and overall development costs.  So, as a start-up company looking to identify potential strategic partners that can help “complete” your product offering can provide you with s significant short- and long-term advantage in the market place.

Does Your Strategic Partnership Enhance Your Value Proposition?

One item to step back and consider before you enter into a strategic partnership, with any company, large or small, is the ability for the strategic partnership to enhance your start-up company’s value proposition to your customers and the end market.  Often, when considering your start-up company’s value proposition, it is best to be honest with yourself and put yourself in your customers’ shoes to better understand the reason(s) they would consider buying your technology product or service offering.  If your “value position” is not significant enough, potential customers will pass on your product offing, leaving your start-up company with the inability to secure traction in the market.  On the other hand, if you can identify a strategic partnership that can not only change your start-up company’s value proposition, but also enhances it to increase its overall attractiveness to your customer base, you have increased the value to your end customers and at the same time enhanced your ability to secure market traction.  So, when considering a strategic partnership only consider those strategic partners that can enhance your start-up company’s value proposition. This will provide significant value to your start-up company and to your target customer base and at the same time also ensure higher levels of success in the market place.

Is Your Strategic Partnership a Win-Win for Both Partners?

Finally, a strategic partnership needs to be a “win-win” for both parties.  If not, one party will feel slighted; that is they are bringing more value to the relationship than they are receiving in return for their contribution to the strategic partnership.  As an entrepreneur of a start-up company you need to go into any potential strategic partnership with your eyes wide open.  As such, you need to work to construct a strategic partnership that provides “significant” and “fair” value to both parties according to their contribution to the end product being offered to the market.  If you do not do this, your strategic partner will not see the relationship as fair and ultimately not provide their full effort to make it a successful partnership.  This type of strategic relationship is “doomed” from the beginning, and will ultimately cost you more in time and energy to manage the strategic relationship than you will actually get out of it.  Therefore, it is very important that you initially construct a strategic partnership that is fair upfront to both parties and creates a win-win atmosphere in both perception and reality.  This will provide you with short- and long-term success in the market.

Successful strategic partnerships can be the life-blood for start-up companies.  With limited resources, these same start-ups often need to look outside of their companies to create and bring a successful technology, product or service offerings in the market.  To create a valuable strategic partnership start-up companies must identify a potential strategic partner that can help to complete their product offering, enhance their value proposition to their customer base, and creates a win-win for both partners.  If you are successful in accomplishing this, your start-up company will substantially enhance their potential for success in the market both in the short- and long-term.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

May 17, 2010 Posted by | Venture Capital | , , , , | Leave a comment

Entrepreneurs, Lower Investors’ Risk by Validating your Start-up Company’s Business Proposition

By their very nature, early stage company investors are risk adverse.  Seldom do they invest on a whim.  Generally, sophisticated investors take up to six months to do their due diligence when considering a potential investment opportunity. Angel groups also have a similar due diligence process, but it is often shorter, on the order of two to three months. The point of this due diligence process is to identify any potential investment risks so that these same investors can be assured, to the best of their ability that they are investing in a start-up company that can provide a substantial return on investment to their at risk monies.  That being said, it is impossible to eliminate all potential investment risk for any start-up investment opportunity. On the other hand, entrepreneurs can help minimize the effects of the risk adverse nature of their potential investors by validating their business proposition in the market place. This is best accomplished by doing your research, talking with customers, and validating your business model with your competitors. By doing such, entrepreneurs can lower their investment risk and at the same time make their start-up company and its investment opportunity more attractive to their potential investors.

Do Your Research

All entrepreneurs want to begin writing their business plans on day one.  This is a big mistake, especially when you are trying to lower your potential investment risk and at the same time validate your business proposition.  As such, spending the time doing the necessary primary research to validate your business model is the first and most important step to creating investor-focused business plan.  Why, because many times your first impressions regarding your start-up company’s business proposition can be improved upon, based on this same primary market research.  That is, what you first believe is a strong business proposition, can often be substantially improved upon and presented in a much stronger light, once you have taken the time to do your market research by analyzing the markets, your competitors, the general trends, and subsequently developing a go to market strategy.  Therefore, it is important to take the appropriate time up front to do the necessary research to validate your start-up company’s business proposition. This will make your technology, product or service offering much stronger and at that same time provide you with the necessary background information to properly defend your business proposition to your potential investors.

Talk to Your Customers

The best way to validate your business proposition is to talk to your customers. This step is often over looked by entrepreneurs.  These same entrepreneurs generally believe they “know best” and that customer will buy their technology, product or service offering sight unseen.  That is, in many cases entrepreneurs do not believe that they need to take the time to validate their business proposition by talking to their customers.  This again is a big mistake.  Why, because if your customers do not like your product offering or do not see the value of your business proposition in the same light as you do, you will never be able gain market traction and bring a successful technology, product or service offering to the market.  This is not really a surprise to most entrepreneurs, but being in a hurry to secure funding, they often skip this step in validating their business proposition.  This will come back to bite you, as some of the first questions from investors will be: “What customers have you talk with? Who is interested in purchasing your technology, product or service offering?”   If you have not talked with your customers, before they consider investing in your start-up company, your potential investors will require you to do so.  Therefore, take the time and make the effort to talk with your customers early to validate your business proposition, it will serve you well when engaging with potential investors.

Validate Your Business Model

Finally, being money managers, venture capitalists will want you to have validated your business model against your competitors’ to see what is substantially different, and where your business proposition provides your start-up company with a long-term, competitive advantage in the market.  At the same time, these same investors want to know how and why customers are going to buy your technology, product or service offering. Therefore, as an entrepreneur, you need to validate your business model in the market and against your competitors.  Seldom are start-up company’s business models unique in the market.  Generally, there is always a competitor or similar business model in a non-related industry that start-up companies model their business proposition upon.  As such, investors want to know this and at the same time be assured that your business model has had a history of success either in your targeted market or in other markets with similar product offerings.  So take the time to validate your business model. This will not only help you assure success in the market it will instill confidence with your potential investors.

Early stage investors are risk adverse by their very nature. They have to be, because investing in start-up companies is very risky.  To lower the investment risk for your potential investors you need to take the time to validate your start-up company’s business proposition to the market place. To properly do this you need to: do your research, talk to your customers and validate your business model. By doing this you will not only arm yourself with the proper information when presenting your business proposition and investment opportunity to your potential investors, you will also instill self confidence and confidence with your investors.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

May 10, 2010 Posted by | Venture Capital | , , , , , , , , , , | 1 Comment

Entrepreneurs, You Need to Get the Attention of Your Investors within the First Three Slides to Secure Funding

When meeting potential investors for the first time entrepreneurs need to quickly secure their attention.  Although, the standard thinking is that you have an hour, with 20 minutes to present and 40 minutes of questions, you really only have a few minutes to secure their attention and hold their interest. As such, if you do not secure your potential investors attention within the first three slides of your presentation, you will not secure funding.  Why, because like with any presentation, especially in the case of potential investors, if you do not secure their attention quickly, you risk the likely hood of turning them off completely to your investment opportunity.  So, as an entrepreneur looking to secure funding from third party investors, you only have three slides and a few minutes to secure their interest.  This includes, defining the opportunity, describing the problem and outlining your solution.  If done appropriately and succinctly, you will secure your potential investors’ attention for the next hour.  If not, your investors will turn off and move on to thinking about other potential investment opportunities.  So remember, you need to secure the full attention of your potential investors very quickly, or you risk the losing them and your ability to securing funding altogether.

Define the Opportunity

When presenting to investors, you first need to define the opportunity to be able to get your investors’ attention and their “buy-in” that your target customers will buy and use your technology, product or service offering.  This means you only have one to two minutes to sell the opportunity to your potential investors.  With the complexity of many product offerings, you need to focus on “tugging on the emotion” of your potential investors.  How would the customer use your technology, product or service offering?  This can often best be described with an example application.   This approach will get your investors attention, as they will be able to see how customers can use your technology, product or service offering.  As such, you are ultimately describing the end market application through the customers’ eyes.  This approach will allow your potential investors to empathize with the customer and better understand both the application and the opportunity that exists for your technology, product or service offering.  By creating the ability for your potential investors to understand investment opportunity through your end customers’ eyes, you quickly be able to create a lasting, positive impression in the minds of your investors, securing their interest to continue listening to your investment opportunity with intrigue and interest. 

Describe the Problem

Once you have defined the investment opportunity in the minds of your potential investors, you need to succinctly describe the problem. The “problem” is the opportunistic need you are solving with your technology, product or service offering. This problem description again needs to be clear in the minds of your potential investors. As such, they need to believe that you are serving an appropriate strategic opportunistic need in the market. So, take the time up front to properly describe the problem in terms that all potential investors can understand.  This will move these same third party investors one step closer to understanding the investment opportunity and again provide them one more time to see the investment opportunity from the “market needs” side of the equation and not from the technology, product or service “provider’s side” of the equation.  By being able to quickly and properly describe the problem from a “market needs” approach you will again be standing in the shoes of your potential investors and answering their questions – and at the same time allowing them to come to your conclusions on their own. This is the “best” way to approach investors from a “problem definition” point of view.  If they believe there exists a problem in the market, then they are more likely to believe in your solution.  Now, you are 80% there in securing their interest in you, your start-up company, and its technology, product or service offering.

Outline Your Solution

Finally, as an entrepreneur, describing your potential investment opportunity, you need to outline your solution to the problem you just portrayed.  This description needs to not only succinctly outline your solution, but it needs to outline the benefits of your solution in the market over any and all other solutions in the market.  Remember you are trying to quickly secure the interest in your technology, product or service offering from your potential investors, so they need to be able to quickly understand, in their minds, your solution and the competitive advantages it offers in the market.  So, as an entrepreneur you need to not only outline your solution, but you need to appropriately describe all of its competitive advantages and associated utility to the consumer or end user.  By doing this, you are making sure that your potential investors again come to the same conclusions that you have, and that they believe your start-up company offers a solution that provides a long term competitive advantage in the market.  So, properly outline your solution to your investors, as once you convince them that you offer “the solution” for the “problem” you are solving, all follow-on information provided during your presentation is now just back up support materials to justify the potential investment opportunity.

As an entrepreneur, typically you have an hour to present in front of sophisticated investors (e.g., venture capitalists).  This generally consists of a twenty minute entrepreneurial presentation and forty minutes of questions from these same potential investors. In reality, though, you only really have a few minutes to secure potential investors’ attention. To properly do so, you actually need to get their attention within the first three slides of your presentation by defining the opportunity, describing the problem, and outlining your solution.  If done properly and succinctly, you will secure their attention and the interest of your potential investors.  If not, your investors will “turn off” and move on to thinking about other investment opportunities.  So, as an entrepreneur, remember, you have need to secure the full attention of your investors quickly, or you risk the losing them and your ability to securing any funding from potential investors altogether.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

May 3, 2010 Posted by | Competition, Customers, Execution, start-up, Venture Capital, Venture Funding | , , , , , , , , , | Leave a comment