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Describing
Intellectual Property in Your Business
Plan
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by:
Dave Lavinsky
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Most companies that are worthy of raising
venture capital have proprietary Intellectual Property (IP). In fact,
the quality of the IP and the management team are often the two most
important aspects of a venture capitalist’s investment decision. The
challenge that many ventures face, however, is that most investors will
not sign non-disclosure agreements (NDAs), and NDAs are critical to
maintaining the proprietary nature of the IP. This article details the
appropriate strategy for addressing proprietary IP in your business
plan in order to attract investor attention while retaining the
confidentiality of your inventions.
Focus on the Benefits of and Applications of the IP: The business plan
should not discuss the confidential aspects of the IP. Rather, the plan
should discuss the benefits of the IP. Remember that even the most
amazing of technologies will not excite investors unless it has
tangible benefits to customers.
The business plan first needs to discuss the products and services into
which the IP will be integrated. It then must detail the benefits that
these products and services have to customers and differentiate them
from competitive products. When applicable, it is helpful to include
non-confidential drawings and backup materials of the products and
services in the Appendix.
Focus on Customer Needs and the Relevant Market Size: The business plan
must also discuss how the benefits of the IP fulfill a large customer
need. To accomplish this, the plan needs to detail customer wants and
needs and prove that the company’s offerings specifically meet these
needs.
Secondly, the plan needs to discuss the marketplace in which the IP is
offered and the size of this marketplace. Critical to this analysis is
determining the relevant market size. The relevant market size equals a
company’s sales if it were to capture 100% of its specific niche of the
market. For example, a medical device’s market size would not be the
trillion dollar healthcare market, but rather the sales of all
competing medical devices.
Focus on Competition and Competitive Differentiation: Your business
plan must also prove that your IP is better than competitive
inventions. In identifying competitors, note that listing no or few
competitors has a negative connotation. It implies that there may not
be a large enough customer need to support the company’s products
and/or services. On the other hand, should there be too many
competitors, then the market may be too saturated to support the
profitability of a new entrant. The answer -- any company that also
serves the customer needs that you serve should be considered a
competitor.
The business plan should detail both the positive and negative aspects
of competitors’ IP and products/services and validate that your
offerings are either superior in general, or are superior in serving a
specific customer niche.
Prove that you can Execute on the Opportunity: As importantly as
proving the quality of the IP and that a vast market exists for its
applications, the business plan most prove that the company can
successfully execute on the opportunity.
The plan should detail the company’s past accomplishments, including
descriptions and dates when prior funding rounds were received,
products and services were launched, revenue milestones were reached,
key partnerships were executed, etc.
When a company is a complete start-up, and no milestones have been
accomplished, the plan should focus on past accomplishments of the
management team as an indicator of the company’s ability to execute
successfully.
Results: Getting Investors to Sign the NDA: If you are able to convince
the prospective investor that the IP is integrated into a
product/service which yields real customer benefits in a large market,
then the investor will take the quality of the invention for granted
when reviewing the plan. Later, during the due diligence process, the
investor will review the actual technology. At this point, a discussion
regarding signing an NDA would be appropriate.
About the author:
GT Business
Plans has developed over 200 business plans for clients that
have collectively raised over $750 million in financing, launched
numerous new product and service lines and gained competitive advantage
and market share. GT Business Plans is the sister site of GT Venture Capital
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