Our contributors
Abhi Naha
CCO, Cambridge Wireless
Ed Stacey
Managing Partner, IQ Capital Partners
Adrian Overall
CEO, CloudStratex
Katy Wigdahl
CEO, Speechmatics
Anil Malhotra
Founder and CMO, Bango
Richard Vellacott
CEO,BiologICTechnologies
Dan Botterill
CEO, Rio ESG
Dr Steve Marsh
Founder, CEO, CTO, GeoSpock
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‘My precious’ – what founders should know about protecting their intellectual property
In this guide, you’ll find the basics of what every founder should know about IP. And you’ll hear from fellow founders on what they wish they’d known about IP protection when they started their businesses.
As a founder, you may well regard your intellectual property (IP) as your most valuable asset. Though most founders are aware that IP is important, many don’t know how to protect it in the most commercially astute and cost-effective way possible.
This is understandable, given that the average founder is already juggling hundreds of competing responsibilities. But letting IP protection take a backseat as an earlystage start-up can cause founders serious (but avoidable) problems further down the line when it comes to scaling, fundraising, or navigating an exit.
IP is often talked about as a single, monolithic concept. That’s misleading. There’s a huge range of intellectual property rights – copyright, patents, designs, trade marks and more. They provide different types of protection for (typically) different types of assets. Founders and their teams should think strategically about the different considerations that apply to each of these.
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What do we mean by IP?
Where to start?
Asafounder,it’sagoodideatomakea checklistofwhatyouconsidertobeyourIP asearlyaspossible.You’llprobablycome upwithalistofintangibleassets,eachof whicharemostlikelyprotectablebyoneor moreintellectualpropertyrights.Youwill thenneedtodecidewhichoftheseassets aremostvaluable,whattheavailable protectionis,andwhetherthecost(ifany) ofobtainingitwillbeworththe investment.AgoodIPlawyercanhelpwith this–butwewouldsaythat,wouldn’twe?
Why do founders file patents?
The patent is often seen as the ‘king’ of IP protection –particularly among founders in the tech and life sciences sectors. In a nutshell, a patent grants the holder the right to the exclusive use of a novel and inventive product or process. In theory, once a patent is granted, the holder has the right to prevent others from commercially exploiting their patented invention. Although, it’s not always that simple for early-stage start-ups (more on this later).
Protecting their innovations from unauthorised use isn’t the only reason that founders file patent applications. In our conversation with tech founders, they told us that filing patent applications also helped them to:
• Build credibility
• Win investment
AlexNewman Partner,Mills&Reeve atMills&
• Secure tax breaks
•Exploit their IP rights for profit
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An expensive endeavour: is filing a patent application always worth it?
While many founders and their investors do see real value in obtaining patent protection, not everyone shares this mindset.
The first reason for this is the cost of the patent application process (i.e. applying for a patent and overcoming patent office objections to get some patent protection granted). This can quickly become expensive – particularly for early-stage start-ups for whom every penny matters. And of course, the outcome is highly uncertain. Although the business may believe that it has invented a ground-breaking innovation, its patentability and the scope of the monopoly sought will be heavily scrutinised by patent office examiners. By the end of the patent application process, the business may not obtain patent protection of any genuine commercial value – or at all. s, the business may not obtain patent protection of any genuine commercial value – or at all.
In addition, patents are territorial. This means they’re granted individually in different geographies, which all have their own unique rules. The application process (and associated cost) is repeated in each jurisdiction in which protection is sought, and not necessarily with the same outcome.
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The second consideration is the potential cost of enforcement. Start-ups should consider whether they’re in a financial position to enforce their patent rights if they’re infringed, and to defend their patents against a validity challenge should one arise, which almost inevitably happens when a patent owner takes enforcement action. This can be a very expensive process, and the cost exposure can create sufficient risk to make enforcement action unrealistic for many businesses. Finally, there is the cost of maintenance. Granted patents need to be renewed regularly at a cost, or they will lapse.
“I think having a patent has certainly helped the business raise venture funding. It’s helped to differentiate what we’ve done against lots of other people. Perhaps nowadays we’re seeing more of a pushback against patents in the SaaS space. But it certainly worked for us.”
Dan Botterill, CEO, Rio ESG
“There’s a lot of ambiguity, I think. We have (what we consider to be) proprietary methodology. One lawyer would agree with us, another would disagree. So, we ended up deprioritising seeking patent protection entirely. Instead, we focused on finding customers and driving profit. Has it hurt us? No. Am I paranoid about someone copying us? Yes. Has anyone? No. ”
Adrian Overall, CEO, CloudStratex
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Patents vs. trade secrets
If you decide not to file a patent application to protect your innovations, taking appropriate steps (both operationally and contractually) to maintain the confidentiality of trade secrets is a potential alternative. This will not work for all innovations. Businesses should consider whether it’s possible to release an innovation’s commercial potential while also keeping it secret. It’s a tricky balance.
It's difficult to define “trade secret” in a way that works in every context. But put simply, a trade secret is any confidential information that gives businesses a competitive advantage. Trade secrets are not filed like patent applications. There is no formal public register for them. Businesses should instead keep a record of trade secrets internally and take basic steps to protect them – like being thorough in contracting and implementing good cyber hygiene.
“Make sure you’re robust in your contracting. Otherwise, when it comes to securing investment or navigating your exit, you could face a complex period of unravelling terms.”
Katy Wigdahl, CEO, Speechmatics
“Keep a database of trade secrets from day one. Treat it just as seriously as your patent strategy. Think about who has access to the knowledge. It’s not hard to do. But amazingly most people don’t do it.”
Ed Stacey, Managing Partner, IQ Capital Partners
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What’s the right approach for your business?
There’snosimpleanswerhere,aseverybusinessisunique.Inourconversationswithfounders,weheardalotofdiffering viewsonthebenefitsofpatentsvs.tradesecrets–someofwhichmightapplytoyourindividualcircumstances.
“When you first start, you’re desperate to share your vision and your story. You need to tell enough of that to get people excited – investors, customers, suppliers, employees. But not so much that you give away any secrets. Until our patent was actually granted, we’d always have a nervous debrief after every meeting. Did we go too far? Not far enough?”
Richard Vellacott, CEO, BiologIC Technologies
“Investment is often a motivator for patents. Probably less so now, but certainly in the past, investors valued patents for reasons they couldn’t quite understand. As a start-up, being able to make the case that your technology is patentable was a good thing. And of course, when going into venture capital and series A, patents are literally valued.”
Anil Malhotra, Founder and CMO, Bango
“Often people’s understanding of patents goes back to what they studied at university. If you’re from a scientific or an engineering background, you might be more aware of them, as they’re a holy grail for the profs. There’s this idea that patents are great for the institution, even if they’re not realistically usable in any form.”
Dan Botterill, CEO, Rio ESG
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“There’s a culture of thinking that more patents are always better. But trade secrets can also be incredibly powerful. The reality is that some knowledge is better suited to patents, and some knowledge is more suited to trade secrets. But no one will tell most founders that when they’re starting out.”
Ed Stacey, Managing Partner, IQ Capital Partners
“As a computer scientist, everything you write is copyrighted. Early in my career, I did a few internships at Google, where it was just accepted that you kept trade secrets. They never patented their search algorithm. On reflection, I wish we’d taken this route when forming our own company.”
Dr Steve Marsh, Founder, CEO, CTO, GeoSpock
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The importance of brand
If we asked you to name three industry-defining patents, would you be able to? Probably not. But if you had to do the same for brands, you could probably come up with a list longer than your arm. Securing exclusive rights to the use of your brand name in your field is one of the most important steps you can take to protect your IP as an early-stage startup. So, remember to think about brand as a highly valuable component of your intellectual property.
“One area of IP protection that’s super important is trade marks. It demonstrates that you’ve thought about how you can stand out, and how to protect that. Often, people think it’s all about the patent. But that’s not true.”
DanBotterill,CEO,RioESG
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Securing ROI from IP protection
We know ROI (return on investment) is a top priority for every activity in early-stage start-ups. And IP protection is no exception. Here are some commercial considerations to bear in mind:
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Decide what you can afford to enforce and defend
It’s crucial for start-ups to look beyond the initial cost of protecting their IP in the form of filing patents or trade marks. What if someone infringes your IP, or you’re hit with a validity challenge? Enforcing your IP, and maintaining it in the context of a validity challenge, can be costly and time-consuming. So, make sure you consider this before starting your IP protection journey.
Don’t lose sight of what’s important
This is particularly true for patents. When businesses first file a patent, most aim for wideranging protection for their invention. But as the process continues, this often becomes significantly narrower. The narrower protection you receive may not even contain the important elements you wanted to protect in the first place. Make sure you don’t lose sight of this –and be prepared to cut your losses early if it doesn’t work out.
Makethemostofexploiting yourIP
As you set out an IP protection strategy, think about how you might want to exploit your intellectual property in the future. Many businesses do this either through licensing or by transferring ownership of their IP rights (essentially selling their IP completely).
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“Start-ups often can’t afford to defend their patents. Getting a validity challenge can be a nightmare, as it can prevent founders from getting further investment. So, patents can be a significant liability as much as investors can also find them attractive.”
Ed Stacey, Managing Partner, IQ Capital Partners
“I don’t think mature conversations about IP are had enough with earlystage start-ups. If you file patents, you’ll need to wait five to seven years, and deploy a lot of personal time and capital to pursue them. And you might not even end up with a valuable level of protection.”
Dr Steve Marsh, Founder, CEO, CTO, GeoSpock
The bottom line
• IP isn’t a monolithic entity – ensure you understand the various forms and how each relates to, and has the potential to protect, your intangible assets.
• Don’t forget to protect your brand – this can be just as important as protecting your technical inventions.
• Think about all the costs of application, enforcement, and maintenance before going down the patent route.
• Above all, make sure you’ve got your house in order first through smart operational management, record-keeping and robust contracting. Then, a lot of IP protection should take care of itself.
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‘Show me the money’ –mastering the art of scaling (and finding the funds to do it)
Moving from start-up to scale-up mode can be a tough adjustment. When do you push the ‘scale’ button? Should you seek external funding, or continue to bootstrap? And if you do look for external investment, how do you know which investors are the right fit?
With a multitude of competing factors to manage, it’s no surprise that many start-ups experience growing pains when scaling. So, we asked our group of founders and investors for their top tips for managing the notoriously tricky transition.
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Adjusting your mindset from start-up to scale-up:
“In seed stage, it’s really about exploring markets and products. Before you go into scaling, you need to be sure that you have a product-market fit in a big enough market to make it worthwhile. Founders often fail to test their hypotheses before scaling. Doing this in the seed stage is crucial. Because at the scaling stage everything becomes about efficiency, flexibility and bringing people on board who have done it before.”
Ed Stacey, Managing Partner, IQ Capital Partners
Deciding when to start scaling:
“Start-ups can make the mistake of funding activity, not productivity or value creation. For me, the point at which you hit the scale button should be once you’ve proved you’ve got a productive model, not before.”
Richard Vellacott, CEO, BiologIC Technologies
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Bootstrapping vs. seeking external investment
This is no doubt one of the most contested questions in entrepreneurship. Should founders go it alone, or bring in external investment to support their business goals?
Clearly, for DeepTech businesses with five-to-seven-year development cycles, seeking external funding is a necessity rather than a choice. But many tech businesses (particularly in the SaaS space) have a comparatively quick time to market – and therefore revenue. For these businesses, the decision to seek external funding isn’t always so clear-cut.
Weighing up the benefits
Bootstrapping
• Retaining full control of your business and vision
• Avoiding dilution
• Minimising debt
Fundraising
•Supercharging growth
•Outpacing competitors
• Benefitting from investors’ advice and experience
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Still undecided?
Here are some questions all founders should ponder when deciding whether to seek external investment.
Have you got tunnel vision pursuing a single goal?
“Ask yourself, can I make the money quicker from going after customers, or going after investors?”
Richard Vellacott, CEO, BiologIC Technologies
Do you want to apply for innovation grants?
“Remember, if you’ve spent over half the VC money you’ve had invested into you, you’re not eligible for certain grants anymore. No one tells you that.”
Dr Steve Marsh, Founder, CEO, CTO, GeoSpock
How do you feel about relinquishing some control over your business?
“Yes, I’m a bit of a control freak. But I’m proud of the fact that we don’t owe a penny to anyone. And we don’t have to answer to any impatient investors.”
Adrian Overall, CEO, CloudStratex
Do you need to move quickly?
“The reason we decided to do series B funding was to enable us to move faster. We were starting to see more traction and closing some significant contracts. But we’re in a super competitive space and needed to accelerate.”
Katy Wigdahl, CEO, Speechmatics
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The perfect match? What to look for in an investor
There’s a lot of conversation around what start-ups can do to attract investment. But this is a two-way street, and founders should be confident that the investors they bring on board are the right fit – whether they’re a VC, private equity or angel investor.
Different types of investors tend to have unique traits that they bring to the table. Here are some top tips for finding the right fit.
1. Look for investors who are in it for the long haul
“As an early-stage founder, you quickly realise that what you need are strategic investors who are going to be with you on your entire journey.”
Abhi Naha, CCO, Cambridge Wireless
2. Gauge whether they share your passion for your product
“I’m always turned off when an investor doesn’t want to understand the product. You want to get to a term sheet without actually looking inside our platform? No thank you.”
Dan Botterill, CEO, Rio ESG
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3. Look for investors’ value-add
“Really good VCs keep you mindful of the market and how it’s changing. Where’s the next wave of market leadership coming from? And how can you ensure your business remains relevant?”
Anil Malhotra, Founder and CMO, Bango
4. Do your background research
“Be very careful that the investor you’re talking to has experience in your space. This requires a little bit of research. Yes, they might be curious about your business. But is this investor realistically going to commit? It can be easy for founders to waste a lot of time talking to investors who are simply trying to educate themselves.”
Ed Stacey, Managing Partner, IQ Capital Partners
5. Look for investors willing to embrace exploration
“Instead of having an honest conversation about the various routes their business could take, founders feel obliged to come up with a plan that has a ridiculous level of certainty embedded into it. It would clearly be much more beneficial to have an honest conversation about the founder’s hypothesis and potential other use cases too. But many investors aren’t willing to do this.”
Ed Stacey, Managing Partner, IQ Capital Partners
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Legal insight
Intheearlydays,unlessyou’rea businessinadarlingsectortrailed tobethenextunicorn,survivalis aboutbootstrappingandcapital efficiency.Alongsideraisingequity finance,supplementthiswithcapital raisedfromnon-dilutingsources–grantfunding,R&Dtaxcreditsand, ofcourse,customerrevenue.
When fundraising, consider whether your investors are looking for tax relief (SEIS, EIS or VCT). If so, your funding round must enable them to secure this. You’ll need experienced advisors on board to help. Investments under these regimes have numerous bear traps, and it’s all too easy to fall into one.
You don’t need us to tell you that failing to secure SEIS or EIS relief won’t help your investor relationships!
And the risk of losing VCT relief is even higher, causing the entire VCT fund to lose its status with the liability pushed onto your company. Once the funding round has closed, bring your investors into the fold. Have honest and frank conversations with them and keep them informed and engaged with the business. If investors and the management team develop a strong trust relationship, it’s likely that your investors will back you even if things don’t go to plan
like if the business needs to pivot or if market conditions deteriorate.
ZickieLim Partnerandheadof venturecapital investments, Mills&Reeve
Tax relief – what do all the acronyms mean?
SEIS – Seed Enterprise Investment Relief
EIS – Enterprise Investment Relief
VCT – Venture Capital Trusts
The purpose of all the above is to encourage investment in UK unquoted (which includes AIM listed) trading companies by offering generous tax relief to investors.
The income and capital gains tax benefits are attractive, but considerable care is needed to obtain them and a range of conditions must be fulfilled by both the company issuing the shares and the investor.
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The bottom line
• Scaling requires founders to adopt a new mindset that prioritises efficiency and flexibility – failing to adapt can prove fatal.
Have more questions?
Let’s talk
• Make sure you’ve found a robust product-market fit before scaling – the best way to do this is through exploration.
• Seeking external investment isn’t the right route for everyone – but it can prove transformational.
• Remember, investors can offer much more than just a cheque – look for an investor who’s the right strategic fit.
Our legal experts have decades of experience supporting tech founders –from start-up to scale-up and beyond. We take the time to understand your business, your sector and most importantly, your culture. If you have further questions about anything discussed in this eBook, get in touch.
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Douglas McDonald - (he/him)
Partner and head of technology, Mills & Reeve
Douglas.McDonald@mills-reeve.com
+441223222586
Alex Newman - (he/him) Partner, Mills & Reeve
Alex.Newman@mills-reeve.com
+441133888454
+447884814186
Zickie Lim - (she/her)
Partner and head of venture capital investments, Mills & Reeve
Zickie.Lim@mills-reeve.com
+441223222482
+447918696303
Media enquiries
Rob Neal - (he/him)
Head of communications, Mills & Reeve
Rob.Neal@mills-reeve.com
+441223222295
+447875374966
About Mills & Reeve
Mills & Reeve is a leading UK law firm centred on achieving more for clients, their businesses and the wider communities we serve.
Our clients and their industries benefit from our knowledge and learning – on everything from wellbeing, diversity and inclusion to global trends. The wider community benefits from a focus on sustainability in client and business decisions.
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Our 1,100 plus people and over 600 lawyers share one vision –achieving more for clients.
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