Patently Strategic - Patent Strategy for Startups
Patently Strategic - Patent Strategy for Startups
What Investors Want in Patents with Sridhar Iyengar
What do investors want to see in patents? What do patents tell a potential investor about a founder? And what do investors wish inventors knew before coming to them?
To answer these questions and more, we're joined this month by Dr. Sridhar Iyengar, an angel investor and accomplished serial entrepreneur in the medical devices and wearables space. Having been on both sides of the table, Dr. Iyengar's unique insights provide a comprehensive understanding of the essential role that patents can play in securing funding and in your company's long term success.
Sridhar and I are also joined today by:
⦿ Dr. Ashley Sloat, President and Director of Patent Strategy at Aurora
⦿ Dr. Sophia Li, Patent Strategy Fellow at Aurora
** RISE Award **
We’re now accepting applications for the 4th Annual RISE Award! For the selected applicant, we will work closely with you and your team of inventors to provide one of the following:
⦿ A free provisional U.S. patent application or
⦿ $5,000 towards a non-provisional U.S. patent application.
Apply now: https://www.aurorapatents.com/rise-up-with-aurora.html
** Resources **
⦿ Show Notes: https://www.aurorapatents.com/blog/what-investors-want-in-patents-with-sridhar-iyengar
** Follow Aurora Consulting **
⦿ Home: https://www.aurorapatents.com/
⦿ Twitter: https://twitter.com/AuroraPatents
⦿ LinkedIn: https://www.linkedin.com/company/aurora-cg/
⦿ Facebook: https://www.facebook.com/aurorapatents/
⦿ Instagram: https://www.instagram.com/aurorapatents/
And as always, thanks for listening!
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Note: The contents of this podcast do not constitute legal advice.
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Good day
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and welcome to the
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Patently Strategic Podcast, where we discuss all.
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Things at the intersection of business, technology and patents.
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This podcast is a monthly discussion amongst experts in the field of patenting.
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It is for inventors, founders and I P professionals alike, established or aspiring.
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And in today's episode, we're taking a look at what investors want in patents.
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Patents can have many audiences, and folks from our industry tend to focus most on the Patent office and the courts.
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But for inventors, they often care more initially anyway, about investors.
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And investors are going to look at patents in a very different way than an examiner or a judge would.
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That's the perspective we're hoping to offer in this episode.
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What do investors want in patents? And what do investors wish inventors knew before coming to them? This is a topic domain.
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We've gained a fair amount of insight into having worked with many startups at various stages of finance and funding rounds.
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Rather than pulling from that and filtering with any sort of bias that may come from a practitioner's point of view, we've decided to turn to the experts.
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So you can hear this straight from the source, directly from the perspective of accomplished investors.
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One of my favorite podcasts for a long time was Masters of Scale.
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It features intimate interviews with so many of the greats who have done it, and with the insights from their successes and failures comes quite literally billions of dollars of free advice.
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It's hard to imagine the magnitude of the positive impact that's had for startups in tech.
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It's in that spirit that we take on this topic.
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Innovation is best when it's efficient, and one of the best ways to be more efficient is to not make all of your own mistakes and instead benefit from the hardearned wisdom of others.
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Inventors are served by being armed with insights from investors before speaking with investors.
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And investors are best served when approached by inventors who are prepared and have a more strategic understanding around the role that their IP, and particularly patents, can play in their overall business strategy.
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This is a big topic with many.
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Different angles, so we plan on this being a regular format that we come back to from time to time.
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But I couldn't be more excited about this first installment.
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Our guest today brings the unique perspective of both inventor and investor.
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We're thrilled to be joined by Sridhar Iyengar.
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Sridhar is the CEO of Elemental Machines, makers of smart IoT products for the life sciences industry.
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Sridhar has a long history as a serial entrepreneur in the world of connected medical devices and wearables.
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His first company, AgaMatrix , a blood glucose monitoring company, made the world's first ever medical device to directly connect to the iPhone.
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Under his leadership, AgaMatrix achieved remarkable growth, securing FDA clearance for over 15 medical products, forming strategic partnerships with industry heavyweights such as Apple, Sanofi and Walgreens, and shipping 2 billion biosensors and 6 million glucose meters.
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For his second act, Sridhar teamed up with John Scully, former CEO of Apple and Pepsi, to create Misfit Company, known for creating sleek and stylish wearable products.
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Misfit was acquired by Fossil in 2015 for $260,000,000.
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Sridhar holds over 150 US and international patents and received his PhD from Cambridge University as a Marshall Scholar in addition to his work as a prolific inventor and founder.
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Because who needs sleep? Sridhar is also an angel investor who has invested in over 50 startups and venture funds with an inclination towards science based ventures.
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Sridhar and I are also joined today by Dr.
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Ashley Sloat, president and Director of Patent Strategy here at Aurora and Dr.
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Sophia Lee, Patent Strategy fellow at Aurora.
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Before taking you into our discussion, we do have one exciting announcement to make.
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First, every year since the start of the Pandemic, aurora has offered something we call the Rise Award, or Recognition for innovative startup excellence.
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And starting now, we're officially accepting applications for its fourth annual installment.
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For the selected applicant, we will work closely with you and your team of inventors to provide one of the following a free provisional US patent application or $5,000 towards a non provisional US.
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Patent application.
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The only requirement is that you must have an impactful innovation that you want to share with the world.
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We welcome applicants from all subject matter areas and Zip codes.
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Past recipients include solo inventors, college based teams, as well as more established startups.
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Eligible applications will be reviewed by an internal panel based on equal weighting of technology, maturity, market relevance, economic impact, and societal impact.
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Winners will be announced this summer.
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If you'd like to learn more about the history of this award and some of its past winners, I recommend listening to our Inventor Stories episode from season two.
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To apply, please visit Rise Up with Aurora.com.
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We'll also have this link in the show notes.
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Now, without further ado, here's our conversation with Sridhar Iyengar.
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You've seen this from all relevant angles inventor, founder, and investor.
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So I can't think of a better background for this conversation.
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On behalf of the many who are going to benefit from your hardearned insights, thanks for taking the time and joining us today.
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Sure, thanks for having me out.
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It's a pleasure and honor to be here.
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So, first question, and we say this all the time, but patents aren't right for every situation.
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Who should and who shouldn't be pursuing patent protection? So it's interesting because I've seen the value, or lack of value as well, of patents across three very different industries.
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So the medical device industry, the consumer products industry, and now the enterprise b two b SaaS industry that I'm doing now with my current company.
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And it's interesting because the value of patents and I should say more broadly, value of intellectual property.
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And and just to be clear, in my mind, patents are one part of intellectual property along with trademarks, copyrights, trade secrets, and so on and so forth.
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It really depends on the market and what your competition is like and also what is the basis for the moat you are trying to build.
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If the basis of the moat is something that is scientific or technologically very difficult, then patents could be a very good strategy if the moat you're trying to build is something else.
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For example, many, many times in pure software businesses, the moat is just building a great UI, getting a lot of users and running really fast.
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And there, it's a very marketing oriented moat.
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And there's other, especially in consumer products, it's really good design.
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And in that case, trademarks and copyrights and design patents might be better.
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But the bulk of the work that I've done historically in my career has been in very science driven industries and in my investing side have a propensity to really value hardcore science startups.
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So in a roundabout way, the way that I would answer that is it depends on a number of factors.
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And if the moat you're trying to build is actually around scientific invention, discovery and all that, then patents are almost a must have.
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It's very hard to keep all of that as trade secret and still get investors on board with it.
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And they're going to get skittish.
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If you don't have a patent portfolio.
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Do you have kind of a follow up? Do you have any extra filters on that in terms of looking at things like enforceability ability to actually prove infringement, things of that nature? Yeah, and we ran into this in both of my first and second companies.
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My first company, as you mentioned, was a blood glucose monitoring company, and my second one was a fitness tracker company of consumer products.
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One rule of thumb that I have is you should really not file a patent if the thing you're trying to protect.
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If it's hard to find an infringer, if you protect, like, for example, a manufacturing process, how are you going to know if somebody's infringed that unless it's obvious from the product that's the output of that? And flip side is if you make a product and it's really, really hard for somebody to reverse engineer or figure out how you've done it, then there's no need for you to publish in a patent filing what it is you've done.
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And so really the rule of thumb is can you spot an infringer or can somebody reverse engineer you from the product or object that you're selling? If the answer is no, then I would steer away from patents.
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Because you're telling the world what you're doing behind closed doors, right? Yeah.
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That being the fundamental deal, right.
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The public disclosure, the enabling public disclosure.
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All right, so next one is just roughly, as an investor, what percentage of folks coming to you have first filed for IP before doing so? I'd say north of 90% of the companies that piqued my interest.
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Some of the early stage funds that I'm an LP, and they're almost entirely focused on deep tech or things that would benefit from patent protection.
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I do get spammed a lot with unsolicited emails and folks like hey, I made this app and hey I'm going to create this marketplace.
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Those could end up being very amazing businesses.
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But I just don't have the intuition or the level of comfort to be able to judge whether that's a good investment or not.
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But my personal interest and my personal long term belief is there's tremendous value creation that if you base a new venture on something that is fundamentally difficult and oftentimes things spun out of universities will have 510 15 years of R and D of research going into it before it gets spun out.
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And those have a very high, much better chance of being a successful venture and creating real value in this world.
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Yeah, absolutely.
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I guess if I could fuse those two answers, the last two answers together, then it's not necessarily a requirement for somebody to have filed for IP before coming and talking to you, but it's common and oftentimes preferable depending on the case.
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Yeah, and I have one investment.
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Actually my most successful investment to date that I made almost ten years ago was a, I'll tell you who the company is, you'll know who it is in a minute.
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They came to me and they had absolutely no IP filed.
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It was not a technology company.
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Their whole differentiator was going to be ease of use and good packaging.
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Like literally good packaging design.
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That was the thing.
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And I'm sitting there going, I totally get the problem.
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I've experienced, I know the problem space.
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I'm like, it's a great solution, there's absolutely no moat and your differentiator is better packaging.
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So I finally understood what their moat was and it was not IP, it was operations.
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And I won't get into all the details of that, but they had three years ahead start on everyone.
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And that company got bought by Amazon for a billion dollars.
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And that company was pill pack.
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And today that is Amazon Pharmacy.
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It took me a while to figure out what their moat was.
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And it wasn't IP and it wasn't a technology company.
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It was a fact that one of the founders TJ his father's family business was in the online with mail order pharmacy.
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So they had all the automation, infrastructure, capital, everything was already there.
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He was just going to be the marketing front end, the customer acquisition front end.
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But the other thing was, because he was leveraging his father's family business, they already had all the paperwork and permits to distribute pharmaceuticals, drugs in all 50 states.
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Those two things alone, they're at least three years ahead of anyone else.
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And it wasn't a first to market idea.
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I think Walgreens and CVS had a very, very similar thing where they, they packaged pills, individual package, tell them what time to take it.
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But we knew that that was not going to be an issue because folks like Walgreens and CVS, they want people to come in, they don't want to be sending pills out.
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So there was a conflict of interest over there.
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And so it was my first unicorn exit.
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So it was great.
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And again, there's a great example of where they had absolutely no IP and yet they created tremendous amounts of value.
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Yeah.
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In terms of the deal on that, then they really were, from an acquisition perspective, really purchasing the know how in that infrastructure from Amazon's perspective.
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Right.
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Because you typically think of MNA as purchasing IP, right.
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So that company can then go and do the thing or stop the process.
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And so in this case, the purchase was really about that infrastructure, the operations, the licensing that they had across 50 states.
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Yeah, it was all that plus I'd add in the customer base.
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So for them, I wasn't obviously not involved at all on the deal side of this.
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I was just an angel investor.
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But if I had to look at the logic behind it, it was a buy versus built.
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How can Amazon get into the pharmacy and healthcare business quickly? It's by acquiring somebody who's already derisked.
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It had the operations in place and had the customer base and had the brand, quite honestly.
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So that's no, that's how I looked at it.
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I like that buy versus build.
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I have a question.
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Do you have another NGO investing cases where the IP is so important and vital for its success? So it's interesting.
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I'll actually say not so much an angel investing case, but actually, if I go back to my first company, Agametrix, I can tell you we had hundreds of patents filed, us and International.
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We had an interesting situation where we had a Big Pharma company.
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Actually, it's no secret it's Sanofi or Sanofi, depending on whether you're German or French.
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Sanofi was looking to potentially be our customer and take our products to market.
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But at the same time, we were also competing for that same business with one of our suppliers.
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One of our suppliers supplied as a component, but they also have their full glucose monitoring system.
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And so when you look at it, for obvious reasons, our price was going to be higher because we're buying a component from our supplier versus all that.
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And Big Pharma is notorious for being very conscious about supplier relationships, let's put it that way.
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And we ended up ultimately getting that contract.
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And actually our supplier also benefited because they ended up getting the supply through us as well.
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But one of the things that set us apart is that we had a much, much more robust IP portfolio that our supply.
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I mean, they had their own IP around their chemistry and all that, but we probably had pick a number six to seven times more patents filed than they did.
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Now what was interesting about this is the folks at Sanofi who were doing the due diligence, they're not going to be experts in our field.
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They're not going to know the ins and outs and that this claim is super strong.
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This claim doesn't make no sense.
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They're not going to do that.
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But they came at it from a macro perspective and they said, look, if we Sanofi get into the blood glucose monitoring field, it's going to raise eyebrows from Abbott, Roche, Bayer and J.
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And J.
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You know, we as I can matrix a small startup, you know, we, we cause a little bit of nuisance in the market to these folks, but you know, we were not the 800 pound gorilla.
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So Sanofi comes in, they were concerned that there would be quite a bit of attention on this and there'd be a lot of potential resistance from the other major players.
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And so for them, having a very large IP portfolio gave them confidence that if needed, there could be cross licensing opportunities and things like that.
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The bottom line, patents you file are only very rarely are you going to assert them and throw a lot of money behind suing someone.
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It's just not economically sound.
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But you get IP in place for strategic reasons, not necessarily operational reasons.
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And this was a perfect example of where, and I won't say the IP portfolio was the only thing, but it was a large factor in us securing that large partnership with Sanofi.
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So I see IP as a much more of a strategic asset than an operational asset.
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Yeah, that makes a ton of sense.
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One tie in, you're talking about the packaging component not being necessarily like a hugely strategic differentiator.
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I was just reading a post you had on Medium though, about how people choose cars based on cup holders.
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And it was the color aspect of the packaging on the competitors monitor that actually ended up being a pretty big strategic differentiator.
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So it's crazy that sometimes that stuff, even though maybe it's not the patentable aspect, can still play a huge role in the overall success.
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I'm really glad you brought this up because here's the reality versus perception versus reality.
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As an investor, you can't come and say, well, our differentiator is that we have better colors, we have more colors.
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And yet if I go back to my second company misfit, the thing that really accelerated our growth was the fact that we had different colors.
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Now and I'll tell you a little bit there's more to the story on this, but going to an investor and saying we're going to make a consumer product and our differentiator is it's going to look pretty and have multiple colors.
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How's that sound? You're not going to get investment.
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So we had to actually file IP on, we actually did some machine learning and AI work on the algorithm side on the fitness trackers to actually understand when somebody's taking steps and when they're sleeping and all that.
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But if you look at reality, for every dollar that we spent making a new color, we were able to get about $100 back in revenue within a year.
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It was like 25 $30,000 to make a new color and about two to 3 million in revenue per color.
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Because it wasn't just about the colors, and because what the colors allowed us to do is to form very, very strong brand partnerships.
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And I can't take any credit for this.
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This was all my business partner, Sonny, who's brilliant at these kinds of these marketing things.
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So, for example, Best Buy, they ended up getting two colors, blue and yellow.
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They're corporate colors, or I believe we called them Champagne and Topaz.
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Again, this is Sunny's brilliance in marketing and positioning.
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Coca Cola got red, victoria's Secret got pink, speedo got white.
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So a lot of these major brands, we gave them exclusive rights to a particular color that that resonated with their brand, and that's what really grew.
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That was a big part of our distribution and awareness through that.
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But if you go to an investor and say, well, that's what we're going to do, that doesn't seem defensible, and yet it is from an execution standpoint.
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So not from a patenting standpoint, but it is yet another barrier, another moat.
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Sure makes a lot of sense.
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So you've talked about value several times, and the value that patents can bring.
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Big part of investing is valuation.
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That valuation happens at a time, unfortunately, though, when very little is known or certain, but a patent is an asset in hand.
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How do you go about placing a value on a patent when assessing the overall valuation? So we kind of don't.
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We don't place value on the patent itself because a lot of times the patent is still pending.
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It's still an application form.
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It hasn't been granted yet.
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So, again, our sweet spot on the investing side is seed and precede.
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So at that point, unless it's come out of a university and there's a licensing arrangement in place, most of the startups we work with have a handful of patents they filed but haven't been granted.
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So it's hard to place value on the patent before it's granted.
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But what's far more interesting and far more important is their thought process around intellectual property.
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So what we end up doing is we review the patents, we look at some of the landscape, we see what are the other folks in this area doing and how are they thinking about what their core value is? Some folks say, well, here's a core invention, but it's so hard for anyone to reverse engineer or find that we're going to keep this as trade secret.
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And instead, we're going to patent all the outward facing applications that we've built on this.
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And that shows a level of sophistication whereas you have other folks that say we invented this, we found one patent on this.
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And we look at that and we say that's it kudos to them in creating something.
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But are they sophisticated in their thought process and how they're going to protect their core value? I think that's the more important thing that we focus on at this early stage.
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Now, if you go down to Series B and Series C investors, they're going to look at it very differently and say how many patents have been granted? How many times have they been cited or this or that and all that.
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But at the early angel stage and at the early seed and precede stage, it's more how are they thinking about protecting their intellectual property? That's far better indicator than the actual patent itself.
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With that, do you think then there's value? Because I know there's obviously expedited processing that companies can go through.
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Do you think for the relative cost versus value, do you think companies should be trying to do expedited processing or do you think it's not worth the juice, isn't worth the squeeze? Again, it depends on the nature of the business.
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But if there is something worth protecting, then I would say spend the extra, what is it, $1,000 to get it ahead of the queue or something like that.
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So the simple answer is yes.
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I would encourage that.
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It's not a lot of money.
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But again, if you only have $100,000 in the bank, then 1000, 2000 per patent is a lot of money.
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But I would definitely say if you have the budget and the kind of invention or a discovery you have is very scientifically novel, then spend the extra one, or thousand, $2, get accelerated so you have it when you go to investors.
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I think there was a really interesting.
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Point in there too, about a patent really kind of being a material manifestation of a company and an inventor's values versus not just what you want to hear as a particular investor with a particular angle, but it's very much a material stake in the ground around what they're prioritizing.
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It's very interesting.
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Yes, it reveals a lot about the founders and how they think about the value that they're creating.
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Are they really thinking about this strategically and deeply? Are they playing checkers? Are they playing chess? And there's all these different ways of really extracting patents sorry, extracting IP and value out of someone's invention.
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And there's all these different strategies to try and kind of put barricades around it's, kind of like an onion layer after layer after layer.
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You can keep the core as a trade secret, but then the applications, you start layering on top of that.
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So the way they think about it, I think, is far more important, at least to me.
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Absolutely.
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So can I ask two questions here? So you mentioned about university spin out, right? So most of these spin outs basically have exclusive licensing from the school of core invention, right? So it's like a new process or new engineering products.
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So in those cases, this kind of fits into the one that you mentioned of.
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They patent their core.
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So in this case, what should these people be thinking about in terms of building their IP strategy and how to align their business model with it? Again, the question for a founder or entrepreneur to think about is why do they need to protect their invention or their core value? What is it? Again, patents aren't the answer to everything.
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Oftentimes it could be branding, it could be copyrights and trademarks and all that.
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But from I think the theme in this discussion here is that how should we look at this from an investor standpoint as well? What do investors care about? And I'm going to be a little rogue here, most investors aren't going to understand a damn thing about your IP.
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And I'd like to think that I know a little bit of something about life sciences, but there's so many patents, and so many companies I come across when I try to read their patents, I'm like, kind of makes sense, logically, but I have no idea what the other 1000 patents in this field say.
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And so to actually go through and say, well, this invention is so much heads and shoulders better than everything else out there that takes weeks, if not months of diligence, and no investor is going to do that.
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And so I think a much, much better use of time is to patent what you think can be stolen through reverse engineering, or that way you can infringe what you can spot in an infringer very easily.
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But then when it comes time to pitch this to the investor, to really talk about the rest of the landscape and I think so many times I've seen a pitch deck and they talk about their invention and they talk about, oh, we're better than the other competitor because of this data set and this data set.
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This data set.
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But nobody talks about the IP landscape.
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They always talk about the data.
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Well, our data is at 85% and everyone else is at 30%.
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Okay, well, you have three patents you filed.
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Do you have freedom to operate? Have you even thought about that? And what did you have to navigate around? And who else is working in this space? They could have absolutely no data at all.
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You can invent something or discover something, and then there could be nobody else on the market that has something similar, but there could be hundreds of patents that are kind of surrounding what you're doing.
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So do you have room to expand your invention? Are you blocked? Nobody really talks about that.
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And I don't expect a first time entrepreneur to even think like that.
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But from an investor standpoint, understanding the IP landscape around your discovery is something that I rarely see in pitch decks.
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And if there's one thing that I like an entrepreneur to do yes, I get the data is great.
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Tell me about your IP in the context of your IP landscape.
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Yeah, I feel like a lot of inventors put in a competitive landscape from a product perspective correct.
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Which I get.
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But I also feel like it's a little it can be skewed.
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Right.
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Because I can focus on whatever aspects of whatever other products I want to show that we're different.
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Right.
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But the patent landscape doesn't lie.
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Right.
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Because it's the written description that's out there.
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It's what people spelled out.
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And so yeah, having that going through that thought process and really convincing yourself that there's something more there than what exists currently, at least in the landscape, I think is really important.
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Yes, 100%.
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I think it's a pretty good segue.
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And this might be a smidge redundant, but I'm going to ask it anyway, just depending on how this actually plays out post production.
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But you mentioned that not all investors are going to be particularly IP savvy.
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It's hard to be an expert in all of the subject matters, but what sort of diligence do you perform with regard to IP and how do you assess the quality of a patent? And the for instances on that are claims that are too broad and the application is going to be more vulnerable to prior art, too narrow, and can easily be designed around well crafted patents a lot more likely to hold up to the scrutiny of courts in the PTAB.
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How do you go about separating the pretenders from the contenders? So, again, one of the big challenges at early stage investing is many patents aren't granted yet.
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And so the best you can do is read through the spec and say, is the specification written in a way that allows multiple claims and multiple inventions to be drawn out? I mean, there's a pretty there's a very well trodden path where you put everything in the kitchen sink into the spec to save on filing fees, and then you break those out into different claim sets down the road.
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So it's just a way to save money.
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So one thing that I look for is, is spec written in a way that potentially different inventions are all clumped together.
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And that's something that I ask the entrepreneurs directly as well and say, hey, how have you written your patents? Do you have everything in one they can break off later? And I'd say half the folks understand that strategy and as a cost saving measure, and they do that and I'm like, great, at least you're thinking about it.
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And the other half haven't learned that yet.
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For me, reading a set of claims is not very useful because you could tweak one or two words and maybe you could work around it.
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What I end up doing is I try to match what they're pitching in terms of their.
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Data and their product and their invention and match that to how have they protected that, at least in the specification side? And then the next question is, if you didn't exist as an organization or a company or your technology or science didn't exist, what's the next best thing that's out there? You invented something and you're trying to sell this to your customers.
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If you didn't exist, what would your customers do or buy if you didn't exist? And then I'll go into a narrative about, oh, will they be doing XYZ and say, okay, well, how much better is your invention than this? And where have you show me where you've protected it? Now, that of course, takes a lot of time to do.
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So in this day and age, I don't do a lot of direct angel investing because it takes time.
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But a few years ago, that was more my approach was matching what they've written in their patents.
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If they had claims that are granted great otherwise in the spec with what they're claiming the product that are invention can actually do and see, is there some level of traceability between them now? Are there any red flags you look.
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For on the patenting side? I'd say the main red flag would be if they filed one patent, say, yes, we've patented our discovery.
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And then when you dig into it, it turns out that it's a narrow claim set or narrow invention.
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Again, going back to what I just said before, some people will say like, yeah, there's five inventions we've credited into one patent to save on filing costs, so that makes sense.
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But if somebody said, yeah, we invented this thing and we just filed one patent on it, that's all they have.
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Then you can do a little bit more digging.
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It's just a one trick pony.
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But more often than not, there'll be two or three that's filed.
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And they'll say, okay, they'll talk to me about, well, here's thing that we've discovered and we filed this part of it over here, we filed this part of it over here, this part of it we're going to file and we're still trying to put the pieces together.
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So if they can articulate the division for a portfolio, that's great.
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But if somebody says, oh, we filed a patent on it, and then you hear crickets, they're not really thinking about it strategically.
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And I have come across several folks who kind of think, oh, I just need to file a patent and I'm done.
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I'm like, not really.
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What's your patent strategy? And if they can answer, that great.
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But sometimes they ask me, what do you mean by patent strategy? And that's a little bit of a red flag.
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Yes, absolutely.
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It sounds like it from prior answers, but it does sound like you do like to see freedom to operate opinion and potentially a patentability search.
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Yeah, the patentability I'm less concerned about the freedom to operate or FTO.
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It's not a must have, because again, doing an FTO will take time and cash away from the startup.
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But you don't need an independent FTO done.
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If they themselves have done an FTO, at least they can talk about it.
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It won't be an official council generated FTO document, but at least they're aware of it.
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I mean, there's folks who are not even aware that they need to look at an FTO.
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And even just understanding what a patent is, a patent doesn't give you the right to do something.
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It it stops other people from doing it.
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And even understanding that the definition of what and what a patent is helps.
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And you'd be surprised how many first time founders and inventors don't actually understand that concept.
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So those are some, again, some additional red flags.
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We wouldn't be surprised.
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You see it all the time.
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It's a huge part of the educational things that we do on our webinars and even on this podcast is like breaking down that distinction because there's a lot of nuance, but it is huge difference.
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So this next question, this is largely an inventor education piece, so I know the answer to this question for most investors, but I think it comes as a surprise to many inventors newer to the process.
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Are you willing to sign NDAs when inventors and startups come to you with pitches? So me personally, never.
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Most of the funds that I'm an LP in, never or rarely, certainly not on the first meeting.
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Usually when people ask for that what I say or what the funds I'm involved in say is that, well, can you share something that's non confidential? And the answer is no, we have something that's so proprietary we can't share with you, then we'd say, okay, well, thanks, good luck.
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And part of the reason is, if you need an NDA at this stage to protect your invention, then what you're signaling is that once you tell somebody what it is, it's pretty easy to copy that's what you're signaling.
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Or on the flip side, on the investor side, we see so many pitch decks and all that, that if you come to us and we sign an NDA, and then two months later, we come across another pitch deck from somebody's doing something competitor, and we invest in them.
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And there's a potential risk that we've a liability that we've opened ourselves up to.
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So the simple answer is no.
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Now, that being said, you go further down.
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You go to the Series B and Series C investors, many of them will sign NDAs.
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I've had folks in my current company, I've had investors who later stage investors who without me even asking, said, can you give us access to your data room? And we'll sign an NDA.
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And then what we've done, what we did here was because we just closed the Series B, we just had the NDA as part of the login or the sign in for the data room.
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And at later stage, it's a lot more expected and accepted, mainly because you're sharing a lot of more sensitive financial information, competitive information, customer information.
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Honestly, it's not about the IP, not about the invention at that point.
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What you're protecting in an NDA is commercially sensitive information, not scientifically sensitive information.
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Makes a lot of sense.
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So there's the vetting of the portfolio, but then there's the vetting of the owners of the IP.
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And we've talked about this some for sure, but what sort of questions do you ask inventors in sort of trying to suss out their relative level of sophistication around IP? Again, at very early stage companies, I don't expect a lot of sophistication, but I expect some base level.
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One of the things we asked them, not about the IP, but just about their discovery invention, is we ask them, why is this hard? Tell us why this is really hard, and why was it hard for you to discover or invent? And why is it going to be hard for somebody else? Then we try to tie that back to say, okay, well, how have you protected that hard thing or hard things? So again, it's that traceability.
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If they say this is hard and they protected this, it's like, okay, why now? It could be that this is really hard and we're keeping a trade secret and we're protecting this over here.
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That's fine, as long as they have logic around it.
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So a large part of the evaluation early stages.
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Are you thinking about this the right way? Are you thinking about the strategy around how to protect it doesn't mean that you invented this.
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You got to protect this.
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It's what's the risk reward? What's your real value? And how are you looking at the risk of either exposing that real value to the public via patent or keeping it trade secret? And so have they thought about it? Have they thought through the risk reward? That's probably the most important thing for me I look at.
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So if we haven't covered it already, what's the one piece of IP related advice you wish you could give to every inventor before pitching to you? So this is gonna this is gonna sound kind of funny, because I it's gonna be counterintuitive to what I just said.
330
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It is generally better to have more patents than less patent headcount.
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And the reason I say that is many investors aren't going to understand the ins and outs and in depth implications of your IP.
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So if you got two companies that kind of look the same, and one's got two patents, one's got 15, there's obviously something more appealing over here.
333
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That could be that these 15 are just total nonsense patents, and these two here are the core.
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But at first glance, that helps.
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I mean, having an IP portfolio is a marketing exercise at the very, very early stages of fundraising.
336
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And I think that's something to be aware of and the fact that intellectual property is not just patents.
337
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And I think that's entrepreneurs need to realize that when they talk about their IP portfolio.
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Patents is one item out of all that.
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And if you just have two patents, but it covers ten inventions, then that's how you should write it.
340
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You should say, our IPS, these ten inventions, these five are covered by patent number one.
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These five are covered by patent number two.
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Put a table out there.
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Otherwise you got two patents and you're like, all right, that's it.
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But now you have ten inventions that you've packaged into two patents for cost purposes.
345
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But then you have trade secret secrets.
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List what your trade secrets are without giving them away.
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Things like, we have unique expertise in XYZ manufacturing technique or something like that, without saying what it is.
348
00:45:11,284 --> 00:45:16,290
Then you have trademarks, you have design sorry, utility patents and design patents.
349
00:45:17,030 --> 00:45:19,970
Then another part of intellectual property is any proprietary data.
350
00:45:20,040 --> 00:45:22,434
You have a lot of AI driven companies.
351
00:45:22,552 --> 00:45:28,278
A huge part of their secret sauce is a proprietary data set.
352
00:45:28,364 --> 00:45:35,080
So really, instead of saying your IP, we have these two patents you list at a table of 25 things.
353
00:45:35,690 --> 00:45:45,750
Here's our ten inventions, here's our two patents covering, here's trademarks, here's trade secrets, here's copyrights, if it makes sense, and here's all of our different data sets.
354
00:45:45,830 --> 00:45:56,378
So presenting that as a comprehensive intellectual property portfolio comes across as far more sophisticated than saying, here's a couple of patents we filed.
355
00:45:56,474 --> 00:46:13,454
So think about your IP portfolio as a marketing tool when you go to pitch to early stage investors, because I can tell you right now, early stage investors, because they see so many different companies, they're not going to have time to dig into the ins and outs.
356
00:46:13,502 --> 00:46:16,790
So think of it as a narrative and as a marketing exercise.
357
00:46:17,690 --> 00:46:19,800
Sure makes a lot of sense.
358
00:46:21,370 --> 00:46:34,810
So, flipping the perspective just a little bit, what IP related advice would you give to those newer to investing? Don't place too much emphasis on patents at that early stage.
359
00:46:36,910 --> 00:46:45,066
And the reason for that is, very often companies will pivot when you come in as a seed or a precede investor.
360
00:46:45,098 --> 00:47:03,214
By the time they get the Series B, they may have pivoted, but I think to sort of qualify that a little bit, it's less about what they've actually protected and far more about are the founders thinking strategically.
361
00:47:03,262 --> 00:47:10,150
And intellectual property and patenting is one of those dimensions, but there's obviously multiple dimensions.
362
00:47:10,650 --> 00:47:27,446
If it is a very scientific endeavor, like something that's being spun out of a university research, then looking at the licensing arrangements and whether or not those royalties are going to how they're structured.
363
00:47:27,558 --> 00:47:29,340
So the business implications of that.
364
00:47:30,770 --> 00:47:41,760
The other thing that you watch out for is university related patents often are not written the best.
365
00:47:45,010 --> 00:47:47,146
They're often kind of rubber stamped.
366
00:47:47,338 --> 00:47:55,646
So I know that from a previous life where we were trying to license something from a university.
367
00:47:55,678 --> 00:47:57,926
And I'm looking at that going, that's not how I would have written it.
368
00:47:57,948 --> 00:48:05,814
And the main inventor there said, yeah, the Technology Licensing Office have their own IP agent, patent agents who draft it.
369
00:48:05,852 --> 00:48:11,580
And it's just like, all right, you're not thinking about the business simplification, you're just kind of rubber stamping it.
370
00:48:11,950 --> 00:48:24,346
No, but but all joking aside, I think the biggest red flag would be a science and technology based startup that says, well, we're not filing patents.
371
00:48:24,378 --> 00:48:26,106
We want to keep everything as trade secret.
372
00:48:26,298 --> 00:48:34,510
That's a red flag because first of all, they don't understand how to play the IP game, and keeping it all is trade secret.
373
00:48:34,590 --> 00:48:39,810
Whilst, for example, the Coca Cola formula, that's a trade secret.
374
00:48:40,710 --> 00:48:48,866
But the core value in Coca Cola is not their secret formula.
375
00:48:48,898 --> 00:48:50,440
It's their marketing engine.
376
00:48:51,050 --> 00:48:53,430
That marketing and distribution logistics.
377
00:48:53,770 --> 00:48:56,866
Because look at all the other products that Coca Cola sells.
378
00:48:56,898 --> 00:49:00,860
It's not just their Coke Classic, their engine.
379
00:49:01,710 --> 00:49:05,754
The core competence is marketing logistics and all that.
380
00:49:05,872 --> 00:49:29,554
So if a founder comes to you as an investor and says, hey, working everything is trade secret because we have very unique science, how is an acquirer going to get comfort with that? Because if it's such critical trade secret, they're probably not going to reveal it in enough depth and enough detail to an acquiring company.
381
00:49:29,592 --> 00:49:47,750
So you look at the exit and say, are these really the founders that are going to play nice with an acquirer? And will I get a return on my investment on this? And so, again, having understanding the intellectual property broadly is part of your company's currency.
382
00:49:48,090 --> 00:49:52,842
You obviously have your revenue, you have your customer base, you got this, you got that, but you have your intelligent property.
383
00:49:52,896 --> 00:49:55,654
It is an asset, and they need to treat it as an asset.
384
00:49:55,702 --> 00:50:09,390
And so having that sophistication and understanding is something that I would encourage early investors to look out for and probe with potential startups.
385
00:50:09,730 --> 00:50:19,714
It's a little bit of a tell on the chess versus checkers piece, too, around not thinking about using different offensive and defensive strategies as well as just protecting the idea.
386
00:50:19,912 --> 00:50:24,370
So we get a lot of questions about IP budget management.
387
00:50:25,510 --> 00:50:30,438
Someone with over 150 patents, you've definitely seen the good, the bad, and the ugly, I'm sure.
388
00:50:30,524 --> 00:50:45,580
Do you have any preference on the use of big name brand law versus potentially smaller, more cost effective firms? And do you have any thoughts on patent agents versus attorneys closest to subject matter, that kind of stuff? Yeah.
389
00:50:49,150 --> 00:51:02,000
At my first company, AgaMatrix, we had a boutique firm, two or three attorneys, and they had very, very good domain expertise in our field.
390
00:51:02,470 --> 00:51:14,740
And so I greatly benefited working with them because they were scientifically, they knew the science of what we were doing, and they operated in this field for a long time.
391
00:51:15,290 --> 00:51:20,102
And so had very good relationship with them.
392
00:51:20,156 --> 00:51:26,600
And then when we went off to Misfit, we went with one of the big name firms, and they're absolutely fine.
393
00:51:27,850 --> 00:51:28,854
No issue there.
394
00:51:28,892 --> 00:51:42,910
But one of the things that I found in those big name firms is for six months, you end up working with sort of like there's, like, the lead person, but then the junior person that you work with every six months or nine months, that person might change.
395
00:51:42,980 --> 00:51:51,840
So whilst you had the relationship with the lead attorney, the person you had a day to day relationship with may change after a year.
396
00:51:52,850 --> 00:52:02,722
And what I found there was if I didn't have to go very deep into the patent strategy, that was fine.
397
00:52:02,776 --> 00:52:10,562
And in our second company, Misfit, we were a consumer products company, our IP, we didn't have a very deep IP strategy, sort of deep patenting strategy.
398
00:52:10,706 --> 00:52:12,070
And that was absolutely fine.
399
00:52:12,220 --> 00:52:33,340
I don't want to say it was transactional because we obviously had a long term relationship with the senior person, but if you're filing a number of patents and you want these half dozen to mesh well with these half dozen over here, that can take three or four years to build.
400
00:52:33,790 --> 00:52:40,986
And having the same person who understands, oh, yeah, three years ago, you did this, and that means you should be doing this, and that gives you that other layer.
401
00:52:41,098 --> 00:52:44,640
That continuity was very important.
402
00:52:45,010 --> 00:52:52,782
And I've gotten back to my first firm, ad here at Elemental, because I value that continuity and the implications.
403
00:52:52,926 --> 00:53:02,210
So things that we thought about four or five years ago, we now can build on top of because we had the relationship with the same attorney.
404
00:53:02,290 --> 00:53:10,790
I've never used a patent agent, so I can't really comment on that because, again, we work with a very small boutique firm.
405
00:53:11,690 --> 00:53:12,226
Excellent.
406
00:53:12,258 --> 00:53:12,502
Yeah.
407
00:53:12,556 --> 00:53:21,802
We think of a lot about the domain expertise, but the continuity point is a great one, and I'm going to cut you loose so you have a chance to biobreak or something like that before your next stop.
408
00:53:21,856 --> 00:53:31,722
But if we ever have the opportunity, totally off topic for this, I would love to pick your brain on the opportunity to have interfaced with Steve Jobs and then to have worked with John Scully.
409
00:53:31,786 --> 00:53:36,820
That has to have been you have to have some really interesting perspective from that.
410
00:53:37,590 --> 00:53:38,578
There is.
411
00:53:38,744 --> 00:54:01,900
And I, unfortunately, have not actually met Steve Jobs, but I do know he used our product because our glucometer we got word from somebody who reported directly to him that Steve was impressed with the design of what we had done, because we use the same design language that the iPhone three iPhone four had back in the day.
412
00:54:03,070 --> 00:54:06,538
But, yeah, I would love to have a separate conversation about that as well.
413
00:54:06,704 --> 00:54:09,082
Yeah, look forward to that very much.
414
00:54:09,136 --> 00:54:10,970
Well, thank you so much for your time.
415
00:54:11,040 --> 00:54:12,714
Really appreciate it.
416
00:54:12,832 --> 00:54:13,210
Awesome.
417
00:54:13,280 --> 00:54:14,430
All right, thanks very much.
418
00:54:14,500 --> 00:54:14,990
Thank you.
419
00:54:15,060 --> 00:54:15,550
Take care.
420
00:54:15,620 --> 00:54:16,062
Bye now.
421
00:54:16,116 --> 00:54:16,880
Thank you.
422
00:54:17,250 --> 00:54:18,110
Bye.
423
00:54:18,450 --> 00:54:20,154
All right, that's all for today, folks.
424
00:54:20,202 --> 00:54:20,906
Thanks for listening.
425
00:54:20,938 --> 00:54:27,610
And remember to check us out@aurorapatents.com for more great podcasts, blogs, and videos covering all things patent strategy.
426
00:54:27,690 --> 00:54:29,098
And if you're an agent or attorney.
427
00:54:29,114 --> 00:54:29,998
And would like to be part of.
428
00:54:30,004 --> 00:54:36,134
The discussion or an inventor with a topic you'd like to hear discussed, email us at podcast at aurora patents.com.
429
00:54:36,252 --> 00:54:39,026
Do remember that this podcast does not constitute legal advice.
430
00:54:39,058 --> 00:54:41,300
And until next time, keep calm and patent on.
