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June 22, 2009

Licensing of Intellectual Property for Entrepreneurs Seeking to Raise Capital

I would like to share some information in order to assist Entrepreneurs and Scientist alike in their quest to raise funding for a new idea or venture. For those associated with Universities and Technology Incubators this article may be just a refresher. For others it is another door to open.

There are many ways to obtain capital which may include but are not limited to: Family, Friends, Angel Investors, Grants, Venture Capitalist, Private Equity investment groups, or your personal assets. But for discussion purposes let us say you are at the stage where your intellectual property (technology, idea, invention, creation or process etc.), has been Patented, Copyrighted, Trademarked or you have chosen for it to remain a Trade Secret. Any of these items may be considered Intellectual Property.

Having intellectual property (IP) may open other doors for you when raising funding for your venture. Granted there is a reluctance to share your idea, your vision of wealth, or super secret method of producing goods. On the other hand, you may need cash to move forward but you do not want to sell or give away your treasure, so what can you do?

A well constructed licensing arrangement may provide for cash relief as well as set the stage for a greater investment or exit strategy. For our purposes, a license is the granting of permission (by licensor) for someone else (Licensee) to do something that you have the right to prohibit (Patent, Trademark, Copyright, Trade Secret) etc.

The granting of permission may include:

  • Type of License (Patent, Copyright, Trademark, Trade Secret)
  • Terms: (Everything is negotiable)
    • Royalties – what will Licensee pay?
    • Cross Licensing
    • Length (point of termination) and what happens at termination. Return of IP, potential new terms or investment.
    • Conditions
      • Define how, when, and where IP can be used. Examples:  What happens if Licensee is purchased or goes out of business?
      • Setting benchmarks for continued use of license. Be very careful of companies wanting to purchase or license your product and then not make use of it for any number of reasons.
      • What are the reasons for termination of agreement?
      • Exclusive or non-exclusive license:
        • Who else can license your IP?
        • Will you still have use of your own IP?
        • Legal remedy for infringement or loss of secrets. You must protect your IP !

The Entrepreneur’s Advisor™ strongly recommends that you consult an established and referred IP attorney before attempting any such agreement on your own. All agreements should be in writing and be reviewed by a third party to ensure your IP is protected.

Why consider Licensing? The simple answer is money, but also the significance of other benefits to the Licensor. These benefits may include:

  • Immediate cash flow
  • Licensee resources may be greater than your own enhancing development
  • Strengthening of market position for your product
  • Market exposure for product and company. Good for future fundraising
  • Client base increase
  • Potential improvements may be made (make sure this is covered in agreement)
  • Development of channel partners

Who should you license to?

  • Companies looking for a competitive advantage
  • Companies seeking out new technologies or products to expand
  • Companies seeking to vertically integrate with potential partners
  • Customers

Note: do not be limited to your perceived industry or country. New applications for existing technology or ideas are well documented throughout history.

How to find Licensors?

The straightforward answer to this is networking and research. Making contacts at the local University, tech incubator center and professional groups will help uncover who else might be working in this area, has a need, or is looking for a partner. Disclose only enough information to generate interest but not put your IP at risk until an NDA is signed.

The following link makes for an excellent beginners resource at understanding the value and complexities of Licensing: WIPO

The Entrepreneur’s Advisor™ can assist you in understanding the value of your IP and help you choose the best path (Sell, License, Trade) your IP to assist your growth. Please visit our website at The Entrepreneur’s Advisor™ for inquiries. We are the best yet low cost provider of Entrepreneurial assistance for new ventures.

If you are an attorney that specializes in IP, please reply privately to add your name and contact information to our database of resources. You must have references in order to be referred.

One Comment on “Licensing of Intellectual Property for Entrepreneurs Seeking to Raise Capital

July 22, 2009 at 6:44 pm

Great post! I’ll subscribe right now wth my feedreader software!

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