Red Flags For Inventors, Innovators and Entrepreneurs

 Recognizing Red Flags

As part of the mission of  The Entrepreneur’s Advisor to provide free resources and advice to technology start-up ventures, this article will help you identify some potential red flags with regard to fund raising and protection of your equity.

Identifying Red Flags
Identifying Red Flags

You know it is time to run away if

  1. You have been approached for services that offer you a guaranteed success in finding funds especially if part of the package is you pay them up front for their services. No one can guarantee the successful raising of capital for your new venture. This includes obtaining grants.
    This is not the same as paying for preparatory services such as document preparation for underwriting, grants and business plans. You can expect to pay professional service fees for these items and there is still no guarantee that you will achieve the funding you are looking for. Premature guarantees of funding are illegal.
    The same principle is applicable to you. If you demand a guarantee legitimate and professional fundraisers will run away. 
  2. Someone has asked you for a percentage of equity in order to assist, mentor, or otherwise guide you through the start up phase of your company. There are numerous free resources, forums and experts who can assist you.
    The Entrepreneur’s Advisor, business incubators, university and micro-enterprise development centers, and the SBA offer free or nominally priced resources. Do expect to pay Board of Advisor and Board of Directors for their time or expenses if necessary. As previously mentioned you should expect to pay for professional services.
    Being stingy with your equity now will provide greater flexibility and negotiating power during fund raising rounds.
  3. Someone asks you to disclose your invention or innovation without a Non-Disclosure Agreement (NDA). There are ways to describe your idea without giving someone else the opportunity to steal your intellectual property.
  4. Someone offers you free or in-kind (space, utilities, materials etc.) in return for a % of the company or remuneration to be paid later (without a contract). Everything should be writing. We strongly suggest an attorney review the working parameters (contract) before you start this scenario. Questions to be asked include
    • What if you can not repay them on a timly basis, will you lose your IP?
    • Does the arrangement constitute working for them and as such they are the owners of any IP developed?
    • Note! Invention of intellectual property and ownership of intellectual property are two different things.

At the end of February links will be posted identifying free resources, quality companies that can assist you and identification of known scams or people looking to take advantage of inventors, innovators and entrepreneurs.

If you like this article you may also like
Avoiding Predators of Entrepreneurs
How Do You Know If Your Assets (IP) Need To Be Legally Protected

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