The transition of a business from
start-up to
scale-up is often described as a "chasm". That is because most scale-ups are very different from start-ups in terms of governance, marketing and funding. One obvious difference is that start-ups can be funded by their founders themselves, possibly with the support of friends and family and maybe some grants or soft loans whereas scale-ups usually need investment from third parties such as angels, venture capitalists and in a few rare cases
the AIM.
"Over the last 15 years, first as an entrepreneur and now as an investor, I’ve seen many award-winning ventures end up in the global startup graveyard. Why? In large part, because very few of them secured intellectual property (IP) rights to protect their business assets."
He explained that that was because of an inadequate understanding of IP and a belief that IP protection is inordinately expensive. For many start-ups, IP is something that is nice to have but for those who invest in a scale-up adequate IP protection is crucial. Without such protection, it is only too easy for a predator to swallow a market or technology that has been carefully developed by the start-up. Specialist advice and representation do not come cheap but, as Singh also observed in his article, failure to protect a business's brands, designs, technology and creative output comes with an enormous price tag.
However, there is such a thing as having too much IP. In my career at the patent bar, I have seen far more business failures resulting from having too much IP protection than from having too little That is because businesses apply for patents they will never work, trade marks where they have no trade and designs for products they will never put into production. That wastes resources because registrations have to be renewed, policed and occasionally defended and enforced. A crisis occurs when those costs amount to more than the company can afford.
To avoid either extreme businesses need to devise IP strategies and integrate those strategies into their business plans. According to Singh, that is one of the indicators for which investors look when deciding whether or not to invest in a business:
"In the modern economy, IP assets often drive current and future revenues, so investors like to see that entrepreneurs have integrated IP rights into their business plans. Evidence of some kind of convincing approach to IP will, at the very least, mean that companies are better aligned with investors on the big question of how to sell the company for billions of dollars one day."
An IP strategy should, of course, take account of a company's research and development and marketing the aims and costs of which should also feature in its business plan.
As every business is different every business's IP strategy should be tailored to its specific needs. In a tech company, the emphasis may be on patenting and trade secrecy. If the company offers a new service it will focus on branding, data and business format. The starting point should be the intellectual assets that the business already has and those that it intends to develop. That will usually require an intellectual asset audit and sometimes specialist valuation. The costs of patenting and trade mark and design registration should be factored in. Consideration should be given not only to the UK but also to the countries in which the scale-up expects to do business or from where it anticipates competition. The strategy should provide for validity challenges and infringement actions and make arrangements for deploying an effective response. Often it is useful to consult an IP strategist when devising the strategy. Ideally, the IP strategist should be someone other than the professional who is already prosecuting your patent, trade mark or design registration applications (see Jane Lambert What is Intellectual Property Strategy? Updated 1 Sept 2017 NIPC Law).
On 11 Nov 2021, I will chair a seminar at the Menai Science Park (M-SParc) called "Scaling Up - Wales Enterprise Day" that will discuss how start-ups can leap across the chasm to become scale-ups. Emily Roberts and I have assembled a panel of experts on funding, intellectual asset valuation, scale-ups, patenting and the law. Edward French of Pinpoint Capital will tell us what VCs and angels look for in a scale-up. Alison Orr of Inngot will discuss intellectual asset valuation and leverage. One of BICInnovation's scale-up specialists will talk about growth strategies. Sean Thomas of Thomas Harrison will outline the patenting and trade mark and design issues in scaling up. Andrea Knox of Knox Commercial Solicitors will address due diligence, shareholders' agreements and other matters. If you can reach M-SParc by 12:00 on 11 Nov you can attend in person. Otherwise, you can follow it online. Either way, you will need to register through Eventbrite.
Later on 11 Nov 2021 there will be a pitching event for businesses that want to become scale-ups before real investors which will also take place before a live audience at M-SParc and streamed online. This is a unique opportunity to watch angels and possibly other investors in action. Again, if you can make it to the park by 16:00 you can attend in person. Alternatively, you can watch over the Internet. Again, you will need to register with Eventbrite.
Anyone wishing to discuss this article further may call me on 020 7494 5252 during normal office hours or send me a message through my contact form.
