Ask HN: Patents. Disclosure. Investors?

[gstar]

My startup has been approached by a management consultant who wants to take us through an angel funding round. (Hi consultant, if you're watching!)

In our meeting, he implored us to get patent protection ASAP, and to put all marketing, PR and sales plans on hold while we sort out patents.

We weren't planning on taking investment yet (if at all) - we've got a clear path to revenue, and our plan has always been to get the revenue up before we try to leverage.

Our product is virtually finished, and we were about to start sales and marketing literally this week. In fact, we'd already had an overseas distributor seek us out, who we've had to put on hold.

I'm having difficulty working out if we've been given good advice. Are patents THAT essential that we should put everything on hold until we've spent months of our runway with a patent attourney? Is limiting the scope of our patentability (by disclosure through our marketing) going to materially affect any valuation?

[jacquesm]

If a management consultant is approaching you he should work on no-cure-no-pay and non-exclusive basis.

If you do not take that approach he will hold you over a barrel, all he has to do is to get you to sign a contract that will allow him to either wait until somebody else approaches you and he can claim his fee based on exclusivity.

Otherwise he's just trying to get you to cough up.

His only renumeration should be a success fee paid from any investment he comes up with (and it should be a percentage with a capped $ amount).

This is a common tactic, trawl the web for promising new ventures with 'green' management, get them to agree to some contract and then sit back and do nothing. Or pass you some lame leads to prove that they're 'working hard'.

Management consultants on the prowl are the ambulance chasers of venture capital.

I'll bet you he can get you a nice deal on those patents as well (referral fee for him from the patent attorney that he's pushing).

These guys are mostly full of shit, talk to them, listen politely, learn as much as you can by pumping them, don't get pumped yourself, don't agree to anything and show them the door.

[gstar → jacquesm]

Thanks, Jacques.

Does your opinion change at all if this management consultant was a referral, and they have had three successful exits and are listed as an inventor on a series of patents?

[jacquesm → gstar]

That depends.

If they were active in the same field as where the company approached would be active that would count in their favour, but after 'three successful exits' you usually don't have to hire yourself out as a consultant...

As I said, it's fine to get information, if you go and make some deal make sure you keep control, no exclusivity and they get paid if and only if there is a deal, and from the money raised in that deal.

edit: also, such information should probably be in your original post.

[gstar → jacquesm]

I agree - slight oversight. Thanks for all your advice, though - appreciated.

[grellas]

Patent issues are not vital for most startups but, when they are, need to be handled properly.

Most startups that need patents will file provisional patent applications, which can be done pretty cheaply and which stake out the claims while kicking the can down the road on the real work (and expense).

I've never seen a startup put everything on hold for patents in the manner you are alluding to, and that sounds intuitively wrong - you should arrange an initial meeting with a good patent lawyer to assess this issue (usually this is enough to make good preliminary judgments on this issue and it is not expensive).

[ErrantX]

Rubbish.

If your in the US a core part of achieving the patent often requires you actually selling the product for a period of time (or demonstrate selling it). Patents take an AGE to process so he's right you do need to be considering an application fairly soon; but if you stop pushing your sales forward and another company happens to start selling the same tech first THEY have a right to the patent too - and you might have a fight :)

Sell first, patent right after. Profit.

(if your not in the US - thr UK for example - things might be a bit different, you can get a patent a little more easily here)

[gstar → ErrantX]

In the UK, there are any number of dire warnings on the IPO (intellectual property office) website about disclosing your invention before patents are applied for. Not sure if the principles are the same.

[ErrantX → gstar]

yes in the UK you should make an application before releasing: then you can be patent pending.

That is because here it is about first submission (I think).