About UCI Applied Innovation:
UCI Applied Innovation is a dynamic, innovative central platform for the UCI campus, entrepreneurs, inventors, the business community and investors to collaborate and move UCI research from lab to market.
About the Cove @ UCI:
To accelerate collaboration by better connecting innovation partners in Orange County, UCI Applied Innovation created the Cove, a physical, state-of-the-art hub for entrepreneurs to gather and navigate the resources available both on and off campus. The Cove is headquarters for UCI Applied Innovation, as well as houses several ecosystem partners including incubators, accelerators, angel investors, venture capitalists, mentors and legal experts.
Follow us on social media:
Facebook: @UCICove
Twitter: @UCICove
Instagram: @UCICove
LinkedIn: @UCIAppliedInnovation
For more information:
cove@uci.edu
http://innovation.uci.edu/
2. What is IP Due Diligence?
• Due diligence is a review of a company‘s corporate records, including official filing docs, admin
docs, board records, and IP records
3. Why IP matters
• IP affects whether investors decide to invest in your company or not
• IP affects the valuation of your company
• Intangible assets (including IP) often account for 90% of a startup’s value*
* Source: Mary Juetten Do Venture Capitalists Care About Intellectual Property? http://www.forbes.com/sites/maryjuetten/2015/08/11/do-venture-capitalists-care-about-intellectual-
property/
4. Sources of Investment
• Angel Investors (Angels)
• Venture Capitalists (VCs)
• SBIR
• STTR
• Crowdfunding
•The “three F’s” of startup investors:
◦ Friends
◦ Family
◦ Fools
• Other sources of “seed money”
5. Angel Investors
• Wealthy individuals who invest
• Sometimes invest on their own, sometimes invest as part of a group (Angel
groups/associations/networks)
• Investment range: tens of thousands to several million (usually less than VCs, but more than
most other sources)
• Examples in California:
• Tech Coast Angels (Southern California)
• Investor’s Circle (San Francisco)
• Band of Angels (Menlo Park)
• Pasadena Angels
6. Venture Capital
• A firm that invests pools of other people’s money
• Typically invest in more established businesses, rather than very new startups
•Investment range: >angels, ~several million
•Examples in California:
• Kleiner Perkins Caufield & Byers (Menlo Park)
• New Enterprise Associates (Menlo Park)
• Andreessen Horowitz (Menlo Park)
• Google Ventures (Mountain View)
• Khosla Ventures (Menlo Park)
• Sequoia Capital (Menlo Park)
• True Ventures (Palo Alto)
7. SBIR (Small Business Innovation
Research)
• SBIR: federal government program that encourages private small business R&D with
commercialization potential (by providing monetary awards)
• SBIR Phases and Funding Amounts:
• Phase I: establish feasibility, commercial potential, quality of business before further funding (up to
$225,000 over 6 months)
• Phase II: continue R&D initiated in Phase I. Further funding based partially on IP status/strength (up to
$1,500,000 over 2 years)
• Phase III: further pursuit of commercialization (no SBIR funding, may get funding from other
government agencies)
8. STTR (Small Business Technology
Transfer)
• STTR: similar to SBIR, but small business must formally collaborate with a non-profit research
institution
• Goal: bring advancements from scientific research to commercialized products
• STTR Phases and Funding Amounts:
• Same as SBIR, except…
• In Phase I: up to $225,000 (same) over 1 year (instead of 6 months)
10. Five “Million Dollar Point Approach”
(some angels)
1. Market
2. Product
3. Team
4. Customers
5. Revenue
• Stanford Graduate School / Efrat Kasznik: a sixth point: Intellectual Property (particularly
patents) add another $1 million!
• Angels may thus (typically) valuate a startup at up to $6m
Source: Efrat Kasznik:
http://www.slideshare.net/ForesightValuationGroup/angel-valaution-18-jun2014finalpresentation
11. Source: William H. (Bill) Payne
http://www.angelcapitalassociation.org/data/Documents/Resources/AngelCapital
Education/ACEF_-_Valuing_Pre-revenue_Companies.pdf
12.
13. SBIR and STTR Want to See…
• Usually, to obtain Phase II award → must include commercialization plan in proposal.
Commercialization plan includes:
•Intellectual Property!!
14. Investors Want to See (for IP)…
• Patents
• Trademarks
• Copyrights
• Inventorship/authorship vs. Ownership of IP
o Assignments
o Licenses
o NDAs
o Consulting Agreements
• Patentability (prior art) Searches
• Freedom to Operate
Foreign vs. domestic
15. Types of IP
Patent Trademark Trade Secret Copyright
Definition
The right to exclude others from
making, using, offering for sale, or
selling the invention in the United
States or importing the invention
into the United States
A word, name, symbol, or device
which is used in trade with
goods/services to indicate the
source of the goods/services and
to distinguish them from the
goods/services of others.
Information that:
• is not generally known by the
public
• confers economic benefit on its
holder
• Is the subject of reasonable
efforts to maintain its secrecy
A form of protection provided to
the authors or “original works of
authorship.”
It protects the form of expression,
rather than the subject matter of
the writing.
Subject Matter
Protected
• Design
• Utility
o Process
o Machine
o Manufacture
o Composition of matter
• Plant
• Words
• Names
• Symbols
• Sounds
• Colors and scents used to
distinguish goods and services
• Formulas
• Practices
• Processes
• Sales methods
• Distribution methods
• Consumer profiles
• Lists of suppliers and clients
• Literary works
• Dramatic works
• Musical works
• Artistic works
• Software
• Other intellectual works of
authorship
Duration
• Utility and plant: 20 years
from filing date
• Design: 14 years from grant
date
10 years/renewable Forever Varies
16. Assignments vs. Licenses
Owner selling all the rights Owner renting out some rights
No conditions. You own it! Have conditions, e.g.:
• You must keep the kitchen clean
• Milestones
• Etc.
17. Non-Disclosure Agreements (NDAs)
• A promise to keep invention information secret
• Can help preserve ability to file a patent
• Can help preserve trade secret rights
• Also: a promise to surrender the rights to any improvements to the invention back to you!
18. Prior Art Searches
• Prior art: Any existing information available to
the public before the patent filing date
o Novel: is it new?
o Non-obvious: is it new enough?
• Why are prior art searches important?
o Prior art searches can help determine whether
your invention is patentable
Prior Art: Borat (November 2006)
Patent Application (February 2008)
21. Freedom to Operate
• Freedom to Operate: are you infringing on anyone’s patent?
• Why are freedom to operate analyses important?
o Freedom to operate helps assure you that your business will not be sued for IP infringement
o Sophisticated investors (i.e. Angels and VCs) are more likely to invest in your business and/or invest
more if they can be assured by a freedom to operate opinion that your business is safe from the risk of
being sued
Patented invention:
A tool device comprising:
• an iron block
• a handle attached to the iron block
Your invention:
Infringing?
Yes
22. Freedom to Operate (continued)
• Just because you have a patent doesn’t mean
that you cannot be sued by others for patent
infringement.
Your competitor’s not-so-fancy patented
“car”
Your patented fancy car
23. Freedom to Operate (continued)
Your competitor’s not-so-fancy patented
“car” with four wheels
Your patented “car” with three wheels
24. Takeaways
• Smart, big investors (angels, VCs, government) will want to know about your IP!
• IP affects the valuation and investment decisions of investors
• Patents generally add more value than other types of IP protection for startups
• Strong IP can make you $$$
• NDAs can protect your idea before you’ve filed a patent
• Prior art searches can determine the patentability of your invention
• Freedom to operate studies can reassure you (and your investors!) that you will not be sued for
patent infringement