Lifescience intellectual property, the lifeblood of the industry, can be extremely valuable. A treatment, cure, biologic or substance may command hundreds of thousands of dollors per application or per gram.
The process, drug, method or chemical may take $10 million to $billions and years to discover and develop,
(or much less in rare cases).
One protection is that most people and even scientists in the field may not readily recognize or understand some of the science or procedures in the select invention / trade secret. The complete trade secret may entail many laboratory tweaks and refinements to be efficient. effective. But that alone is not enough, so several measures must be taken commensurate with the value of the property.
The law defining trade secrets cites:
1) information with economic value from not being generally known to others,
2) reasonable efforts taken to protect the secrecy of that information, and
3) the information must have value to those who cannot legitimately obtain it; essentially, it must be confidential and actively protected to maintain its economic benefit.
That means strong efforts to keep secret and mark confidential a method that gives competitive advantage to the owner. Before an invention may or may not be sought and granted, it is first a trade secret.
The most basic IP protection is non-disclosure, as a trade secret. The details and even some of the overview MUST be kept secret, with very few (not more than 2 or 3 persons) being privy to or able to access the entire concept and details. Certain key parts, if possible, should be kept locked away, all--- including the safe, the cabinet, the binders--- marked "Confidential". Of course each person shown any part of the steps, details, procesures and process must have signed an NDA
Compartmentalizing and "need to know basis" are further protections before a patent (if ever) is sought.
Various good reference sources exist to help you further in protecting your IP.
As the title suggests, Funds raising and financing introduce a difficult quandry. Most VC Venture capitalist funders are unlikely to sign an NDA. Their strong bargaining power can be an indication of future dominance of the relationship where in essence you go begging for money in exchange for their taking and selling much of your ownership. It's not a pretty thing to say, but the extent of what happens is partly up to you, your knowledge and strength, your lawyer and the value of your concept.
You have to remember that 9 out of 10 biotech startups fail, within 3-5 years. That may actually reflect on a rather poor job of evaluation and"vetting" of the science rationale-validity, economics and aspects highlighed herein. So that is a weakness of funders that the astute concept owner can use for selling/bargaining for the "deal" worthy of a concept vetted for "proof of concept", demand and scalability.
A goal might be to always keep, even after 5 or 6 "rounds" of financing.. at least 40% ownership, and further seek non-dilutive financing where possible. A few tricks, from a good lawyer, can keep back a vital step or "right", to help balance the on-going competition for ownership and control. Of course some disclosure that such a vital "right" in the owner must be made (if not highlighted).
There are onerous consequences for "going too far" (not being fairly equitable), as the owner-creator to press the funders. There should be a good "relationship" and balance to keep all parties "benefitting".
Though not often invoked against the principal owner-scientist, a charge of breach of fiduciarty duty can be onerous, so that constant caution should be maintained in mid to later stages.
No officer of a company can take an opportunity over the corporation. But with disclosure--- certain rights, ownership and control can be remain "in the Founder". That often comes down to 51%+ stock ownership, or at least 40%. Expect long run for them to push you toward 15%, but you'd still be rich.
Again, strong "control" and good lawyering by the second round is essential.
A great lawyer is the ultimate "equalizer".
Venture capital firms have several reasons to usually not sign an NDA. Yet legally, your lawyer would insist and depending on "trust" of the VC should be a warning to carefully limit most disclosure, except perhaps of the highest level, such as industry sector, prime market targets, market niche potential and the general nature of the produt or process. (ASK your Lawyer).
Here is a prominent law firm's view of VC reasons for reluctance to sign NDA's. (Morgan Lewis}
Here is a real-life example of a concept being ripped off by a VC company, most of whom would not do this (directly); Read most of that thread to see how that is delt with.
Our opinion would be to promptly have a lawyer send a cease and desist, based on you having recorded some evidence and the prior date that you presented your "pitch deck". You can't sue, unless you got some recorded assurances they would not pass it on. A suit might be as an individual, for misappropriation, and perhaps fraud. Yes, there could be blacklist repurcussions.
Most pro's responding in the thread say "move on" and ignore it. Depends on the value.
Lawsuits are long, expensive, frustrating, have many risks and are often lost.
Partial excerpts in the thread on VC's not signing NDA's: (an assortment of diverse views):
Credit Reddit
" ... Execution is everything. Show them you can execute and they’ll let you drink the VC kool-aid. ..."
"... If someone can just steal your idea after one meeting, its probably not that great of an idea ."
(us: Or you talked too much)
" ... What could be unique is you[r] ability to execute on this idea. PhD is certainly something, you very well could have specialized knowledge that will make you uniquely positioned to execute on the idea. I reviewed a lot of decks this year, about 1/4th of them had founders with PhDs on the team. "
Emphasis added
" ... A VC is not going to start a company doing what you are doing. However, if they have a portfolio company doing something similar they might send your materials to them to “see what they think”. If that portfolio company is competing with you, then yes they could steal your idea. But if all you have is an idea then what is protecting you? Can you patent it? What if someone else gets the same idea? It will happen eventually. So it’s better to have a constant stream of ideas, that will be hard to compete with ."
"... they are investing in you. Might help to reframe your question into 'How do I show a VC that I am the best positioned to capitalize on this opportunity?' "
"... chiming in to say that VCs (not necessarily all) can and will sign NDAs if they're interested enough."
" VCs won't sign an NDA. Therefore, VCs can legally share your information with your competitors they are currently investing with ."
"... .. IF you really have a groundbreaking innovation, they will steal it or carelessly share info with their bosses, business partners, etc. Get a pre-patent and don’t share more than you’re willing to lose.
When dealing with VC types you have to remember most of them are on a major power/ego trip. They do have a lot influence so you have to be careful with how you frame things but at the end of the day they’re 100% self interested and will only try to convince you to do things that benefit them."
[we tend to agree, so your idea has to start and end with big $$$ ... $$$
and you being highly capable, credentialed, indispensible and having proof of concept done.]
" ... VCs won’t steal it for themselves BUT definitely check if they have a portco with a similar solution.
1) they won’t be able to invest in you 2) they might share info with the portco " [emph. added]
" ... If it would be trivial for a VC to steal your idea then it would be even easier for a competitor to steal it after you launch. And if that’s the case then you’ve got no moat and a VC wouldn’t be interested in your idea any way." [us: Well said}
DO read the entire post from
"Downvotes incoming... but a lot of the comments here reveal there is a mindset that what you call stealing ideas is OK because they have rationalized that everyone has them and they are not unique. Often that is true, but sometimes it isn't. The truth is they can decline to sign an NDA because they hold most of the power (the money you came seeking). And if you have confused what is right (not stealing your idea) with what is legal, in their mind that's on you. They wouldn't keep their reputation for long if they had a habit of outright taking your innovations, but handing them to another friend or company can do the trick. ... [emph. added] [see more smart thoughts in this post at Reddit ] "
Again, it all depends on the value and your ability, credentials , confidence.
and keeping the main secrets.. secret.
Ultimately, it comes down to basic drivers of VC/ resource provider's interest, which also and
always comes down to basics of almost any businesses success, but with emphasis on:
proof of concept,
size and wealth of market and target customers,
name of target sub-sectors,
a strong need and demand of those customers,
(characterized by high prices, backlogs, slow order fulfillment, and
few or no competitors per high-demand product),
potential for high efficiency (for large cost reduction),
concept cannot be reverse-engineered,... and
is highly-scalable without a great amount more labor or other obstacle.
Here is another view by a law firm in the business (Day Pitney) with tips on avoiding disclosure of main concept or details.
Talking to the Funders in phases allows the funder to realize that you have significant power in the VC process (if so). Other than your (or your vetting consultant's) high credentials and some evidence of research prowess, not much or no details should be necessary, other than statements attesting that the proof of concept has been successful (though it might be further confirmed in the development phase), and the concept appears valuable with high demand, low competition and barriers to competition.
The specific type or name or description of the end-product may possibly be made, with approval of your lawyer and a promise of non-disclosure under the more limited-narrow NDA described in the link above, of the Morgan Lewis law firm.
Only those who have worked in biotech/ life science labs know that key secrets of method and process are very difficult to find, replicate and optimize. The smallest change or mistake can make the results fail. Substantial documenting and secreting of these key steps and "tricks" to get repeatable results is seldom in the lab journal with which one might start.
But once perfected, the secret may be relatively easy to replicate. This next Law firm in Europe has an excellent description of how the method becomes a trade secret and then such knowledge is protected.
See Confidentiality as currency: Protecting and leveraging trade secrets in biotech
Potter Clarkson. Quote from article:
"Anybody who has worked in a lab will know that getting a protocol to work isn’t as simple as just following the instructions printed in a journal. "
Therefore, such secrets are both valuable and must be protected. Articles herein include examples of long established companies that protect and operate on trade secrets for over 70 years. The formula for Coca-Cola remains a classic example, where only 2 people know the secret, kept in a vault, and never travel together.
A VC or Angel group may not be very comfortable with the trade secret approach, but it can be a compelling point if the process can not be "reverse engineered" nor discovered, and can be sold to the main company when it is "bought out" or goes public. Clearly, companies like Coca-Cola, WD-40, McIlhenny Co. (Tobasco Sauce), Fair Isaac (FICO score formula in Goodwill)
have thrived in exploiting trade secrets.
Be warned that normally a VC would have about 1/10th the interest in a non-patented process, unless presented in a striking manner: that as secret it is a bigger barrier to competition; You might ensure the eventual ownership riht before the company goes IPO oris bought out.
You are selling them on the many advantages of a secret but complex process valued in the $billion plus range. Some processes may long be better kept secret until the company has about $10-20 million to set up strong patents and strategies, perhaps in partial patents and being prepared (like IBM did) with improvements ready in the pipleline.
But be ready to defend / argue against independent discovery, reverse engineering resulting in a patent for identical product/process by another company that could destroy most of the value of the trade secret, as explained in
¶3 of the section 3 on WD-40. in Famous Trade Secrets Quote:
"If a party somehow reverse engineers a product and discovers the secret, there is no infringement. The other party could even file a patent on their product, which is a significant risk to the first company. Options must be examined on a case-by-case basis to determine which course of action will best suit a particular business. "
Either way, be highly-prepared to show, argue, defend and sell. The proof and value of your concept can overcome such obstacles. And Consult your Lawyer.
Check out Silicon Valley Bank's tips on IP and protections (informational only).
NOTE: " Prospective investors will often conduct exhaustive due diligence over a company's IP portfolio. Taking pre-emptive steps to ensure that the value of the company’s IP is preserved is essential to keeping company valuation high and making sure that investors move forward with closing their investment."
Credit DLA Piper: Tips for raising venture capital: protecting your IP By Jeff Lehrer
The first section- mid-paragraph of that article stresses resolving IP ownership at the beginning,
but be aware ...this appears written to the view of the funder or company and avoiding problems if the company grows to large and public. There may be strategic differences from the concept owner's viewpoint and the funders. To our view, as to and for ourselves, it is not our job to advise or assist the Funders in such regard, but merely to disclose and negotiate. For us, an option to buy out half or all investors's shares at any point, for about twice book value seems a fair negotiation goal.
As in the SVB article above, also look into Insurance on these matters.
NONE of this is legal advice; but only informational as for what we would consider for ourselves.
Forbes has an excellent an thorough article on IP and early mistakes.
A new and neglected area of insurance is the insuring of IP properties against loss and infringment.
An ABA detailed article on many aspects of IP, business formation and start up.'
"Corporate and Intellectual Property Considerations for Startups Seeking Venture Capital Funding"
NONE of this is legal advice; but only informational as for what we would consider for ourselves.
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