Many of you have dreamt of being entrepreneurs. And maybe, one day you had a great business idea. So, you entered a partnership with one or several friends skilled in a specific field and… you set up a startup.
"Entrepreneur" and "startup" are two fashionable words. They are repeatedly used in almost all relevant conferences and meetings, where it is emphasized that any startup must be planned in detail and in perspective - from concept, business model, financing, development to how to benefit of SEO and social media - all in view of gaining success. But far too seldom do they stress the importance of a strong legal component of the startup initial strategy - beginning with choosing the proper legal business form, the registration, protection and exploitation of any intellectual property rights and continuing with specialized consultancy on contracts, etc.
You may not know it but any business owns (or should own, in order to be viable) a portfolio of at least a few minimal intellectual property assets - a www domain name, a commercial name, a logo, a trademark (maybe even an unregistered one), know-how, trade secrets - which all offer a competitive advantage. Moreover, depending on the type of activity carried out by the startup, intellectual property may entail more sophisticated assets: copyright in computer programs, in mobile apps, in graphics or in video games, legal rights in commercial databases, licenses, patents, etc.
As a whole, all these represent one of the most valuable assets of the startup and they should not be neglected; on the contrary, they must be protected - enhancing, thus, their value. Your business gains a higher chance to succeed when its intellectual property portfolio is a valuable one. And its value - both for any investors to whom you present the business idea you wish to implement and for any potential partners - is also given by the manner in which such intellectual property assets are protected.
So, one legitimate question arises: what can entrepreneurs do to protect their business idea and their intellectual property portfolio, when pitching and pursuing financing from various sources - given that business ideas are not protected by copyright (as one might mistakenly believe)?
Most of the times, in a pitch, people focus on starting discussions in order to establish all aspects of an eventual partnership (financing from a business angel, joint-venture, etc). Implicitly, there will be a disclosure of information regarding the business idea in itself, possible key-elements of intellectual property that are at the foundation of the business, etc. - information that should remain confidential and should not be used without your prior written consent.
In the optimistic scenario, after this "match-making" phase, one might enter a successful "marriage" materialized in a contract that will detail, among others, aspects regarding: project implementation, all financial claims (including those of the investor or of the trading partner) and exploitation of intellectual property. However, for the pessimistic scenario where such a partnership is not materialized, it is recommendable to take proper steps in order to protect the information you share.
You can achieve this, for instance, by signing a Non-Disclosure Agreement (NDA) before beginning the discussions.
A NDA can send a positive signal of trust in your own ideas (the fact that you are taking your business and business plan seriously). And it should stipulate - as accurately as possible - which confidential data, information and documents you are going to share, along with all obligations of the recipient and his contractual liability if a breach occurs, etc.
Of course, you should find the rightful middle way between the legitimate wish to protect your business idea and the investor"s / partner"s (un)willingness to sign a NDA; in practice, there are frequent cases when potential investors or partners refuse to sign a NDA (due to various reasons). Some of them have set as a policy not to sign a NDA, and others accept to sign it only when they advance with the discussions and only if they are interested in entering the partnership or to offer the financing.
You have to keep in mind that as attractive the perspective of collaboration with such a sponsor might be, things can always turn ugly. Therefore, you should take into consideration, especially in the negotiation phase, to sign a NDA - even if sometimes this may seem unrealistic from the point of view of the investor or of the partner.
And when this principle cannot be put into practice, think about how generous (or not) you should be with the requested information - such information is your most valuable possession and, once disclosed, you might lose your competitive advantage. In this case as well, your ability and that of your legal advisor to tackle this problem with the investor might just be the way out of the deadlock.
In a nutshell, a solid business cannot be built without some legal tools that are correctly and efficiently used - when required, with proper help (for instance, for drafting a good NDA). So, do not play about this issue, as it can cost you just… a business.
by Larisa Goța
by Ambrus Oszk
by Alpar Torok
