Technology industry start-up companies like ones competing through New Ventures BC need all the help they can get to take their big idea from the planning stage to production.
The MITACS Accelerate Internship program aims to help fill that need.

The program is a cost-shared internship managed by MITACS Inc, a national research network. It connects companies and other organizations with the Canada’s universities.

For each four-month internship unit, the company contributes $7,500. This is matched by MITACS through the support of federal and provincial funding partners. Basically, it’s 1-1 matched funding that brings a number of benefits for the company:

• Projects are focused on company priorities
• Program reduces company R&D costs while stimulating internal research
• Connects an organization with potential future employees
• MITACS business development team will help to identify the appropriate academic expertise
• Projects may be eligible for federal research tax credits
• All administrative and financial issues are handled by the university and MITACS
• Fast turnaround on proposals with no application deadlines

Internships are primarily company driven projects, so the company receives commercial IP rights while the university (prof and intern) receive academic rights for any new IP (not existing IP) that’s discovered or developed in the project.

Just to clarify, commercial IP rights meaning that the company can sell, license, patent, and continue research development. Academic IP rights that the prof and intern can publish, present at a conference, continue research development independent of the company.

To learn more about the MITACS Accelerate Internship Program, visit www.mitacsaccelerate.ca

Tonight, the New Ventures BC seminar series presents Corporate Structure with Sean Hodgins of QC Docs and Steven Lukas of Fasken Martineau.

Steven Lukas, Fasken Martineau
When you put together a corporate structure, you’re bringing together a series of people for a common purpose. A company just sets out relationships of how they work together and what the responsibilities of them are.

A company is different from you. When you incorporate, you’re talking about being the owner of the business. As you bring in more shareholders, the company structure becomes more complicated.

The structural map of your company will include shareholders, directors, officers, employees and possibly an advisory panel.

Shareholders
Anyone can be a shareholder. Individuals, companies and partnerships can be shareholders. There is no limit on the number of shareholders.

There are rules on how people become shareholders and when you become shareholders. As well, the rules change once you bring in more than 50 shareholders.

The key to being a shareholder is that their liability is limited only to the money that they have invested. If the company goes under, shareholders are not responsible for those liabilities (though they may lose their investment).

There are an unlimited number of types of shares, classes, rights and restrictions. The key ones include, are they voting or non-voting, participating or non-participating, and coming with options, warrants or rights.

Shareholders have an exclusive right to elect directors, but by and large can’t make the company do anything. Shareholders rights are governed by very detailed contracts. Not all shareholder agreement contracts are equal.

Directors
Directors are elected by the shareholders. They can fill vacancies or potentially add a number of directors.

In practice, who makes the direction of who the director will be? Usually, it’s the CEO (though they don’t elect the directors).

There must be at least one director. In BC, there is no residency requirement and there are no qualifications for being a director.

If you’re looking at your exit involving sale to an American company, it may be easier to do it with a BC company, because of the lack of residency requirement for directors.

Directors have the power to manage the affairs of the company. They have a duty to the company and the shareholders as a whole to act fairly and diligently.

They may be personally liable for breaching duties, taxes or wages. For instance, they can be personally liable if they issue shares for less than what they’re worth. That said, you can be protected by doing due diligence and acting in good faith.

Officers
The power of any officer is set by the board of directors. They oversee the employees.

Employees
They do all the real work.

It’s important to understand the definitions of employee and contractor. An employee works for your company. A contractor works for themselves.

If the CRA second-guesses you determines that a contractor was actually an employee and he doesn’t pay his taxes, then the company can be liable for paying those taxes.

It can be complicated. One example — if you take twelve one month jobs, you’re a contractor. If you take a job and get fired after a month and that’s the end of it, you were an employee.

If the level of sophistication of the person representing themselves isn’t there, then the person is probably not a contractor (even if that is what they would like to be considered).

What does compensation look like? It can be cash, shares or options or any other combination thereof. There is no set model for paying employees.

The Advisors
These people advise the board or advise management from time to time, in their areas of expertise.

Officer Issues
Conflicts of interest ie. your role as a shareholder vs. director. These sorts of conflicts come up all the time in VC positions.

There are differences between being a private company and a public company. When you go public, you’ve got a whole new series of responsibilities.

Initial Corporate Structuring
Incorporation is favorable in Canada, because of:

Financing issues – investors don’t like offshore companies.
Government grants – in most cases, these are only available to Canadian companies
Taxation and employment issues are also simpler to deal with if incorporating in Canada.

Create a structure with unlimited common shares and unlimited “blank-cheque” preferred shares. If you don’t do it this way, you may have to go back to your shareholders to ask for permission.

Financiers dictate financing terms, such as debt vs. equity, price, preferences, terms of SHAG, etc.

If you can, avoid issuing secured debt, using shareholders’ loans, using multiple share classes and incorporating offshore.

NOTE: It’s almost impossible to start a business without creating shareholder loans. Before those investors come in, convert it to equity.

Founder Shares
Founder shares are large blocks of shares issued at a low price to position the founders. It recognizes their “sweat equity” contribution.

What class of shares should they be? Common shares. They can be preferred shares for sophisticated investors if you have a good reason (I’ve never come across one…).

Founder Shares should be issued to founders and senior officers, not employees or outside investors.

Common Mistakes in Allocating Founder Shares
* Not setting aside enough founders’ shares at time of incorporation.
* not setting aside some founders’ shares for future additions to the management team.
* Not vesting the Founders’ shares. In 2-4 years, or providing for “reverse-vesting”.
* Issuing them to the wrong people.

Preparing a Financing Plan
Determine a road map for financing

The company determines its developmental milestones. What are they? By when will they be met? How much funding is needed to meet them?

Sources of financing include government grants, friends and family, angel investors, VCs, investment backers, underwriters (ie. brokers). There’s money all over the place — it’s just a matter of who you can tap into and how.

If you distribute a security, you must file a prospectus or rely on exemption from prospective requirement.

There is no limit on the number of people you can approach for financing.

* What are stock options? The right to purchase a number of shares at a predetermined value.
* Companies must plan for growth an make a notional allocation of their options.
* Companies should vest all options within 2-4 years.

Don’t necessarily be afraid of reducing your percentage of shares so long as the value of shares keeps going up. It’s better to have a smaller percentage of a bigger pie than a bigger percentage of a smaller pie.

Your Capitalization Plan is your best guess, like a budget. Actual results may differ from your projections. If you figure out sooner what the end picture looks like, you can do better in picking the number of shares you need.

When VCs come in, they change the rules and apply new conditions. The easy part of the discussion is what is the value of your company. The hard part is dealing with contractual obligations while being able to do your job and manage your company.

Sean Hodgins, CA, CPA, Tandem Accounting Group Ltd., speaking on Financial Modeling

We deal day to day with a lot of technology startups. That’s our area of expertise.

In today’s presentation, we’ll look at structuring for success, BC Tech bootstrap structuring, Financial Modeling and a Case Study.

NVBC is a competition. To win, you need to be in a hot space, have huge potential and a great story! It’s a combination of timing and a few other things to hit and win the competition. Even for those who don’t win, businesses can learn a lot.

The Bootstrap Model
1 in 100 companies that apply get VC financing
2 out of 10 VC financed companies make it
Dragon’s den is entertainment, not to foster successful startups! (It pains me to watch that show). Listen and learn from what they’re saying, but I don’t know if it’s particularly healthy other than for that.
Focus on solving a real problem and making a profit.

If you only need one round of financing and can take home big paychecks and have a successful business, that’s where most enterprises are today.

Top 10 words of wisdom
1. Incorporate. Keep is simple and use reverse vesting common shares. It can be a disaster if this isn’t structured at the front end.
2. Raise your first $25,000 from friends and family. If you can’t raise money from those closest to you, how will you get financing from angel investors?
3. Get good at expense reporting (separate self from Inc.). For instance, you paid to travel here. Are you going to expense that to your company? Even if a company has no money and can’t pay you back, you recognize that the company owes you.
4. Register immediately to get your GST back!
5. Build real SR&ED and optimize Proxy rules. This is basically a tax incentive program for technology companies, allowing you to file a tax return, never having earned any money, and getting paid by the government for expenses for development of the product.

Proxy rules are an incentive to hire people as employees rather than contractors. You can gross up their salary and get a tax credit for the gross value. The Proxy comes in if you’ve incurred other expenses.

6. Register as an Eligible Business Corporation. This allows you to raise money from accredited or angel investors.

7. Leverage the NRC-IRAP and other Gov’t programs. NRC-IRAP is like pre-paid SR&ED. You get approved for a grant. Example, if you’re hiring youths, it’s definitely a place to look at.

8. Angel circuit-links to customers and maybe even money. They can develop great networks and create energy around what you’re building

9. Find “customers” who will “help” build your product.

10. Build partnerships and networks early.

Financial Modeling

What to include? (Historic + 3-5 year projection)
* Income statement (profit and loss). A year in time’s perspective.
* Balance Sheets – assets, liabilities and equity
* Cash flows and burn/runway
* Opportunity analysis
* List of assumptions. As you’re starting your business and are trying to develop your financial model, you must develop assumptions on how you are going to build your business.
* Capitalization table

Financial Modeling
* Focus on revenues
* Numbers are instrumental in telling the story
* Make it believable. Test using your network
* Test the angel networks and VC’s
* Costs should focus on R&D and sales and marketing.

Business Modeling
* Who’s going to buy what you’re selling?
* What price are you going to charge?
* How does this compare to competitors?
* When do the sales happen?
* Customer acquisition costs?
* Customer support costs?

Business Model (Eyeballs Model)
* Who’s going to visit your site and why?
* How fast is it going to grow?
* How does this compare to competitors?
* When do you get bought and by whom?
* Cost structuring for rapid growth?
* Customer support costs?

Business Model (Technical Model)
* What trend is hot?
* Who will acquire you and when?
* Need technical excellence!
* need investors in your field and with connections
* $1 Million+ per engineer

These types of companies are acquired for the people who are there.

Opportunity Analysis
* Calculate the size of your target market.
* Story to Market Take Ratio (how good is your story?)
* Rate of growth analysis – key metrics, customer acquisition costs (don’t guess)
* Valuation analysis – support your value

Case Study: QCDocs Systems Inc.

Numbers are a key to telling your story. Focus on the customer and generating revenue and don’t be afraid!

The latest New Ventures BC Seminar is on Market Research and Product Marketing, by Dave Thomas of Rocket Builders.

Dave Thomas, Rocket Builders
This is one of the earlier seminars because it talks about where you’re going to go to market as they journey on their way to becoming a larger company.

Many companies can describe where they want to be in 5 years, but less can describe what they’re going to do to achieve this in the next year and a half.

You may not succeed with your first product — look at RIM: Blackberry was their 6th product — “and you don’t want to hear about the other five…”

Market research — you can try to understand the market in different ways, but need to be cognizant of the data you’re putting into your various models (eg. LinkedIn polls used for market research may be less than useful with only nine responses).

Learning Objectives Today

1. Taking time for market research
2. Understand concepts of technology adoption cycles
3. Understand product positioning
4. Understand how pricing is determined

Market Research
In 2004, we did a survey looking for key milestones in helping us succeed. Every one of the respondents said understanding the marketplace really early (even before they developed the product) was a key to success. Line up your ducks in a row!

There are evolutionary products and revolutionary products.

Most entrepreneurs search for a market niche rather than going head to head with an established giant. After focusing on one market and succeeding, this makes it easier to move organically into other markets later.

Begin with the end in mind!

Example of photocopiers as a case study. For photocopying, first there was Xerox. IBM tried to replicate them, followed by Canon. IBM was less successful, but Canon figured out the niche markets — they fit where Xerox was weakest, focusing on specific products. Today, Canon does not make a full suite of photocopiers because they didn’t want to be Xerox Number 2. That’s why they met success.

Markets, Pains and Requirements

Market
How big is the marketplace? Is it growing? What are the trends? How do you divide the segments?

Pain
What is the customer pain? What is the value chain pain?

Requirements
Customer requirements and Channel requirements. How do people normally buy things? Challenge, can I get the product into the customer’s hands?

Key Market Research Questions

• What is your target market?
• How big is it?
• Who buys your product? (Financial buyer and technical buyer are two different people!)
• Why do they need it? (Eg. Is there a significant problem you’re solving? People will pay a lot more for a painkiller than a vitamin).
• Who pays for it?
• Who uses it?
• How does the customer fix the business problem you are addressing today?
• How much are they willing to pay?
• Why would they buy from you? (Sometimes you may need to partner with companies to reduce perceived risk. Example, no one ever got fired for buying Microsoft Office. Look reliable or find reliable-looking partners)
• What business problems are more important to them than this one?

Market Segmentation

Revolutionary Products. Eg. iPod. When it came on, it defined its own market.

Evolutionary Products. Refines, improves an existing offering. You need a better widget that’s easy to get hold of.

Why Segment?

• Focuses scarce marketing and development resources on a target customer group
• Narrows whole product definition
• Limits real competitors
• Leverages past successes into other segments
• Allows the benefits of market leadership to develop more quickly

What’s the margin like? Look at market share that’s possible.

Dominant player in any marketplace is usually 30 per cent of market share. If you say you’re going to dominate a market and you’re aiming for 100 per cent market share, your credibility with investors will suffer.

Bowling Alley Model
Target a single niche market segment with a must-have value proposition. Win market share leadership in that segment and then leverage your leadership position to move into other markets.

Market Research can be done in two ways: primary research and secondary research.

Primary Research. Actually talk to potential customers, warm calls, cold calls and retail customer survey tools.
Secondary Research. Cruising the Internet and reading white papers, social networking sites and corporate reports.

Primary research methods are key features of effective marketing.

Customer Interviews – Calls, Meetings

• Have a product positioning “straw man” to describe your product to customers
• Develop a consistent set of questions
• Trade shows are a great place to do research and make contacts. You don’t necessarily need a booth. Just walk around and meet people.

Social Networking Sites

Why Join? It helps build profile and gives access to groups for targeted discussion. LinkedIn can be very good for that.

Question
What is a reasonable market share?

Answer
Build a bottom-up market plan. How much is each customer going to pay me? A very small percentage is quite normal. iPhone is in a very specific category. Compared with cell phones.

Sometimes there will be an incredible lag between when a product comes on the market and is adopted widely.

Social media is not a sustainable market when it offers stuff for free. 50 per cent of nothing (if you’re offering something for free) is still nothing. You have to charge something to be profitable. Not just about market share.

Question
How to model interview questions?

Answer
Keep the questions simple.

Technology Adoption Cycle
Early adopters – tech enthusiasts
Early adopters – visionaries
Early majority – pragmatists
Late majority – followers
Late adopters – laggards

If you sell on the Internet, there’s almost invariably a couple of people who want to buy exactly what you sell. But they may be early adopters — there may not be hundreds of thousands like your first few customers. How do you cross the chasm from early buy-in to a mass following?

Visionaries vs. Pragmatists: These two groups are not compatible. Visionaries must lead the way.

Chasm Scenario

Early market saturated, revenue growth slows. Credible references for pragmatists aren’t apparent. How wide and deep is the chasm?

Eg. If you’re building the latest and greatest iPhone app, it may be obsolete a year from now.

How to Cross the Chasm

• Segment – vertical applications
• Redefine and understand target customer’s whole problem and give them a more compelling reason to buy.
• Define and develop the WHOLE product (and how can you do it better than the competition?
• Develop a marketing plan

Challenge scenario — a technology company that sells technology that works with software in effect has to sell the hardware, plus the software, plus the product — and it only gets paid for one.

Example – TiVo 1999. Sold to early adopters initially after understanding their marketplace and early adopter behavior, but has expanded its marketplace because customers are now comfortable with multi-component systems and fee-paid service plans. This has taken TiVo 10 years.

Early Adopters Today, according to In-Stat Poll
More people consider themselves to be early adopters now.

New end user segmentation: Power, social and passive users.

What is the Whole Product?
Not just the physical product, but all of the associated factors such as services, partners, warranties, guarantees, image, training, etc.

For instance, if I’m buying a Blackberry and can get a good price on one in a little shop outside of a factory in China, is that a smart move? What about the value of service, warranty, etc?

The Whole Product Concept

• Determines which pieces the company intends to provide (If you want to build EVERYTHING, if will take you forever).
• Remaining areas must be filled in by partners
• Provides focus on customer requirements
• Improves time to market acceptance

Whole Product Questions

• What complementary services must be acquired with your product?
• What additional hardware or software must be purchased to deploy your product?
• Will customers achieve ROI without complementary products or services? How will total cost of ownership affect your sales process and customer satisfaction?

How do you market the whole product?

• Manage and demonstrate evidence of a whole product solution
• Manage the evidence of whole product solution
• Build reference base

One real problem with marketing: if the company won’t even tell you who they are, there’s a problem. Why don’t more companies have an email or phone number clearly on their site? What’s the product differentiator for Fresh Books? “We have a phone and we actually pick it up when our customers call us.”

Exercise: Ad-Hoc Whole Product Audit

• What complementary services must be acquired with your product?
• What additional hardware or software must be purchased to deploy your product?
• Will customers achieve ROI without complementary products or services? Sales process? Customer satisfaction?

Why will they buy from us vs. the competition?
Positioning = Managing the product and its presentation to fit a predetermined place in the mind of the customer.

Positioning equals market plus competitive segmentation differentiation.

If you sell a product to someone who doesn’t need it, this is going to be a problem for a long time. Sell the product that matches the customer’s needs.

Positioning Process
Understand, choose, differentiate, test, put a stake in the ground, reinforce in the market

Product Positioning

• Who do we sell to?
• What need do we solve?
• What could we do to sell the product?
• How are we different?
• What else is needed to get a solution to the problem?
• Positioning statement development

Positioning Statement (eg. iPod — below is the original statement. But it has changed since then…).

• For (target customer). Mobile, high income individuals.
• Who (compelling reason to buy). Who need a way to listen to their entire music collection in different settings.
• Our product is a (product category).
• That (key benefit). iPod offers elegance of design, the ability to store an entire music collection.
• Unlike (main competitor). Flash mp3 players
• the product (key differentiator) stores an entire music library and is integrated into a digital service to purchase new digital music.

iTunes defined why the iPod worked. People overpay for music just because of the service.

Starbucks is another good example. Their positioning statement isn’t even so much about the product (coffee) but is about offering a lifestyle.

Product positioning exercise:

• FOR (target customer segment)
• Who wants/needs (solution to problem)
• The (product name) is a (product category)
• That provides (compelling reason to buy from vendor)
• Unlike (main competitor)
• The (product name (key differentiator)

Elements of great positioning

Every time I go to a small company website and I see “we’re a world leader”, that’s a bad sign…

Acid Test for Product Positioning

Can competitor’s product name be substituted? If so, you haven’t differentiated yourself.

Pricing — common pricing issues

What are some common price objections you hear? Is your price too high or twoo low?

How does your pricing model compare with the industry and competition?

Price constraints

• Price Ceiling
• Channel
• Competitive Pressures
• Customer Buying Restrictions
• Value Proposition
• Reputation of Seller
• Total cost of ownership

As you move along through the phase of technology adoption, you can raise the price… until the product becomes a commodity. Then the price will go down and stay down.

Other common problems.

Unsure about what customer is willing to pay. They’ll always lowball if you ask them. Certain segments cannot or will not pay the premium price. But sometimes, customers are willing to pay more. Sometimes, you can infer from what other products the customers are buying.

If you’re the low-cost provider, you may be perceived as having the lower value. It can be hard to increase your price after that. If you’re significantly cheaper, you may not be trusted at all. If someone came around and started selling cars for $6,000 in Canada, we’d all be suspicious of what they’re really offering.

You can pick your price higher and offer discounts and inducements.

Pricing strategies

• Cost-plus pricing – set the price at production cost plus a certain profit margin
• Target return pricing
• Value-based pricing
• Psychological pricing – base the product on factors such as signals of product quality, popular price points and what the consumer perceives to be fair.

Exercise: Ad-Hoc Pricing Audit

• What are some common price objections you hear?
• How does your pricing model compare with your industry?
• Do you offer promotional pricing?
• What licensing alternatives do you offer?
• What discounts do you provide to resellers?

So long as you can differentiate yourself and provide value, you’re going to be fine.

Do a self assessment with true/false statements. Eg. Our product positioning is consistent in all marketing materials. Our pricing is well understood by sales prospects. Consistent with the market.

New Ventures BC seminar series continues, liveblogged for your real-time reading pleasure. Tonight’s seminar about “Managing Your Intellectual Property: Copyrights, Trade-Marks, Trade Secrets and Patents” is brought you you by Roger Kuypers and Doran Ingalls with Fasken Martineau.

*Quick note: Deadline for NVBC competition round 1 is April 19!*

Roger Kuypers
Disclaimer: This is not legal advice!

Topics We Will Cover on Intellectual Property
1. Main types of IP
2. IP commercialization models
3. Assignments and licenses

IP Management Considerations
1. IP identification
2. IP ownership.
3. IP protection. (once you’ve straightened out ownership, what are you going to do to protect it?)

* Four pillars of intellectual property
- copyrights
- trademarks
- trade secrets
- patents

NOTE: Roger likes questions as he goes through the presentation. Ask away!

Software is covered by copyrights, trademarks, trade secrets and patents.

Trademark: Eg. it will be called Word or Office and will have protection in the marketplace.
Copyright protects the code created and the layout of what you see on the screen.

Copyright
protects the expression of an idea, not the ideas themselves. A great idea may be patentable, but not copyright-able.

Eg. a song about love lost, that idea can’t be copyrighted. But the lyrics can be.

Copyright is the sole right to produce or reproduce a work, or a substantial part of a work.

“Work” includes books, songs, computer programs, instruction manuals and website designs. These are protected. But software doesn’t fit so squarely…

Requirements
Originality – the exercise of skill and diligence, but not necessarily creativity (eg. telephone listings are not protected by copyright. The cover will be, though. Mere compilation of industry is not copyrighted.

Fixation – must be expressed to some extent in a material form. Eg. interpretive dance would not be copyrighted — it would exist for a moment and be gone. But if it were to be captured on videotape, that could be copyrighted.

Another example. A hockey game is not copyrighted. The video of the hockey game can be.

As a general rule, the author or creator of a work is the first owner of copyright. If you’re an employee of a company creating code on instructions of your employee, your code is copyrighted to the owner. If you’re an independent contractor creating the code and don’t have an employee relationship, the contractor owns the copyright. This can be addressed in a contract.

Classic example is a website. The web developer creates what you see. If your contract doesn’t say you own it, you don’t own it (you just have license to use it). Something to be mindful of.

Moral Rights
These give the author of a work the exclusive right to be associated with the work and the integrity of the work.

Moral rights can only belong to people. Moral rights cannot be assigned, only waived.

Example. Toronto Mall shows sculpture of geese. Mall put Christmas decorations on the geese. Creator of sculpture put them to court. They had to remove the decorations.

Imagine how this might apply to tech. Software programmer says you can’t do an upgrade because it violates his moral rights(?). It’s possible…

Copyright Protection
- arises automatically
Copyright symbol notices should be used.
Registration enhances rights
- simple and inexpensive to register
- registration in US is more significant.

Registration in Canada does not enhance your rights significantly. Main benefit is when you send cease and desist letters, you can say it’s been registered and that has some weight.

Copyright in the USA is different. Statutory damages are accrued per violation.

Eg. If you took something and copied a lot (eg. some paragraphs of Harry Potter) it would be for a few thousand dollars per copy of a book sold. Could amount to a huge sum.

Copyright Management
Focus on ownership and rights
How are works developed?
What do your contracts say about copyright?
- Employment agreements
- Service contracts
- Licenses

QUESTION
Sometimes, you see “all rights reserved”. Does this provide any extra protection?

ANSWER
Just assume you don’t have rights to use this. A good thing to have if you have something that is prone to being copied. Eg. Educational materials constantly being copied, people go off and provide courses on their own using this material.

The notice doesn’t give you something you wouldn’t have had otherwise.

QUESTION
Is it risky to use open source software?

ANSWER
There is a fair amount of open source software. The problem is some types of open source software that you agree to by using that software that have consequences that are bad. Eg. Web developer was using open source, told us what they were using.

Some licenses had very robust language: “If you use this software to create software, this software will be free too”. The company had to write own software modules to replace the open source software.

QUESTION
I’ve been working with a graphic artist creating designs for a company. I created a concept which the designer executed. Who would own the rights to the logo?

She’s given me a certain type font that matches my concept. I might want to change the font in the future. Can I?

ANSWER
You have joint ownership. In Canada, this means you can use it as you wish. But to modify it, that could complicate things. You could have a partial waiver of moral rights to eachother.

QUESTION
If you have a contract and the contractor assigns copyright to you, does that include moral right?

ANSWER
Moral rights are in the Canadian copyright act, not the US one. Moral rights can only belong to people. Cannot be assigned, but can be waived (possibly for compensation).

QUESTION
Copyright and blogging. I write a blog that’s interesting to my user base. I’m re-posting parts of an article.

ANSWER
Often with blogs you have to accept certain terms before you’re allowed to post. If you want to be sure about what you post and submit, you need to be clear about those terms… There are concepts of fair use. You are allowed to use parts of works if you credit them, depending on what they’re used for. Such as education.

At the end of the day, you are running some risk in re-posting part of an article.

If you’re copying Harry Potter and selling it, that’s obviously infringement. But copying a few sentences for a Harry Potter fan blog and crediting it should be fine.

Trademarks – the Rodney Dangerfield of the legal world. They’re great, but they get no respect.

Why are Trade-Marks important?
- The goodwill associated with the product and companies reside in their respective trade-marks
- consumers make decisions based on trade-marks

Eg. Imagine McDonalds lost its trade-mark. Suddenly, it’s restaurants don’t “look” like McDonalds. Confusion would occur in the marketplace and customers would go elsewhere.

Managing Trade-Marks (Best Practices)

A. Picking a Good Trade-Mark
1. Distinctiveness
2. Searching and Clearance
3. Assessing Risks

B. Registration

C. Enforcement

IMPORTANT ADVICE - when starting out, focus on one distinctive trademark rather than a whole bunch. Distinguish your wares and services from those of others.

Two things kill distinctiveness. If Trademark is too descriptive or too much like competitors.

Eg. Kodak wasn’t associated with anything before the Kodak company came along.

Another good example is Apple. Before the Apple company, apples were not linked to computers. They gave that trade-mark meaning.

Trade mark owners should not monopolize words that describe wares or services
eg. “safe” cars or “fresh” bread. It’s anti-competitive.

Avoid confusion with other trademarks. It creates confusion in the marketplace and infringes the rights of others that have come before. Last thing you want to be doing is wasting money on litigation fees. You want to focus on developing your product and selling it.

Prior to choosing a trade-mark, search the trade-marks register and marketplace.

You may want to come up with two or three options re: brand as there is likely to be one choice already taken. Rank according to preference.

Types of Trade-Mark Rights
Common Law rights
- arise from use of trade-mark in the marketplace.
- need to search the marketplace to find them
- limited geographically

Eg. open a restaurant here, someone in Toronto can open a restaurant with the same name. But they can’t do it if you have statutory rights.

Knock-out searches
- CIPO, USPTO and other Trade-marks registry databases. Won’t show phonetically similar examples, though. Be careful!

Assessing Risks
Most searches reveal some measure of risk in proceeding with a trade-mark.
- You can use exact same trade-mark if you’re in a completely different area of business.

Eg. Barbie Barbecue company — consumers just aren’t going to be confused.

Think about the resources and expected vigilance of the other party. ie. Don’t try to go toe to toe with Coca Cola

QUESTION
Mike Rowe went up against Microsoft. He lost and had to give up his personal domain name. Was this legitimate?

ANSWER
They get upset easily… and they have a lot of money.

Registration of Trade-Mark
Registration is by country (except EU)
Canada
- One and a half years average for registration
- $2,500 (no objections, oppositions)
- 15 year renewable registration period.

Enforcement
Keep an eye out for possible infringement of your rights. Monitor your market.
Monitor trade-mark registries

Take action against infringements and potential infringements with cease and desist letters, legal action.

In common law jurisdictions, you get rights through use. If you wait to register, there’s some risk someone may try to register it.

QUESTION
Is trade-mark for life?

ANSWER
If you renew your registration, it can go on for life. You also have to keep using it. Commercial use is key.

Why Get a Patent?
- gives you the right to prevent others from making, using, selling the claimed invention
- lasts 20 years
- in exchange, you have to disclose your idea and eventually it will become public domain.

Secrecy — KEEP THE SECRET!
- public disclosure of invention prior to filing may be used against the application
- Use NDAs etc prior to filing. After filing, can disclose contents of application.

Not everything is patentable
requirements for invention to be patentable
- the invention is “new”
- non-obvious – the invention is not a minor tweak on what’s been done before
- utility – the invention does what it is described to do (This blocks time machines, perpetual motion machines, etc).
- subject matter

eg. replacing a nail with a screw is not going to get you a patent

Places to search for patent – USPTO

Obviousness
- test: invention can’t have been obvious to someone skilled in the art.

Subject Matter
- traditional: pharmaceuticals, electronics, chemicals
- less traditional: games, software, business methods

You may be surprised what IS patentable.

Higher life forms aren’t patentable, nor are mathematical algorithms.

The First Filing
Preparing the application
- provide detailed description
- remember you know this area of technology better than they do.

If cost is an issue, consider a provisional application
-first to file wins patent

Where to file?
- Patents are territorial

Problem: filing in multiple jurisdictions gets very expensive. However, your own applications and disclosure may work against you.

Claiming Priority
- International Treaties allow an applicatnt to file a first application, then file applications up to one year later and backdate the later filed applications

PCT Applications
- Closest thing to a “world patent” application (covers most major industrial countries).
- Treated as a pending application in countries

Provisional Applications
- only serve as an initial filing for the purposes of claiming priority. They will never become a patent
- can be less expensive than a regular application.
- useful when invention is in development
- BE CAREFUL – need to ensure provisional contains enough to preserve priority claim.

Common Strategy (about cost deferral)
- file provisional application
- one year later, file PCT application
- two and a half years from provisional application, enter national phase in selected jurisdictions
- THIS DELAYS getting patents

Patents as an asset
- value varies. Many are worthless. Some are valuable.
- sometimes allows early stage company to be taken more seriously
- investors may insist on filings

Defensive portfolio
- hold large portfolio of patents
- don’t litigate with patents unless defending self
- large budget for filing/prosecuting, less for litigation

Apple vs. HTC example.

Licensing
- toll collection eg. IBM
- they have thousands of patents they are quite happy to license. They make billions from it.
- some companies do nothing else (They are called “trolls”).

Patent Problems
- Cost: expensive to obtain, maintain and enforce
- publication
- limited duration: 20 years and then your idea becomes public domain (For software, that may be longer than it needs to be…)

QUESTION
If you have a patent, could you make enough changes to it to get another 20 years?

ANSWER
Changes would have to be patentable in their own right

QUESTION
Patent for mobile applications. Examples?

ANSWER
Patents for managing wireless networks. In a more abstract sense, there’s information flow, there has to be a way of managing the data. You can also get patents for applications (eg. a new way of using GPS in a novel feature).

QUESTION
How do you deal with a clearly invalid patent?

ANSWER
You want to be prepared. Be sure you can prove it was invalid. Eg. something was published in a book somewhere before the patent was filed.

QUESTION
If some parts of claim are invalid, does that make whole patent invalid?

ANSWER
Each claim is examined independently re: its validity

TRADE SECRETS
- information of commercial value not disclosed to the public

Eg. tech
- formulas, recipes,
- client, customer info
- “know-how”

Reasonable Efforts to Maintain Secrets
- Contracts! Everyone who knows secret should be under a contractual obligation to keep it secret.
- use NDAs

Advantages of Trade Secrets
- they never expire
- no filings required
- can be very successful (eg. Coca Cola, KFC).

Disadvantages
- not everything can be protected (eg. technology can be reverse-engineered)
- if the secret is exposed, it’s no longer a secret
- can be expensive to maintain (eg. KFC mixing its secret recipe of spices in different locations)

QUESTION
Let’s say you have a business plan and you’re entering a contest. In many business plans, there are trade secrets. How do you keep it secret?

ANSWER
- Don’t give away the “secret sauce”. Eg. we’ve got this great tasting drink (but we’re not telling you what’s in it).

Commercialization Models
- How will you commercialize your IP?

1. Integrator
2. Orchestrator
3. Licensor

Integrator: you do everything. development, manufacturing, sales, etc. So many potential pitfalls. Still, remarkably popular.
- capital intensive

Orchestrator: focus on some steps, but rely on others to carry out the rest.
- requires strong project management
- quicker to market
- balances control with need to leverage resources

Licensor
- license the technology to others to take it to market (ie. sell the license and sit back and collect checks).
- low capital and capability requirements
- requires strong IP protection
- requires good contracting skills
- allows innovators to focus on what they do best

Assignments and Licenses
- two ways of dealing with IP, like buying or renting

Assignments
- preferred to a license by IP purchaser, investors and acquirers. Eg. You’re an inventor and want to hang on to the IP. You sell a license, but retain control over the IP.
- IP becomes an asset of the assignee
- not affected by assignor bankruptcy

Investors don’t like this.

Licenses
- creative agreements

Licenses: Main Provisions

* Term: length of time of the license should be specified. Could be for duration of patent or copyright. Trap alert: Know-how license term

eg. negotiate a short-term license, then you have to pay more when it’s time to renegotiate the license if the commercial value is proven.

* Exclusivity – must be in writing. Represents and extra value (monopoly). Only sign an exclusive license agreement if you know and trust the licensee.

* Scope of Use. Many techs have different applications. You can find a number of partners who can use the techs in different fields. Maximize the use of that asset. eg. license use of mechanical device in one industry but not others. Movie adaptation of copyrighted work, but not for play.

* Territory. License can be worldwide or limited by country. Common approach to have a partner in North America, Asia and Europe.

Section 2.1: Article 1 is the definition. Want to see the portion of the agreement that grants the rights.

Perpetual, exclusive, worldwide right…

* Fees
- fixed fees
- milestone payments
- royalties
- shares in the capital of the licensee
- consider cash flow needs and risk/reward calculations to determine the right risk!

Need to balance compensation that meets your needs. Eg. If it’s your first deal and in a tertiary market, maybe you’ll take more cash up front. You’ll take more royalties when you deal with your main markets.

* Modifications and Improvements
- is the licensee entitled to modify the IP?
- If modifications are permitted, who owns them?

Case Study
Biotech Inc Licensor goes to three markets: Asia Pharmaco, North America Pharmaco, Europe Pharmaco. Each region may create improvements. You can try to have a provision in license agreement that everyone gets to use each other’s improvements. But you must contemplate this up front.

* Transferability by License
- is it possible for the licensee to transfer or sublicense its rights to a third party?
- Licensor might want to control who can receive a transfer or sublicense
- Licensor might want to control the form of sublicense agreement

These will affect how your investors see your company. What’s your exit strategy?

* Indemnification
- they are promising that if you promise some loss, they will pay for it. “The Licensor shall indeminify and hold harmless the Licensee against…”

Or “The Licensee shall indemnify and hold harmless the Licensor against”… eg. you don’t want to get sued for using software. Make sure you’re covered.

* Applause by a satisfied audience. We’re done! Have a good night, everyone *

Tonight, New Ventures BC’s own Bob de Wit and Elisabeth Maurer of LightIntegra Technology present Assessing the Opportunity. Entrepreneurs get the answers they need tonight about what do do when running with a new business idea.

Before getting underway with the seminar, Bob de Wit gave a warm and informative introduction of what NVBC is all about…

The NVBC competition takes place over four successive, and increasingly complex, rounds. Competitors are eliminated after each round until only 10 remain in play to win $300,000 in prize packages.

Need more details? Learn more about the New Ventures BC competition.

Check out the winners of past NVBC competitions!

—

Bob de Wit:
What defines an innovative product that might be entered by a company into the competition?

• It utilizes new technology
• It combines existing technologies in a new way.
• Utilizes technology to develop new or improved existing products or services
• It utilizes technologies to develop new or improve existing production processes
• It is early stage of a new technology

Bob’s Checklist for Crafting an Effective Business Opportunity Statement or elevator pitch

• Say what you do
• Define the pain
• Define the solution
• Say why anyone should care
• Define how you’re going to win
• The call to action (ie. Show me the money)

Elizabeth Maurer delivers award-winning pitch representing last year’s winner, LightIntegra

For first place in 2009, they won the $120,000 BC Innovation Council prize package. LightIntegra develops a medical device and disposables to measure the quality of platelets before transfusion…

—

Questions and Answers Session following the Presentation

Question
1. You talk about the market and how big it is, but do you plan to take it private?

Answer
We plan on going private. These companies that I have listed here already have an established customer base. We would feed into what they are doing. They don’t have a platelet quality test. They just want us to go through the FDA process.

Question
2. Market adoption and market penetration… You mentioned you were going to start with hospitals because they are most incented. You mentioned they would pay $500 for a bag of platelets. If they find the platelets are bad, would they return them? They’ve already paid for them…

Answer
Once hospitals can determine which one is the better product, they will force the production site to give them the better product. Can they get their money back? I don’t know. Maybe they can do an exchange and not pay for the next product. Something like that? Most cost savings comes from reducing the stay of the patient in the hospital… the cost attached to repetitive transfusions.

Question
3. You won the competition… Were there areas you saw that differentiated you from the competition? Were there paradigm shifts that if you knew then what you know now, would you have made changes?

Answer
I didn’t actually get to hear other pitches, so as a contestant, I didn’t really know how we compared. What we learned… being a scientist, I found it tremendously important to see these seminar topics and get the experience of the mentors. To get the feedback about what we had to think about was essential. To have a good idea is one thing, getting feedback was good. But being willing to listen and learn so that the feedback was actually helping you was also important.

(Bob de Wit: All three of the top teams added to the management team as they went along last year. This should be noted by current competitors).

Question
4. Where else did you get support for growing your venture?

Answer
Within Vancouver, the angel network and the life sciences network, where you can test your pitch is really, really helpful.

8:18 pm – Time For Prizes

New Ventures BC Leather Folio goes to Oliver!

New Ventures BC Jacket goes to Wolfgang!

—

8:20 pm Bob de Wit is back! “So, How do you Win?”

Round 1 Questions. What are the NVBC judges looking for?

• Describe the product or service offering
• Describe the innovation behind the idea without disclosing proprietary technology.
• Briefly describe the tech sector
• Provide a brief analysis of the market and competition

How about eligibility?

Our WIPO Definition of IP – Creations of the Mind

Round 2 Entry, Feasibility Test

Deadline is May 10, 2010!

Round 2 Judging Criteria

9 questions, grouped into Baseline questions and Evaluation Questions

Baseline
Where you sell the judge on your venture.
Describe your product or service.
Technology Development.
Who’s on your team?
What’s your Business Plan status?

Q1. Intellectual Property
Describe your IP strategy including plans for how your IP gives you a defensible competitive advantage. Remember, IP is not just patents!

Note: If patents are part of your strategy, don’t disclose all of your secret sauce. Talk about what it does, not how it does it. Patent protection is important to us.

Q2: Market

• 9 out of 10 submissions don’t talk about how they make money. Don’t make that mistake!
• Be specific about the size of your target market in terms of size, segments and trends. You need to come up with a number that shows you’ve researched what the market is.
• Make sure you consider all the markets you could apply your technology to, but keep focused on your first market.
• Next, describe your ideal customer. This really helps you work from the ground up.

Q3. Distribution

Explain the go-to-market plan. Do you have alliances you intend to strike? Why? When?

Q4. Competition

• Describe your company and product’s primary competitive differentiators.
• What makes you unique? How will customers benefit or save money?
• What are the barriers to competition?

Q5. Financial (key numbers)

• What have you spent to date? What funds have been raised? From where? How much do you need?
• When will your venture be cash-flow positive?
• Include your key assumptions that drive your forecasts.

What do Successful Entrepreneurs Understand?

• The market where their product is sold.
• Key defensible qualities that give an edge over the competition
• Strong supporting team
• Philosophy: “Cash is king”. They budget as closely as they can so they always know their cash runway.

Some final tips:

Find mentors to expand your vision

Don’t overplan – take action

Hire people who are smarter than you.

Tailor your elevator pitch to different audiences

Play to win but be willing to risk failure

Acknowledge the competition. Never say “there is no competition!”

Don’t let the critics get you down. Use the feedback. Adapt and overcome.

Have fun and don’t take yourself too seriously.

Where to Look for Help?

• Your regional Science Council
• NRC IRAP
• New Ventures BC Competition
• Mike Volker’s website
• Ventureblog.com
• Angelblog.net

Where NOT to Look first for feedback:

• Your bank
• Your family and friends
• Outside your home market
• Business planning consultants (You can’t have someone else write your business plan. It just doesn’t work!)

—

8:42 pm Questions Session

Questions

1. Can we get a copy of the slides?

Answer
Will be available on the NVBC site the following day

Bob – Who’s already joined the competition?

Answer from the audience: Most put their hands up!

The competition goes on!

Hello, this is Victoria here with my last blog for the New Ventures BC seminar sessions.  Basil Peters is up talking about the exit strategy.  Most of you know him already and I think that there is no better person to be giving us all this seminar about this topic.  If you want a more in-depth overview of the talk, please have a look at the video.

Basil is going over some very successful companies that were all acquired for under $20 Million.  He is saying that big companies want to buy things for $10-30 million.  Why? Because big companies don’t want to spend money on R&D, but would rather acquire companies. Examples with Club Penguin started in Kelowna.  In just two years, they sold the company for $350 million.  When can you sell the company? When you’ve proven the business model.  It’s often the best time to sell. You have to sell on an upward trend. Sell on the promise and not the reality.  Next side asks if you even need investors.  He says because technology, networks and this huge global market evolving, you can build a valuable company for tens of thousands of dollars.  Club Penguin, MetroLyrics, Plenty of Fish, all bootstrapped. So Basil says– if you can– bootstrap!  If you don’t have an other option you have to raise private capital from either VCs or angel investors.

Definitions: What is venture capital really?  He shows some graphs, but the point is that it’s changed. Here’s some interesting data. In America, each year VC Funds invest about 20 billion.  So do angels.  Even more surprising? Friends and Family investors invest about 5 to 10 times more.  So the pot we thought was little, is actually a lot bigger and influential than we thought.  Angel Co-Investment: it’s when groups of angels invest $5 million to $10 million together.   Basil says there is no shortage of capital today.

Why do you need an exit strategy first?  And how do you develop it?  Sometimes there is no exit strategy and that is a strategy. Lifestyles business without investors is an exit strategy. The exit is just another business process.  Start at the end and understand your goal. “Our exit strategy is to sell the company in X number of years for around X amount.” Check the alignment about how the ES will look like.  Get a sign off on a written exit strategy.After going over some slides about why some exits are more successful without VCs, Basil explains how VCs block good exits.

Angels or VCs but not both: new research shows that based on 182 deals, when angels and VCs invest together, it didn’t work out as well. Basil recommends taking angel money and not VC money if you’re looking for less than $3-5 million.

Summary:  Most acquisitions are done under $20 million and modern companies don’t need much capital.  Bootstrap if you can, angels can finance up to $5-10 million.  Basil encourages us to look at his blog and to get his book if we want to read and learn more about the exit strategy.

Hello, once again it’s Victoria here at NVBC’s night for learning how to pitch.  David Shore from Stirling Mercantile and Jonathan Bixby from Strangeloop Networks will be taking the stage tonight.

What differentiates people who win? They have a focus. Have a thesis and they have greed around their focus. So, what is the structure of a business focused statement?

1. Thesis: Tell Me What You Do

We sell (blank) that helps (who, target market) and what does it do for them (save or make them money)

•    do not tell us what the technology does
•    it has to be simple and make sense
•    differentiate yourself

2. Communication: Are they going to remember you?

Example with Barack Obama–he is a gifted communicator.  He is going through a quick presentation about a. not including points you are speaking on a slide and to pause and b. to observe your audience, not just talk at them, lastly c. the judges will remember you, so show some excitement. Show the fact that you are excited about your business.

3. Presentation: Judges prefer graphical presentations. Colour, simple text, and go overboard.

1. Start with and include a title.
2. Include a snapshot of what you do, then include something about you, the team and those involves. Indicate who you are, CEO, CMO and indicate that you require the CTO or advisors.  Brief description of where you’ve worked and who you’ve worked with.
3. Industry Problem: will your customer make money, save money or what? It’s a financial issue. *Customers are leaving. Problem can be societal.
4. Identify the solution: Uses Flickr as an example. If you have software, use screenshots. If you have hardware, show diagrams and tell a story. How did you get involved, or determine that there was a need? Introduce a third-party validation with a quote with a person’s name with a target company. This slide will take longer to present. Show your pride, the route you took etc.
5. Product
6. Addressable Market: these slides you need to go over quickly, use a graph or chart, name important points and graph them and talk about where they’re going, show where we are going as opposed to our competition
7. Sales and Marketing: data on marketing # helps (1 minute to 30 seconds on this slide)
8. Road Map: do a graph, design to full launch about where you are with raising money (this slide’s length depends on how complicated your business is)
9. Projections: busy slide with a lot of numbers, 5 years shown, number of customers and price are the most valuable numbers on slide. If your number is less than $10 million in the fifth year, raise that number. If you’re going after a trillion dollar market, it’s not unreasonable to have a half- billion of that market.
10. Investment Opportunity: name three stages, raising money at this stage, raising money at launch and scale and ask (%) of $$.
11. Summary: leave up for question period, flavour the rest of your discussion
12. Appendix: no end to that so make them and you can email the investors a softcopy, each slide can have a Q and A, slide. So 12 in a presentation and then 30-40 to prepare

Things to avoid saying:

• Our projections are conservative
• We have no competition
• We have first mover advantage
• We only need to capture x% of the tiny piece of huge market

Would you have more than one person present?  Yes, but practice. Seemlessness is key.  The CEO should be the one giving the presentation.