360° for technology start-ups – reflections
What do start-ups need to ensure their success? The ability to pivot, work backwards and take IP protection seriously, according to the experts who joined Ellis IP and Brodies LLP at their 360° For Start-Ups event in Edinburgh on Thursday 3rd May.
Guests at the event – who were motivated to attend by a variety of factors, including the opportunities for networking, insights on IP, and the chance to stay ahead of the competition – were treated to tips and guidance from companies including IP insurance specialists, angel investors and, of course, IP consultants.
Organiser and host Claudia Duffy, European Patent Attorney with Ellis IP, started the meeting by looking at the Global Entrepreneurship Monitor, and asking where Scotland and the UK stood globally in the entrepreneurial charts.
“In 1999, 8.5% of the USA population were classed as entrepreneurs, and 3.3% in the UK, though this has risen to 5.5%,” explained Claudia. “Entrepreneurship motivated this event, but though it has risen in the UK, it is still behind the US.”
In the Reuters 2018 list of Europe’s most innovative universities, Glasgow University stands at number 36 and Edinburgh University at number 45. The list ranks the universities by those doing the most to “advance science, invent new technologies and power new markets and technologies”, and measures this by the number of patents filed by those institutions.
Most of the GEM’s top 10 entrepreneurial British towns are in the south-east corner of England, though Aberdeen, with its backdrop of the oil and gas industry, stands at number six.
She concluded: “There are a very large number of jobs in the US in tech start-ups, and start-ups are the most entrepreneurial of companies – not scale-ups – so the question has to be, is there a lack of investment in scaling up?”
Protecting, managing and exploiting IP
Michael Ellis, founder and director of Ellis IP, led the talks on how to protect IP assets, beginning by pointing out that, since he is from Unst in Shetland, he is the UK’s most northerly originating patent attorney!
After outlining the types of IP, Michael explained, “Creations of the mind are intellectual assets or property. Protecting your IP improves creativity and commercial possibilities. Ellis IP understands the value of what you’ve got and adds value to your business, taking a holistic approach.”
Michael’s top five IP tips for technology businesses are:
Ownership of the IP
Understanding its value – patents vs trade secrets
Don’t file too soon
Don’t file too late
Develop a strategy and regularly revisit it.
“I’ve said don’t file too soon and don’t file too late – basically you have to file at exactly the right time!” laughed Michael.
Will McIntosh, corporate partner at Brodies LLP, continued the guidance. “The key skill for tech firms is the ability to pivot,” he said, a point that other speakers returned to throughout the afternoon, emphasising the importance of flexibility.
“I have done more than 300 financial deals in 25 years, and all were different and I was constantly learning,” pointed out Will. “I can’t pick a winner but I know who will fail.” He suggests that start-ups looking for investment start at the end point and work back – “What are your assets, what are your key differentiators and what is the market need? Align your business plan with commercial objectives – work out the five top potential buyers and work backwards. Don’t give away exclusivity to the first person who’ll write you a cheque.”
It is important to maximise value on exit, said Will; and value is enhanced by positioning, revenue stream and IP. Cutting corners at the early stages can be done but as a company grows it must be rigorous – “Investors are astute.”
The guests were then treated to a video from funding platform IdeasPatch, supplied by company founder Simon Krystman. IdeasPatch’s investor community can fund patent protection, relieving the cost for individuals, start-ups and SMEs.
Zeev talked about his launch into law in the Israeli army, and his progression into IP.
“Tel Aviv and Cambridge are very similar – they have people who can identify the problems, who know how to solve them, and who have the balls to do it.
“I saw problems in IP from the beginning. The biggest one was that when you see your clients succeed, it makes you realise that you’re not [succeeding]!”
Zeev asked the room what it thought was the biggest problem in IP protection, and the general consensus was the costs involved.
“IP is not seen as important as funding, or sales, or marketing,” said Zeev, “so well-funded companies don’t care about paying too much money for IP protection.” The inference from this is that underfunded companies will avoid protecting its IP entirely, since it can’t afford to, and doesn’t see doing so as important.
Zeev insisted it was possible to be both creative and efficient in protecting IP assets.
“Start-ups with patents are more likely to succeed,” he said. “In some sectors – software, biotech – they are 400% more likely to succeed.”
Claudia asked the panel what mistakes were sometimes made in IP, by both clients and attorneys.
“Thinking about contracts, relationships, partnerships and IP ownership right at the beginning is important,” said Michael. “So many people don’t and when they run into issues they say, ‘We didn’t think we were going to succeed!’”
“The most common mistake,” said Will, “is when people pay to own the IP but don’t have the piece of paper to show that. Also, exploit your IP when you can – don’t think about it too much. And always leave something on the table for the other person. Don’t be too greedy.”
Zeev was more forgiving of mistakes. “When you build a new company and are doing new things, you make mistakes non-stop all the time. It’s not something to be proud of but it’s not a problem. Do you learn from them? That is the question.”
However, Zeev was more critical of those who rely too much on outside opinions – “Using advice and blindly relying on advice is a failure. As a start-up you need to learn everything, ask questions about everything, so that if a mistake is made [by an outside agency, and you question it], it will be picked up.”
The floor being opened to questions, a representative of Heriot Watt’s in-house legal team asked how universities and investors could balance the different interests of R&D and commercial returns; she also referred to the arguments over assignation. Claudia pointed out that Cambridge University pushes IP out into industry with a clause in the exclusive licence agreement that sets out a time-frame, so when a certain amount of time has passed the IP returns to the university.
One comment from the floor asserted that universities are not full of entrepreneurs, a statement the Heriot Watt legal rep refuted: “That is the wrong understanding!”
Lesson from a technology entrepreneur
Do you think entrepreneurs are made or born? This was the question put to the room by Ahmed El-Rayis, engineer, inventor, entrepreneur and business consultant. The majority response was that they are made.
His own entrepreneurial background provided a lesson in how to think creatively and push for success – Sofant Technologies, which he co-founded, is an electronics manufacturer whose “smart antenna” can help to reduce the cost of producing and maintaining wireless networks. It received a lot of media attention when it was launched, and prompted discussions on how technology would lengthen battery life. The timeline of Sofant’s evolution saw Ahmed consulting with Scottish Enterprise, gaining investment, and receiving awards in the Converge Challenge and UK Trade & Investment World’s Next Big Thing competitions.
“Start-ups should go to the International Consumer Electronics Show [CES],” Ahmed advised.
“You can pitch to big companies there.”
The ability to juggle, if not multitask, is a requirement. “An entrepreneur looks at several things at the same time. I used LinkedIn to headhunt! If you’re planning to do something, just do it. Don’t think too much. Just plan and do.”
Ahmed ended by explaining how he can help technology start-ups:
Mobile market expertise
Agile approach for product development
Position the business for maximum impact
Identify inflection points and road map for business success
IP enforcement and litigation
Brodies LLP partner Gill had taken the audience through a potted history of the firm, and told us, “I am the oldest – if not the wisest – IP lawyer in Scotland, so I’ve seen a lot of changes, all of which have forced the law and IP to adapt. And sometimes they don’t adapt fast enough.”
Gill described herself as a dispute avoidance lawyer, but delighted the audience by outlining some IP litigation processes she had overseen, including one made on behalf of an adult website. “There is no copyright on obscene materials,” Gill pointed out, “so we defined the website as artistic!”
The importance of identifying and protecting IP as early as possible was emphasised. “A lot of companies wrongly assume they own the IP. You need to prove ownership with contracts, records of creation and investment.”
Gill ended her talk by saying, “When my client tells me that the other side has IP insurance, that makes me very nervous,” which led smoothly into the next talk, by Safeguard IP’s David Bloom.
“The cost of protecting and enforcing patents is ridiculous,” said David, underlining the biggest obstacle to IP protection. “But 80% of business value is held in intangible assets such as IP – if it’s valuable, it’s worth insuring.” This seems especially important since, as David pointed out, companies never factor IP litigation costs into their budgets – and insurance helps eradicate that concern.
Formerly an IP solicitor, David launched Safeguard IP to help IP owners cover the legal costs of both pursuing infringers and defending allegations of infringement.
“I’ve developed insurance products for SMEs, and there has been a small explosion of companies taking out IP insurance. Investors like key assets to be insured, so that if anything happens they don’t have to put their hands into their pockets.”
The seminar’s next guest Rachel Jones, did have to put her hand into her pocket, something which, as she pointed out, could have been avoided had she had IP insurance.
Rachel invented the Totseat, a portable highchair/harness, which she produced and had manufactured as a way to “prove myself capable of taking it to market”. All was going well, with the Totseat picked up by John Lewis for sale nationwide in its stores. Rachel procured a trademark for the seat – “I think that’s the most important IP protection, the trademark,” said Rachel – and had it registered at customs via the Enforcement Database (EDB).
The EDB is a free service which enables customs and excise to identify counterfeit and fake goods coming into and out of the country, and notify the IP owner. Shockingly, only 90 UK companies currently have their products registered with the database, which could largely have been due to the 40-page application document – though now the EUIPO has put the application form online, making it quicker and easier to complete.
Then Rachel received a call from customs to inform her that a Totseat product identical to hers, but clearly a counterfeit, had entered the country.
“The infringement or counterfeiting of your product means your brand is violated and your business is beaten up,” said Rachel.
Rachel then hired two Chinese students to look online for fake Totseats, “and we found lots – in China!” Rachel’s trademark protection meant that with both tenacity and the translation skills of her students, she could identify all the fakes and have them obliterated.
“I just want to help companies protect their products now,” said Rachel with passion. “Fake products can kill, full stop. So I decided to develop algorithms to monitor online sales platforms to identify counterfeits. And sales platforms are much better at controlling them these days.”
The panel discussed the impact of China on IP protection, and while David said that his company’s biggest claim had been in China, Gill stressed the importance of registering trademarks in that country.
“South east Asia has seen the most counterfeiting,” said Rachel. “China, Taiwan, Hong Kong… then South America – Mexico, Brazil… and Russia is a big problem. And a lot comes out of Egypt. And Turkey for clothing!”
The audience was left with the impression that counterfeiting is a global problem, which makes protecting your IP essential. One audience member pointed out that RocketSpace founder Duncan Logan had said at last year’s EIE conference that many US companies are now investing in the Chinese counterfeiters of their products, since the Chinese fakes will grow and innovate faster.
Whether this can be seen as a compromise or a capitulation is uncertain.
Lessons from a company executive
Inevitably, with the growth and success of a small business, comes the need to take on more staff – and with this need come all the inherent complications, rules and pitfalls. Purpose HR, headed by Lisa Thomson, delivers ad hoc HR support and functions for early-stage, investor-backed tech, engineering and life sciences companies, and can provide guidance on:
Sourcing, retention and development of key skills.
Lisa’s background in HR saw her gaining the Saltire Fellowship through Entrepreneurial Scotland, which allowed her to study at Babson College in Boston, USA. She has had a wealth of experience setting up and maintaining HR departments in a variety of industries, and emphasises the importance of prioritising HR functions.
“At the beginning, have robust employment contracts drawn up and make sure they are fit for purpose as your business grows,” she said. It is a common mistake for start-ups and SMEs to copy and paste contracts from other companies, with sometimes disastrous consequences.
One question from the floor asked whether Lisa sees the advantage in placing women in executive positions. “A lot of the businesses we work with are male-dominated,” said Lisa, “but there is much to be gained from having a wealth of decision-makers.”
Another guest pointed out the existence of 2 to 3 days, an online recruitment service which matches mums who want part-time work with the jobs that will suit them. “That is where you can find clever women to work with start-ups,” was the comment.
Start-up financing and accounting
It could have been seen as dangerously daring to present our money experts at the end of the day, when the audience were reaching their fill of advice – but our panel on finance and accounting was both engaging and informative.
Michiel Smith, of Apollo Informal Investment, started by pointing out that though there are many good angel investment services who can provide companies with large amounts of money, it is relatively difficult for start-ups to get small amounts of money.
“We prefer to provide seed investments to smaller start-ups, then we hand them on to larger angel investors for more money as they grow,” Michiel said. Apollo is happy to help companies whose valuation is limited to £500,000.
His advice for those looking for funding was to put themselves in the shoes of an investor, and ask yourself what returns on an investment you would provide. “Besides selling me the investment proposal,” said Michiel, “you’re also selling yourself. My gut feeling as an investor is very natural.”
Niki McKenzie, of funding syndicate Archangel Investors, joked that her company likes to invest in Scottish companies because the returns are better and clients’ offices are closer! The truth was that her syndicate’s investors are looking for businesses and start-ups with scale and the possibility of growth – and with defensible IP.
“We look at 200 opportunities a year,” said Niki, “and 100 of those will meet our requirements; then 20 of those 100 will get an in-depth diligence review. If you then need follow-on funding, you need to know where that follow-on funding will come from.”
Niki outlined the importance of a team identifying its strengths and weaknesses. “Your market should be large and addressable,” she said, “your technology disruptable and unique.”
But she also emphasised the two-way aspect of relationships with investors, with a start-up’s faith in its investors as crucial as the investors trust in those receiving their funds. “Doing due diligence on your investors is important,” Niki concluded. “Look at who else they’ve invested in.”
Jumpstart’s Sandy Findlay provided the group with advice on R&D tax credit claims, taking care to point out that it is the HMRC that defines the term R&D, not your business. To have your R&D eligible for tax credits, it must be:
Seeking to achieve an advance in science or technology
Subject to scientific or technological uncertainty
Undertaken by competent professionals.
“Note that you can just be seeking to achieve an advance,” said Sandy. “You don’t actually have to succeed…” If you need further clarification of what classes as technological uncertainty, HMRC can provide you with 500 pages of guidance!
Sandy also warned about applying for grants before tax credits, since the bestowal of grants can have an impact on tax credit claims.
“Tell us that you intend to apply for a grant before you do so, so we can ringfence government money,” said Sandy.
Mazars director of outsourcing Simone Young reminded our guests that from 2019, all VAT-registered businesses must make use of the cloud system, filing their accounts and submitting VAT returns digitally. “Businesses that do their accounts in Excel or on bits of paper will have a problem from next year,” she said.
Mazars can advise clients on how to move their accounts onto the cloud system, and can also guide towards the best apps for your industry: “There are speciality apps for retail, manufacturing, hospitals, etc, and we advise which are the best for their companies.”
Reinforcing Lisa Thomson’s comments on HR earlier in the day, Simone pointed out that entrepreneurs and start-ups don’t want to deal with the management of staff. “Payroll is a headache now,” she said, “so it’s important to outsource and get the right advice.” Mazars offers guidance and support for payroll, bookkeeping, credit control, accounts and finances.
What are the advantages of outsourcing?
No staff to manage
More time to spend growing the business
A greater pool of resources from processor to finance director
Access to data 24/7 anywhere in the world.
“My top tip is to seek advice on tax, VAT and finances,” said Simone. “That’s what we’re here for.”
Claudia’s final question of the day was how long did it take for our speakers to be able to help a client. The general consensus was that clients can be helped very quickly, but it is important to spend longer getting to know the entrepreneur, their company, their team, and what they really need.
“There’s no fixed time,” said Niki, “it’s a case of getting to know the team, and getting to the bottom of whether it’s something you want to invest in. Sometimes it can be quick, sometimes it can take a couple of years.”
Michiel agreed: “Technically you can help a client in a month but you don’t want to do that because you want to get to know them, and do due diligence on the person.”
As for Jumpstart helping with the R&D tax credits? “An hour and a half’s discussion is all we need,” said Sandy. “Any longer and we’re not doing our job properly!”
The seminar ended with the opportunity to network; and with both entrepreneurs and investors in the room, we’re confident there will have been some advantageous conversations coming out of the day.