Why accelerators should look into IP
Recent years have seen a surge of entrepreneur activity all over the world. Introduction of a number of early stage companies has spawned a number of entities which facilitate such companies, examples of such entities being venture capitalists, angel investors, incubators, and accelerators. Each type of entity caters to a different problem faced by start-up companies.
India is going through a phase where there is lot of traction and buzz on start-ups. Several multinational funding agencies have set their foot in India, let alone the scores of domestic funding agencies. One needs to be extra cautious in categorizing the domestic funding agencies as VC’s or accelerators or angel investors as the lines that differentiate them from one another are rather bleak. Added to that, India being multi-lingual and multi-cultural, regionally there exists hordes of funding agencies which are associated with various terminologies colloquially.
Venture capitalists, angel investors, and incubators are nothing new. In fact, they were in existence in one form or another as early as mankind has known to do business. However, a new breed of start-up supporting entities has been introduced in the market in the recent years: The accelerators. The accelerator, or seed accelerator as it is popularly known, is an entity that provides financial support, counselling and infrastructure for start-up companies at early stages of formation. The accelerators make significant effort to market themselves to potential candidates resulting in a large number of applicants vying for small number of seats. The accelerators not only look into the ideas; they look into the talent working in pursuit of the idea as well. The companies are chosen on the basis of both the applicability of the idea as well as the people constituting the team of the company. The funding varies, sometimes in small tranches of few thousand dollars and at times in hundreds of thousand dollars.
It is critical to understand the importance of Intellectual Property protection for start-ups by accelerators. Intellectual property protection which was considered as a nuisance in the past amongst Indian corporates has started getting attention in the last 10 years. More and more corporates have initiated several in house strategies in protecting IP. The various IP forums, associations, and conferences all add fuel to the IP eco system in India. Earlier, during an M&A deal in India, IP was associated only to brand equity and good will. Today, things have evolved and people have started recognizing IP during deals, especially patents. There are several factors that accelerators need to look into before inducing a company into their programs. Not just among the start-up companies, but in among any group of tech-based companies, the risk of patent litigation is very real. So even if the start-up does have patents, and even if you have an exit strategy in place, it is imperative for the investors to play the devil’s advocate and do a thorough prior art search to avoid any future litigation.
The trouble with the start-up companies today is that though they are encouraged by the wide array of VCs, accelerators, incubators, and such, they are also targeted. They are targeted by patent trolls who sniff out the deals occurring between start-ups companies and their funding agencies and target those start-ups for million dollar settlements. As a result, unless the start-up does find a way out of the troll litigation, it would not be viable for the accelerators to invest in such companies. Hence, it is important that accelerators ensure there is a good IP strategy in place before they invest in start-ups.