United States: What Do Early Investors Really Expect Of An Emerging Technology Company?

Last Updated: September 4 2015
Article by John W. Caldwell

Emerging technology companies – at their core – will usually have a great scientific or engineering breakthrough or improvement coupled with at least one stellar individual talent. The company will usually have credible proof of concept and often a working prototype. It will never have enough money or enough time or enough boots on the ground to either build an iron clad business plan or develop an air tight patent portfolio. There will always be gaps.

This said, what is it that very early investors hold to be essential in such a company? What questions must be answered in order to pry loose a contribution to the exchequer? What must an emerging tech company's business plan show?

Is the company leadership experienced; does it have a clue?

Brand-new CEOs, college professors, freshly minted MBAs, and retreaded, mid-level, big corporation managers are all anathema. While there are some professorial types who end up doing well with new companies; they rarely do well with their first new company. The ardent, fresh faced MBA grad will invariably – but erroneously – think that school provides the tools to run a company. What about that failed mid-level executive? Does it take much imagination to see how that will end?

It follows that at least one leader with actual, current, demonstrable success in scientifically-based business is what is needed. This leadership must be capable of handling business organization, finance, legal, personnel, and inter-business relationships. It is NOT necessary that the leader be an expert in the relevant science; that can be the focus of others. But the leader must truly have capable hands on the tiller. Without such a person, the chances of acquiring funding are small.

Does the science make sense?

Demonstrating an understanding of the science requires more than just telling a story. The company must be seen to have recognition of the scientific underpinnings of its planned product line by at least some respected authorities. This is often achieved by having recognized scientific advisors who stand behind the company and lend credence. University origins are helpful here, especially if some of the technology originates at a tier 1 research institution. Failing that, recruiting known scientific authorities in the relevant field is nearly essential. An exception to this might exist where the science is readily approachable by most people. Not all technology companies will be engaging in Nobel-quality work after all; however, the substance must be present.

Is the intellectual property in order? Can exclusivity be attained?

Piracy is rampant. There are few truly effective ways of securing an exclusive position in the market. For science-based companies, having a well-conceived patent strategy is nearly always necessary. Trade secrets have their place and a trademark and copyright plan is usually important as well. The key, however, can be found among the patent rights.

A science-based emerging company must be seen to have patent applications in place that are likely to issue and that will provide the legal mechanism to stop competitors from copying important inventions upon which the product line will rely. It is not necessary that the patent be issued, only that it is likely to issue. Further, no investor wants to bet on a "one-trick pony." An overarching intellectual property (IP) plan ought to be in place to identify and protect inventions for the ongoing technological pipeline. The business plan ought to include an IP plan as an element. Part of this should focus on freedom to operate.

It follows that an emerging company must have the services of first-rate patent counsel available. This is always expensive. However no IP plan will be respected unless it is under the care of true experts. The company business plan ought to identify an expert IP law firm that has the matter in hand as well as provide a plausible budget for effectuating the IP plan.

Does the company have access to the needed resources apart from money?

The business plan ought to identify general legal counsel that has committed to helping the company in its early years. Newly minted lawyers will not do here; seasoned business counsel is essential. Accounting talent, sometimes a personnel agency and other advisors which the company will use to build itself are important elements of success. They should "show on the pages" of the business plan. Detail is far less important than is the cast of characters. The right advisors will confer confidence that they will carry the enterprise forward correctly.

Do the financials make sense or are they Hoodoo?

The younger the company, the less "real" the numbers. Yet a business plan with purely fictitious financial outlooks will not gain respect or lead to investment. Market planning, margins, and the like are what they are. However, what is often forgotten in the use of funds are expenses for the items discussed above. Urging that an IP plan be in place, but providing no line item to pay for the expense is not encouraging to investors. Understating the costs of needed expertise is easily spotted by potential investors and can render the financial picture unbelievable. Finally, overstating likely margins, market penetration, overall market, time to profitability or the other elements of the financial overview can lead to a feeling of distrust.

This leads to the final item: Can I trust this company?

Comment is hardly needed for this. Can I trust the company leadership to see the field clearly, carefully allocate resources (MY resources!), prioritize focus, secure truly expert professional help, hire the right people and mind the sheets and tacks? An investor's hand may hover over the wallet, but it will not open it unless trust is evident.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.