There are multiple types of applications for patent protection that are available.  Two of the more common are Utility (Provisional and Regular) and Design.  The difference between design patents and utility patents is that design patents only protect the non-functional appearance of a product, while utility patents cover how your invention works.  For some products both patent types may be available.  The main advantage of design patents is they are relatively inexpensive to obtain.  The main disadvantage of design patents is the scope of protection is generally narrow – they only cover the appearance of the product shown in the drawings, and not the product’s function.

If a utility patent is appropriate for your invention, then you need to decide whether to file a regular application or a provisional application. Because of their lower initial cost, provisional patents can be more attractive to start ups. Some of the more significant pros and cons of filing a provisional patent include:

ADVANTAGES OF A PROVISIONAL APPLICATION

1. Slightly Lower Initial Cost. The initial cost of preparing and filing a provisional patent application generally is lower than that of preparing and filing an actual patent application. This is because of the lower PTO filing fees and the more limited requirements of a provisional application.

2.  Delay of Examination Costs. Since a provisional application is not examined by the PTO, examination costs are delayed during the pendency of the provisional application.

3.  Shift of Patent Term. The end of the patent term can be shifted one year into the future, an important advantage for inventions, such as drugs, whose commercial value may be at the end of the patent term.

DISADVANTAGES OF A PROVISIONAL APPLICATION

1.  Delay in Issuance of a Patent. A provisional application cannot result in a patent— an actual application will eventually have to be filed.  Accordingly, the initial filing of a provisional application, instead of the immediate filing of a regular application, necessarily delays the issuance of any resulting patent.

2.  Higher Total Cost. The overall cost of initially filing a provisional application and then following up with the filing of an actual application will necessarily be more than the immediate filing of a regular application.

3.  Accelerated Foreign Filing Costs. Filing a provisional patent application starts the one-year period within which foreign patent protection must be applied for.

In next week’s post I’ll provide an entrepreneur’s checklist for determining if a patent application is required (or appropriate for your product or invention.

Periodically we will have posts from local entrepreneurs that provide some sound advice from a slightly different perspective. Today’s post is from Jason McDowall, a local serial entrepreneur that I’ve had the opportunity to work with and get to know over the last couple of years.  Jason was previously the co-founder and CEO of Adhoc Mobile, a developer of a sophisticated mobile ad and content delivery platform, that raised $3M in Angel financing. Jason is now the VP of Product Development at Benchmark Metrics, an angel funded developer of web-based business analytics tools.  Just a brief editorial note…the angel investors he describes below were not from the Pasadena Angels. 

By Jason McDowall

You’ve  shaken the loose change from friends and family, and now you’re desperate for cash to get your startup to the next level.  Do you think any check that doesn’t bounce belongs in your checking account?  In my experience, I believe you should be picky about who supplies the cash.  If your investors aren’t helping your company, they’re hurting it.  Here’s what can go wrong:

Risk: the investor does nothing

Who cares?  At least you’ve got some extra time and resources to build your dream, right?  That hasn’t been my experience.  Sure that convertible debt or silent investor may have bought you extra time, but your milestones and plans are probably wrong to begin with.  You’ll need even more time and more resources to execute than your business plan indicates.  For seed-stage companies, there is so much work to be done, so many adjustments to make, so many relationships that need to be established that you need your investors working for you.  Why waste your time or equity on an investor who cannot contribute essential customers, contacts, or credibility?  Your competitor is already better funded and has that support.

Risk: the investor promises a lot and does nothing

This is even worse than the risk above because you have misplaced expectations and end up wasting a bunch of precious equity/cash/time on a non-delivering member of the team.  If you are lucky enough to have someone offer you money, you owe it to your company/team to do some reference checking on the source of funds.  Talk to other companies that have received investments from the same source, and find out if they have they delivered on similar promises in the past.  If the investor is taking a role in the company (e.g., temporary C-level exec, VP of anything) check the investor’s work references just as you would for any other hire.

Risk: the well runs dry…or loses interest

Chances are the specifics of what your company does and how it makes money will change between the start and the declaration of success.  And to make it more challenging, it will take longer and cost more than you think to get there.  An unsophisticated investor or one unfamiliar with your industry may not have the appetite for the inevitable trial and error process.  You definitely need to be smart about market validation and finding ways to try/learn/adjust quickly

But you also need an investor who appreciates the need for, and can supply or quickly facilitate, additional funding to get you to that next major milestone (assuming you deserve the chance).  Finding an angel who made a bunch of money in real estate to invest and take a board seat in your web widget software startup is probably not the best move.

Risk: adversity strikes and visions begin to differ

At the beginning, everyone is full of excitement and enthusiasm.  But as you struggle to make your milestones and find yourself tweaking the business model, things can quickly get contentious.  It can be hard enough to keep the founding team on the same page, motivated, and making progress.  Having to deal with investors who have different visions of how and where to make necessary adjustments can make life miserable.  I’m not suggesting investors should all be drinking the same amount of Kool-Aid and believe all of the hopeful assurances of the founder.  But you should make sure financial incentives are properly aligned and voting procedures clearly in place to help deal with the hard times.  Also ask other portfolio companies how the investor has dealt with hard times in the past.  If you’re looking for strategic money at the seed stage, understand how that will likely restrict your growth options in the future.  If you’re looking for angel money, he or she needs to understand the likely dilution of ownership and power that will come if you end up needing another round.  And when things begin to diverge from the plan, be clear, be honest, and be prepared to make some concessions.

Creating a successful company is hard.  It requires a market insight, hard work, tenacity, flexibility, and some luck.  And it requires a lot of help.  In addition to cash, seed investors (and board members) should bring or be at least one of the three essential C’s: contacts, customers, or credibility. Remember that due diligence goes both ways.

Now if you could just elicit enough interest to actually have a choice….

This week one of our firm’s clients got a call from a promising VC for a first meeting. Although many of the posts on this site address putting together the optimal investor presentation, there are often times when you’ll meet one-on-one with a prospective investor. These meetings may be a precursor to pitching to the group or due to a chance encounter at a conference (or even the parking lot). Here are some words of guidance that may be helpful—whether it’s with an Angel or VC.

For starters, check out their stable of portfolio companies to see if the firm has funded anyone in a similar field. If so, it will increase the likelihood that they will really get what you are doing. But if they have directly competing portfolio companies, it will also add an element of caution to what you discuss with them. While generally you’ll get nondisclosure agreements from those with whom you share company info, Angel groups and professional venture capital firms won’t sign them.

A first meeting with a Angel/VC will be focused primarily on his understanding your technology–what it is, the problem it solves, and the size and scope of the market it serves. Before you delve into the technology details, be sure to clearly explain the answers to each of those questions in the first two minutes of the meeting. You’ll want to show them why this is the next big thing, if only for the capital that could help bring it to market and scale it into a much larger enterprise. Getting that across (and succinctly in the first few minutes) is much more important than demonstrating the bells and whistles of your technology.

Although it won’t be the focus of the conversation, he/she may start to sound out some investment related factors. Be prepared to talk about your funding needs and what you would accomplish with that money (not just what you would spend it on, but rather what business milestone it would enable you to accomplish). They may or may not ask you what you’re thinking in terms of valuation, so be prepared to answer with a range. Build in some negotiating room but keep the valuation range realistic also, for he is mentally ascertaining whether you’re reasonable and whether or not there is a deal to be made. It’s also helpful for them to know about IP protections like patents you may be seeking. He may sound you out to see if you are open to a CEO or other seasoned management. Express a willingness to embrace that expertise. Aside from these basics, most of the focus in the first meeting will likely be on your technology and the scope of its potential.

First steps if they’re interested will be to request a bunch of diligence items from you. Great sign if they proceed along that path and good likelihood of proceeding to the next step in the process.