Start-ups still in the dark over IP: Report

More than a third of small business owners are unaware of intellectual property and its value within their business, according to a report by IP Australia and the Institute of Chartered Accountants.

In a joint report, the institute’s president Rachel Grimes says while most businesses are aware of the need to identify and protect their physical assets, they are less likely to be familiar with IP.

“This is despite the reality that IP is now being recognised as one of the most valuable assets a business can own,” Grimes says.

The report draws attention to the issue of IP as it relates to investment capital, stating: “Australian retail banks and other funding institutions are not always comfortable investing in or lending to organisations where the organisation’s prime focus is the commercialisation of IP.”

“To maximise your ability to attract venture capital, you will need to understand what the venture capitalist will require in return for providing you with funds to commercialise your IP product.”

The report urges start-ups to plan their business structure carefully before they seek venture capital.

“Venture capital is allocated to early start-ups which are unable and/or unwilling to offer conventional security, such as personal guarantees and collateral security over real estate,” it says.

“Studies have shown that inadequate protection of IP is an important reason for capital providers declining to invest. It is important that you have a business plan which includes a strong program for protecting your IP.”

For example, the plan should demonstrate the following:

• Prudent, focused strategies for the next five years.
• An experienced, enthusiastic management team with specific objectives.
• A good marketing plan.
• Reliable market research indicating strong market opportunity and methods of realising business opportunities.
• Focus on the domestic market with potential for international expansion.
• An IP portfolio able to protect those aspects of the business which determine the venture’s success and establish competitive advantage.
• Viability and revenue projections, pricing and gross-margin strategies.
• Potential to grow revenue by a significant percentage each year – for the next three to five years.
• The potential to generate a reasonable pre-tax internal return.

“Given that only 5% of technology driven start-ups are still trading after three years, a structure which attempts to protect your organisation’s IP assets is viewed positively by investors,” the report says.

For those businesses wanting to trade overseas or sell to customers overseas via the internet, the report says they should consider seeking IP protection in the countries they plan to trade in.

A recent survey by IP Australia found 41% of exporters had not considered protecting their IP before entering a new market.

“One of the most important things an organisation can do prior to exporting to another country is to think about protecting your IP,” the report says.

“Understanding IP issues before you start doing business overseas, and being on the front foot with the challenges you may face, will help you overcome common pitfalls such as potential IP violations or local customs and laws relating to imports and trade.”