Category Archive:new inventions

ByCarolyn Keane

MIT’s Take on Entrepreneurship

ENTREPRENEURSHIP IS A CRAFT.
HONE IT.

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We hope these resources help ignite your entrepreneurial spark and guide your next steps. Click below and get the Took Kit

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ByCarolyn Keane

Turning Your Patent into a Business: A Practical Guide to Equity Crowdfunding

By Irwin Stein & Adoram Shemesh
November 11, 2017

Once your patent has been awarded you may still need additional capital to turn that patent into a business. Fortunately it is not as difficult to find investors as you may think. Equity crowdfunding is on the path to surpass venture capital as the preferred way for start-ups and small businesses to raise capital.

In a nutshell, equity crowdfunding is the sale of equity (or debt) in your business directly to investors using an online platform instead of a stock brokerage firm.  It is also less expensive than hiring one. Although direct to investor funding over the internet has been around since the late 1990s, it came of age with the JOBS Act in 2012.

The JOBS Act provides for three regulations that govern distinct types of offerings. The offerings differ by how much money you can raise and from what type of investor you can raise it from.

Regulation A (Reg. A) permits offerings of up to $50 million dollars. This is a “registered” offering meaning that the company needs to file a registration statement and investor prospectus with the Securities and Exchange Commission (SEC). An audit of the company’s books for the two most recent years is also required unless the company has been in operation for a shorter period of time.

There are two main benefits to an offering under Reg. A. The first is that you can solicit and obtain funds from any member of the general public including younger millennial investors. This might be a benefit to a company whose product is targeted to this audience, like a video game company or a company whose technology might interest younger consumers as opposed to baby-boomers.

The second benefit is that once the offering is complete, the shares you have registered are freely tradable in the public market including the NASDAQ or New York Stock Exchange. There are specific listing requirements for these markets, but companies that go through this process then have access to mainstream capital markets. Also if the company does well, the shares are liquid and can be sold by the insiders.

The downside of Reg. A offerings is that they are time consuming and expensive.  It can take 6 months or more for lawyers to prepare the paperwork and for the SEC to review, comment and approve an offering.  Legal and accounting fees alone can easily reach 6 figures.  There is also an annual audit and given that you will likely have thousands of small investors; you will probably need at least one employee to deal with investor relations.

There is also the cost of finding those thousands of investors. There have been several successful Reg. A campaigns that have raised $10 million or more. The upfront marketing costs for an agency to design and execute a campaign to reach those investors can also be substantial. If you are using Reg. A to raise $10 million or more, a budget of $250,000 or more would  be appropriate.

On the lower end of the scale is Regulation Crowdfunding (Reg.CF) which allows companies to raise up to $1,070,000 per year directly from the general public. There is no need for an audit if the raise is less than $107,000 and above that only a CPA review, not a full audit of the last two years is required. There is no SEC review process, just a filing.

Anyone can invest although investors of lesser means are limited to a total investment of $2200 or 5% of the lesser of the investor’s income or net worth within each calendar year.  It is not unusual for a company raising $1 million to have thousands of shareholders who put up $100 each.  As with Reg. A the legal and marketing costs can add up.

A Reg. CF offering must be made on a crowdfunding portal (website) which in turn must be registered with the SEC. At this time there are about 30 portals that have registered and some are better than others in terms of their visibility and reputation. Several specialize and only host offerings for companies involved in green energy or companies owned by women or minorities, etc.  Selecting the right website or portal can be crucial to your offering’s success.

Most companies find that the most cost-effective way for them to raise funds is Regulation D. Reg. D is an exemption from the registration requirements of the federal securities laws. It has been around since 1982 and today is an active $1.7 trillion per year market.  That is much more than traditional public offerings or venture capital.

Traditionally these private placements were sold through stock brokerage firms and many still are.  The firms and issuers were always limited to making these offerings only to people with whom they had a prior business relationship.  The JOBS Act changed that to allow issuers to advertise and solicit investments from accredited investors, those whose income is over $200,000 a year or possess over $1 million in assets outside of their primary residence.

The vast bulk of the money raised through equity crowdfunding is raised using Reg. D. As a practical matter the cost of preparing the legal paperwork is usually less than with either Reg. A or Reg. CF.

Accredited investors are presumed to be more sophisticated and the amount of information that needs to be provided is usually less. At the same time, they often ask more thorough questions before they invest.  The company will have to designate a knowledgeable person to help investors who want to kick the tires.

Accredited investors are relatively easy to reach and because they are taking a larger slice of each offering (often a $10,000 -$25,000 minimum investment) issuers need to reach out and connect with a far smaller group of potential investors. This substantially reduces the upfront marketing costs.

In sum, a Reg.A offering raising $5 -$10 million can cost several hundred thousand dollars whereas a Reg. D offering, raising the same amount, may cost less than $50,000.  You can use Reg. D for a $1 million raise as well and unlike Reg. CF if you get a good response you can accept more than $1 million to provide your business with some extra cash.

Unlike venture capital or angel investors with equity crowdfunding the company seeking funds controls the process and the terms. The hard part is to present to investors a better deal that will make yours a more attractive investment than the other offers they receive.

There are multiple ways to structure a Reg. D offering that provides investors with a good return on their investment. For patent backed ventures; a licensing, royalty or revenue sharing structure is often possible. That allows the company to structure the financing “off the balance sheet” in a way that the owners of the company retain ownership of 100% of the equity.

There is no way to sugar-coat the fact that 90% of start-ups fail. A study published by MIT last year suggested that the likelihood of growth is 35 times higher for firms that apply for patents. That fact is not lost on investors, but you may want to remind them of this fact when you are seeking their investment.

That is one of the reasons that I am working with PatentAngels, an IP-centric investment platform that is focused on Reg D offerings for companies with registered patent rights.  The IP aspect increases the level of certainty for investors, especially when making investments online and they may not be able to meet the management team in person as traditional VC’s do. Think about it, if you made an online investment in a company with multiple unknowns, would you rather know they at least have their technology patented?

I advise any company that is getting ready to start raising funds to take the following actions:

  1. Get dressed. By that I mean get your corporate books and financial statements in order.  Have your Board of Directors in place and make certain that they are people who have some experience to the business that you are in.
  2. Have a detailed business plan that is well researched. Any investor will discount your financial projections but that does not mean that your projections should not be based in reality.  Know your market, your customers and your competitors.
  3. Hire the right people.  Having a patent is great, but investors expect execution. You are going to need marketing and sales executives and a CFO.  Hire them or at least identify them so that investors can evaluate their skills and experience.
  4. Know how much money you need and be prepared to describe how you will spend it. A line item that says “general overhead” does not tell investors what they want to know.  If you need office or manufacturing space, you should have a good idea of how much space, where it will be located and how much it will cost.  You should be able to estimate how much each executive salary and benefits will cost and how many other employees you will need.
  5. Be prepared to mount an aggressive and focused marketing campaign to drive investors to your company. There is a big difference between a presentation that says “look at this great widget I patented” and one that says “look at this great patented business I am building!”

Equity crowdfunding has created a new, intelligent and efficient way for small companies to access the capital markets. If you have taken the time and expense to obtain a patent for your product, it is certainly worthy of your consideration.

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ByCarolyn Keane

Angry inventors accuse patent office’s appeals board of favoring Big Tech

Fed up with what he perceived as bureaucracy run amok at the U.S. Patent and Trademark Office, Paul Morinville staged a striking protest this summer, with inventors marching on the agency’s Alexandria headquarters, holding signs and burning their patents.

He said too many patents approved by the agency had been revoked by administrative law judges at the Patent Trial and Appeal Board, which he said tends to side with major technology companies in disputes with independent inventors.

“If you like to steal other inventors’ stuff, then you must love PTAB,” said Mr. Morinville, managing director of U.S. Inventor Inc., an organization advocating for stronger patent protections for startups.

Since its creation by Congress in 2012, the board has angered the inventing community, which says the review process is biased.

One judge, for example, represented Apple Inc. in private practice and then ruled in favor of the tech giant 17 times after joining the court. Another judge represented AT&T Inc. as a private lawyer and later presided over a case involving the telecommunications company.

Mr. Morinville estimates that the review board has invalidated patents in 92 percent of the cases it has resolved.

Eyebrows were raised this summer when a lawyer representing the patent office in a federal court appeal of a board decision acknowledged that the agency had added extra judges to reviews in order to achieve the desired outcome. The patent office attorney said the move was necessary to “ensure the [director’s] policy positions are being enforced.”

The Supreme Court will take up the issue in a case that asks the justices to declare the appeals board process unconstitutional.

Oral arguments in the case, Oil States Energy Services v. Greene’s Energy Group, are scheduled for Nov. 27.

Congress created the Patent Trial and Appeal Board to address complaints that the patent office was approving too many applications that were vague or overly broad. The board was expected to be cheaper and more efficient than courts to resolve patent disputes.

It handles contested patent cases through administrative proceedings known as inter partes reviews. All cases are managed by panels of three to five administrative law judges.

Inventors say the rulings often seem arbitrary and are particularly irked by what they see as a pro-corporate bent among the administrative law judges. They say anyone can bring a challenge, and the judges can continue a case even if the complaint is withdrawn.

The appeals board is not subject to review by the regular court system, which the inventor community says leaves it with little recourse.

“There is no code of conduct for PTAB judges,” Mr. Morinville said. “There is no rule of law in the PTAB, and that is what really angers people in terms of the invalidation which should rely on the rule of law.”

The patent office’s chief information officer did not respond to multiple requests for comment.

The test case before the Supreme Court involves Houston-based Oil States, a company that provides equipment for the oil and gas industry. It received a patent for a tool that pumps fluid into an oil well without fluid making contact with the wellhead.

Greene’s Energy Group of Imperial, Pennsylvania, challenged that patent through a review, and the board invalidated it. Oil States asked the board if it could amend the patent, but that motion was denied. The company then filed an appeal with the U.S. Court of Appeals for the Federal Circuit.

Oil States said the review process is unconstitutional because a patent is a form of private property and the same agency that grants a property right can eliminate it without a jury trial in federal court.

The Federal Circuit rejected Oil States’ argument and affirmed the board’s decision. Oil States petitioned the Supreme Court, which agreed to hear the case.

The Supreme Court denied similar requests over the past few years to determine the constitutionality of the Patent Trial and Appeal Board’s reviews.

Some patent analysts said Justice Neil M. Gorsuch may be the reason the court chose to hear Oil States. Justice Gorsuch, who was confirmed to the court this year, has expressed concerns about administrative adjudication in judicial opinions.

“Clearly, the court took this on to not just leave things as status quo,” said Art Monk, vice president of patent transactions at TechInsights, a San Jose, California-based provider of patent data. “They could do something radical like invalidate the entire America Invents Act or do something more benign like provide guidance on how property rights need to he handled.”

If the Supreme Court decides the board’s reviews are unconstitutional, then the ruling could restrict other federal agencies’ uses of administrative tribunals to resolve disputes. The Federal Election Commission, Securities and Exchange Commission and Federal Communications Commission are among the agencies that rely on such systems, known as administrative adjudication.

“A ruling striking down PTAB would show the Supreme Court wants to tighten the constraints on administration adjudication and could lead to challenges over other well-established forms of adjudication,” said Greg Reilly, who teaches patent law at Chicago-Kent College of Law.

Small companies and independent inventors say patents are property rights and can be revoked only by a federal court. Several groups, including conservative organizations and a coalition of patent law professors, have filed briefs in support of Oil States.

“We have judicial opinions written over the past 150 years affirming patents as private property rights,” said Greg Dolin, a patent law professor at the University of Baltimore Law School who filed a brief in support of Oil States. “Court after court and justice after justice keep saying patents are private property rights that can only be adjudicated in courts.”

Large tech companies contend that patents are public property and the same government that recognizes them can regulate how they are adjudicated.

The Patent Trial and Appeal Board system gives challengers more leeway to invalidate a patent based on the portion of the technology used instead of the entire patent.

“The PTAB and its review process are constitutional,” Mr. Reilly said. “Patents are created by federal statute, which also gives Congress the right to specify administrative adjudication. Inter parties reviews are appealable to Federal Circuit which protects due process concerns.”

Even if the court finds the review process unconstitutional, it’s not clear what would happen to the patents the PTAB has already invalidated.

“I think we could have a situation in which changes to the law don’t apply retroactively. I think there is still a lot of uncertainty surrounding this case,” Mr. Reilly said.

The debate over the Patent Trial and Appeal Board has attracted attention on Capitol Hill. In June, Sen. Christopher A. Coons, Delaware Democrat, introduced legislation dubbed the Stronger Patents Act. Delaware is the nation’s busiest jurisdiction for patent disputes. More than 6,500 patent cases were filed in federal court in Delaware in 2014, according to the most recently available data from PwC, the brand name for PricewaterhouseCoopers.

Mr. Coons said the bill would bring more balance to the board’s reviews. If passed, the bill will attempt to bar patent challengers from seeking both a Patent Trial and Appeal Board review and a district court hearing, limit board reviews to one claim per patent, and ensure a challenger has a business or financial reason to attack a patent.

“The bill requires the PTAB to use the same standards that a district court applies when evaluating if a patent claims something truly new and nonobvious, standards that are fairer because they account for the fact that inventors have already had to prove to a patent examiner that they deserve a patent,” Mr. Coons said.

https://www.washingtontimes.com/news/2017/nov/9/inventors-patent-office-favors-big-tech/

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ByCarolyn Keane

How to Write a Business Plan

How to Write a Business Plan

Now that you understand why you need a business plan and you’ve spent some time doing your homework gathering the information you need to create one, it’s time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn’t include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.

Executive Summary

Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you’re asking for in the summary.

Related: How to Start a Business With (Almost) No Money

Business Description

The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business.

Market Strategies

Market strategies are the result of a meticulous market analysis. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales.

Competitive Analysis

The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.

Design & Development Plan

The purpose of the design and development plan section is to provide investors with a description of the product’s design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.

Operations & Management Plan

The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business.

Financial Factors

Financial data is always at the back of the business plan, but that doesn’t mean it’s any less important than up-front material such as the business concept and the management team.

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ByCarolyn Keane

Many ‘invention promotion’ companies nothing but scams

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Inspiration is a funny thing. Sometimes it comes when we least expect it.

For me, the “a-ha!” moment often hits in the dead of night, or when I’m in the middle of a meeting or driving. We Americans are a nation of problem-solvers, and it’s no wonder that we’ve come up with some of the world’s best ideas. The list of world-changing inventions dreamed up by Americans is astounding.

Sometimes, what you or I think of as a revolutionary idea has already been tried; other times they’re not practical, not marketable or are hamstrung by red tape and competition. But every once in a while, somebody comes up with something amazing and makes millions. It’s this quest for fame and fortune that drives many people to take their idea for a “better mousetrap” and go for it.

TV shows such as “Shark Tank” have propelled many inventors to riches and glory, as celebrity investors decide whether the ideas are worth a shot. An industry has even sprung up around the potential profit in new inventions, promising to help get your idea patented, protected and marketed.

Related: Feds bite down on ‘Shark Tank’ winner

But, as some budding Edisons have discovered, many “invention promotion” companies are nothing but scams, designed to hook the hopeful into spending big bucks with dreams of getting their products to market.

Also read: Freezing your credit after the Equifax breach

Back in March, the Federal Trade Commission busted a Miami Beach, Florida-based company called World Patent Marketing, which had allegedly promised would-be inventors it could help its clients successfully develop and market their products. Instead, the FTC told a federal court, all but a few consumers found themselves shelling out big bucks with nothing to show for it. In all, the FTC’s complaint alleges, the scheme bilked consumers out of more than $10 million. The complaint also accused parent company Desa Industries and its CEO Scott Cooper of involvement in the scheme.

The company is accused of using a variety of tactics to lure new customers and reassure existing ones, such as made-up “success stories” about people the company had helped. Adding insult to injury, some customers claimed that when they tried to complain or wrote negative online reviews, the company used intimidating tactics to shut them down, including threatening them with lawsuits.

One potential inventor told the Broward County, Florida, Sun-Sentinel that he had given $300,000 to the company to promote his idea for a net device that could be attached to a cellphone case to hold keys and other small items, only to come up empty-handed.

For its part, Cooper’s legal team has noted in court filings that the invention-promotion business is risky, and that fact is made clear on its website and promotional materials as a warning to potential clients.

If you do come up with an extraordinary idea, the U.S. Patent and Trademark Office advises that you proceed carefully. The agency has a brochure at https://www.uspto.gov/sites/default/files/documents/ScamPrevent.pdf that lists some of the warning signs of an invention-promotion scam, and notes that the law requires invention promotion companies must disclose the following information:

  • The total number of inventions they’ve evaluated in the past five years and the number of those that received positive and negative evaluations.
  • The total number of customers with whom they’ve contracted for actual invention-promotion services.
  • The total number of customers who have received a net profit after working with the firm as a direct result of that relationship, as well as the total number of customers receiving licensing agreements as a result of the company’s work.
  • The names and addresses of all companies associated with the company.

If you want to find out more, visit https://www.consumer.ftc.gov/articles/0184-invention-promotion-firms, as well as http://ipwatchdog.com.

Contact Bill Moak at moakconsumer@gmail.com.

http://www.clarionledger.com/story/news/2017/09/17/many-invention-promotion-companies-nothing-but-scams/666212001/

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ByCarolyn Keane

Brothers find success with childhood invention sold in Lehigh Valley

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