Financing can come in all shapes and sizes. Generally, a start-up will (hopefully) have a great idea and leaders with a vision. However, many start-ups may be doing so without any assets - just a business plan. It may be hard to obtain financing - whether private equity or commercial loan or otherwise - with just an idea. Some start-ups, however, will be fortunate enough to have one (or a few) assets already on the books - IP assets. This generally occurs when the start-up vision is the result of a patented idea. Bingo. Steps have already been taken to corner a market share.
If the idea is strong enough, and the vision is clear enough, these IP assets may just be the ticket to financing. While the IP valuation science has not been perfected, and royalty streams probably haven’t begun to flow from the asset, the fact that a (prospectively) valuable asset is on the books - and one that has the potential to create market share - can sometimes be enough to garner the attention of investors. But it must be played right.
Understand your asset; or at least understand that your asset isn’t easily understood by investors. Documentation is important. The search for financing can be, and usually is, a marketing campaign. I can’t simply tell an investor that a newly issued patent is valuable. There are outlets, however, by way of valuation specialists and other IP professionals offering boutique offerings for this purpose. Without specifically endorsing any firm over others, some that offer these services are Ocean Tomo, LLC, IP Vision, Inc., ipCapital, The Kenrich Group, etc. These companies have methods (some patented) and refined metrics for conducting valuations that might be helpful in a quest for financing opportunities. While paying for valuation services may not be cheap, knowing what you have and being able to show investors what they are looking at may be the determinative factor in getting the start-up on its feet.
Understand your exit strategy. If you don’t want to share in the equity of your project, don’t look for private equity financing. If you simply want a loan - similar to a home loan - to be paid back over three years with interest, you should understand that you may be entering an uphill battle. Most commercial banks don’t have departments for alternative investments, nor do they care to dip into that market. Some angel investors, however, can be and have been persuaded to entertain deals that parallel a commercial loan without equity shares involved. (See Anne Leibovitz) Again, understanding your asset will play a large part in the successful negotiation of such a deal.
You must also understand the amount of financing you will need. If you find an interested investor, and request an amount below what you will need to complete the project, not only will you not complete the project, but you will have to go back to the investor for more. Re-ups are not favorable and can strain relationships between investor and the business.
(pictured here is The Greek temple, The Parthenon. No, not the one in Greece; the replica in Nashville. The Greeks did a great deal for our understanding of the importance of innovation.)