Did you catch last night's season premeire of Shark Tank? If you have been busy working out the details of your innovation, you may not have had the opportunity to tune into this popular TV show on which entrepreneurs seek investments from five self-made multi-millionaires and billionaires.
If you have watched the TV show, then you know that once the business financials are highlighted, the next question the Sharks ask is, “Do you have a patent?” You also know that if there is no patent, or even a patent pending, each Shark immediately responds by saying, “I’m out.”
Let’s look at two essential reasons for the Sharks’ response, and how entrepreneurs benefit from patents: as a way to suppress potential competition and to get investors to say, “I’m in.”
These days, innovation is the buzz: stakeholders, customers, and corporate executives are eager for the next product idea; entrepreneurs and large corporations acting like entrepreneurs all seek to push the innovation envelope.
Crowdsourcing and crowdfunding websites and contests have made it easier for entrepreneurs with great new product ideas to build capital for product launches—and gain their early adopters at the same time.All that activity translates into exponentially increasing competition—for new products, and for the capital for those products.
1. According to USA Today, “As young companies prepare to manufacture and sell goods, they depend on patents to protect the research and innovation behind them.” And if your new business centers around a product that may appear similar in certain respects to others already out there, the claims section of the patent becomes critically important to protect your product idea. A patent lawyer can ensure that the claims section will in fact offer you the protection you need.
That means if your name isn’t Elon Musk, and you aren’t willing to open your patents to the world, patents are your pathway to keeping your product idea yours, at least for the duration of the patent.
2. More than simple protection, patents allow entrepreneurs to avoid actually generating competition when they network—as the best innovators do—for advice on aspects of their new business, such as marketing and social media campaigns.
Inventors appearing on Shark Tank run the risk of exposing their products prematurely, risking copycats, if they have not yet filed for a patent. Patents protect entrepreneurs by providing them with the freedom to seek assistance, advice, support, and funds for their product development and business models without fearing that their innovation will simply be copied.
3. Once you have a patent, then even if your entrepreneurial spirit leads you in new directions, you still have the opportunity to bring in future licensing royalties. As Tech Crunch reports, for example, Google licensed or acquired search engine patents after companies went defunct.
What do investors look for? Above all, they become excited at the prospect of investing in winners. So the question is, how do they define a “winner?” Certainly the product ideas themselves matter. Investors are consumers too, and need to feel excited by your business idea. But it turns out that patents play a significant role in that definition.
Experienced investors want to know that their investment will be stewarded well enough to reap a profit. In that vein, as the Sharks make abundantly clear, you simply are taken more seriously with a project that has been well researched, with forecasted profit margins and a pending patent.
Shark Tank’s Sharks have the marketing and licensing savvy to move a great product quickly, but they shy away from investing—even when they love the product idea—unless a patent is present or at least pending. That's a lesson from the savvy Sharks that should have entrepreneurs sitting up and taking note.
Let's say you have decided to turn to a crowdfunding site rather than appear on Shark Tank. While most customers aren’t as savvy as the Sharks, crowdfunding has been around now just long enough that customers are learning the lay of the land. Therefore, you are more likely to attract the funding you seek if your product is patented.
You did it!
Finally, once you hold that patent, look at it in confidence as a validation of your business idea.
Be a winner —the prepared entrepreneur that investors like the Sharks want to invest in.