Accelerators are designed to offer advice and support to startups for a relatively short period – usually three to six months. During this time, the startup may receive funding and expertise. These programs can be sponsored through private corporates, charities or universities.
Intellectual property (IP) is critical for startups, not only to enable them to protect their goods or services in the marketplace but also to make them more attractive to investors. Indeed, some commentators maintain that intangible assets account for 90% of the value of an early-stage company Startups, therefore, need to be very careful to ensure that they do not lose ownership of their IP when working in an accelerator or incubator environment.
IP Risks and Opportunities:
Risk: Leakage of ideas
A common risk when working in an accelerator environment is leakage or loss of confidential information or trade secrets. Trade secret protection can be challenging to enforce in an accelerator environment. The environment's nature often means cohort members can see what the other is working on.
Startups are not created and do not grow in a vacuum. A robust startup ecosystem — a region’s entrepreneurs, investors, mentors, service providers, support organisations and the connections between the various players — encourages and facilitates the growth of new ventures. However, controlling the flow of information can be tough in such an environment. There may be leakage of secrets and confidential information to parties that can be difficult to control.
Some accelerators address this by enforcing a cohort-wide non-disclosure agreement (NDA). While this can be useful from a legal perspective to ensure that later patent applications are not prejudiced, it can be challenging to enforce in practice because it can be difficult to demonstrate what information was impermissibly shared by whom and when.
An example may be when a startup discloses trade secrets or an invention to a mentor. As is common practice, many mentors may not have signed — and sometimes will not sign— an NDA. Consequently, disclosing trade secrets or inventions to a mentor may result in losing trade secrets or patent rights, respectively.
As a result, it’s often better to patent important ideas early if they are readily disclosable to other parties in the accelerator. For example, a broad initial patent filing may be made on entry to the accelerator, and then a follow-up patent application filed later covering specific implementations and refinements made.
Risk: Need to disclose IP at a pitch or demo day or to others on the programme
Startups working in an accelerator often need to disclose what they are working on to a mentor or third party. However, disclosure may result in the startup irrevocably losing the ability to obtain patent protection for their invention. To mitigate that risk, a startup wishing to discuss an invention with a third party, such as a mentor or advisor, could try to get that party to sign an NDA (or ensure that the mentor is covered by the cohort-wide NDA if there is one in place). If this is not practical, then the startup should consider carefully the risk vs benefit calculation in discussing the idea with the third party.
Pitches or demo days are nearly always considered public events; any disclosure on the day will count as a disclosure of the invention. This not only potentially prejudices the ability to obtain patent protection but potentially puts it into third parties’ hands. Investors will rarely agree to sign an NDA at these events, partly due to the high volume of pitches they receive.
One option to mitigate this is to file a patent application before the pitch or demo day. This adds an advantage of telling investors that the technology is “patent pending”, which may increase the startups’ chances of securing investment.
However, where this is impossible (for example, if funds do not permit), another approach may be to define disclosure “red lines”. These red lines may be separating information the business is prepared to disclose publicly versus information the startup wants to keep secret. In a perfect world, no detail surrounding the invention is disclosed before a patent application is filed. A good patent attorney can advise a pragmatic balance between what to keep secret and what needs to be told to garner sufficient interest from investors and other third parties.
Risk: Ownership of IP
Another question to consider when working in an accelerator or incubator environment is who owns the IP. This isn’t always as straightforward as one might think. For example, if another member of the cohort or a mentor suggests something new to the startup, they may have contributed to the invention and may have a claim to ownership of some of that IP. This can be problematic as they might be able to assert that they have co-ownership of any resultant patent applications (even if their relative contribution to the overall invention was small). Co-ownership of patent applications is often undesirable as it can limit what each party can do without the permission of the other, can scare investors off, and can lead to costs and differing opinions on how that patent application is to be prosecuted.
Risk: University spin-out or sponsored programme sponsored through a university
The risk of IP ownership is particularly pertinent in the context of a corporate accelerator or University-sponsored program. The University or corporate may provide mentors and other support parties to help support the startups in the cohort. These parties may contribute to developing new ideas and, as a result, have a claim to ownership of them.
Opportunity: Cross-fertilisation and creation of new IP
A primary reason to be involved in an accelerator or incubator is to foster and encourage innovation, often resulting from collaboration and input from others. While there is a risk of IP being lost via leakage or third parties perhaps having a claim of ownership, there will be considerable upsides as it facilitates the creation of new IP that would not have otherwise been created.
Opportunity: support from experienced mentors
The upshot to the risk of IP leakage in these environments is that the mentors and third parties may come up with essential and valuable business advice for your startup. This usually is the case when the mentor is from an unrelated field. They are less likely to contribute to creating any new IP but may provide valuable support on business strategy and access to wider networks of resources.
As we have seen, both IP risks and IP opportunities exist when working in an accelerator or incubator environment. While these should not represent barriers to participation, awareness of the risks and opportunities involved can enable a startup to mitigate these where possible to ensure they are in as strong a position as they can be regarding IP.
If you’re looking for space to innovate or want to connect with exciting innovators at the leading edge of their industries, book a tour of a Plus X Innovation hub in London, Slough, or Brighton.
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