You Can’t Spell Corporation Without “IP”

I watch “Shark Tank” on ABC. I hope one day they get pre-money and post-money right.

A segment on Sunday’s episode did manage to highlight a key point for startups:

TRANSFER THE INTELLECTUAL PROPERTY TO YOUR STARTUP COMPANY

In the episode, Coverplay Inc., was looking to raise about 350k from the show’s angel investors. A few investors made proposals and one particular investor offered Coverplay’s 2 founders 350k in exchange for 40% of their company. Coverplay countered with 350k in exchange for 30% of the company…and 10% of the patent. The show went to commercial and I said to my wife “Uh oh, their corporation doesn’t own the patent.”

After the break, all the investors pulled their deals off the table. Without the intellectual property, there was no business. The investors (rightfully) assumed the patent was owned by the company. In essence, Coverplay was asking for investment in something they didn’t own. (Side: This is happening often on the show. Many entrepreneurs are claiming they own the IP when they really don’t.)

Coverplay explained that Allison Costa, one of Coverplay’s founders, owned the patent. Then Allison further explained that her ex-husband also owned part of it as well. I can only assume that Costa had some type of patent license deal with Coverplay.

When starting a company involving intellectual property, you must transfer the IP to your startup. For example, if the intellectual property is developed prior to incorporation, you can transfer the IP via the founder’s stock purchase and tech transfer agreement.

Tags: intellectual property, IP, startup, tech transfer

7 Responses to “You Can’t Spell Corporation Without “IP””

  1. Colleen Post September 2, 2009 at 12:21 pm #

    Ryan,

    Its so nice to have you back blogging again. I find I am constantly forwarding your blogs on to fellow entrepreneurs.

    Would love for you to check out my take on the show Shark Tank: http://millennialland.blogspot.com/2009/08/entrep

    Cheers!
    Colleen Post

  2. Colleen Post September 2, 2009 at 7:21 am #

    Ryan,

    Its so nice to have you back blogging again. I find I am constantly forwarding your blogs on to fellow entrepreneurs.

    Would love for you to check out my take on the show Shark Tank: http://millennialland.blogspot.com/2009/08/entrep

    Cheers!
    Colleen Post

  3. Simon September 11, 2009 at 10:09 am #

    Ryan,

    I am trying to start a company with a professor by trying to license a patent he invented but which is owned by his university. Under his agreement with the university he will receive 40% of any net gain from the patents, whether it be equity, royalties or milestone payments. My question is whether there is any conflict of interest in having a cofounder of a company that also receives compensation from a third party licensor? Should the professor's 40% take from the university somehow be put back into the company?

    Thanks,
    Simon

  4. Simon September 11, 2009 at 5:09 am #

    Ryan,

    I am trying to start a company with a professor by trying to license a patent he invented but which is owned by his university. Under his agreement with the university he will receive 40% of any net gain from the patents, whether it be equity, royalties or milestone payments. My question is whether there is any conflict of interest in having a cofounder of a company that also receives compensation from a third party licensor? Should the professor's 40% take from the university somehow be put back into the company?

    Thanks,
    Simon

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