by Kamal Hassan
I sometimes answer questions at OnStartups. One recent questioner asked “what intellectual property protection do you have (for your web application)?” This was the same question that I got asked over a year ago on BNN’s ‘The Pitch‘. It was especially funny to me because the investor who asked it turned me down in a previous hardware business which had five patents. As you can imagine, I have replayed that moment over and over in my mind trying to come up with a great answer. I haven’t been able to come up with one.
I think this question says something about the investor rather than about your business. Many investors like intellectual property, typically patents. I think the reason why is if they invest in your business and you mess up they can take the patents and resell them to get part of their money back and/or if you are doing poorly the patents still make your company valuable as an acquisition.
You can also have other types of protection, like trade secrets in your software. Secrets by definition are hard to impress people with (‘look what we do that I can’t tell you about’). You also have copyright, which typically protects only the exact lines of code. You need a relatively naive imitator to use your exact code, and you need to have the legal resources to prove it. So the question typically comes back to patents.
The short answer is that by their very nature, software businesses are normally about getting strong product-market fit (demonstrated through traction) followed by rapid execution to build your position/brand before competitors do. This is a different business model than patent-driven hardware, cleantech or medtech businesses. (Cases like i4i notwithstanding.)
If the investor is asking this question they are almost holding up a sign that says “I don’t normally invest in software businesses and I don’t understand what is important in them”. Give a respectful answer, such as “the legal advice we have got to date is that we don’t do anything patentable” or “in our industry in general there aren’t many ways to protect your work, since we all rely on open source code to quickly build capabilities” and move on. They’re probably not going to invest, and you can still keep the relationship open and pleasant. You never know what the future may bring.