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Successful inventors share their secrets - Part II

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In the third article in our series on the use of Intellectual Property (IP) by small and medium businesses (SMEs), we discuss more lessons shared with us by inventors who have gone through the process of conceiving an invention and developing the invention to a market-ready product. Is there any benefit in employing the services of a consultant? We received mixed comments in connection with the use of consultants. While it is true that consultants can provide invaluable insights in how to access markets for a new invention, one should not be unduly influenced in appointing a consultant or to follow the advice provided by a consultant without considering both the long and short term goals with the invention. One inventor commented that he specifically declined to follow the advice of a consultant in order to pursue other opportunities which he viewed more in line with his long term goals, although the short term gains proposed by the consultant appeared very attractive. Intermediaries for facilitating dealings in China Inventors seeking to conduct business in China often employ intermediaries. Although intermediaries may in some instances provide very valuable assistance, inventors should conduct a thorough due diligence on any intermediary that is proposed to be engaged.  For example, some intermediaries may only have connections in a single Chinese province so that opportunities in other Chinese provinces may be left unexplored. In this regard one inventor commented that using accounting firms was generally a safe path into China. Dealings with Investors Short term investors often use the volume of sales as an indicator of the potential success of an investment in a business. It is, therefore, important to achieve some sales as soon as possible. In the early stages of developing an invention it is vital to have good cash flow as insufficient funding could easily derail commercialisation of the invention.  For this reason one inventor commented that when an investor is brought on board the inventor should ensure that funds are not received in a drip-feed fashion. Although it may be tempting to accept the proposed investment by the first investor that comes knocking, an inventor should be wary and consider any offer to invest carefully and with due caution. When setting up a company for exploiting a new invention, an inventor should also be wary of appointing those persons investing in an invention as directors of a company. Also be careful when shares are transferred to investors that the shareholding of the inventor is not diluted to such an extent that the inventor effectively loses control of the invention.  Without due care an inventor may find that he/she is stuck with a board/shareholders that do not share his/her vision for the invention and direct the commercialisation of the invention in a direction contrary to the vision of the inventor. IP Holding Companies It is advisable to consider transferring all IP relating to an invention to an IP holding company. The IP holding company can then license the exploitation of the invention to an operating company. The benefit of having such a structure is that the IP is effectively "quarantined" from claims made against the operating company. Having the IP centralised in an IP holding company will also make it possible to separate the IP from other assets of the business with relative ease either to sell the IP separately or use the IP as security. An IP holding company can also streamline a spin-off of the IP. In our next article we will consider some final tips from inventors who have succeeded in transforming their inventions into revenue generating assets. Article by André Meyer, Associate at Spruson & Ferguson

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