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The start-up (secret?) sauce

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Start-up people are fond of talking about their secret sauce.  The hot stuff that makes your eyes water more than that time you put your contact lens in after dicing scorpion chilies.

But the word “secret” is a misnomer of course.  In fact, start-ups generally broadcast what they’re good at, what they’re doing, who’s doing it and all sorts of other information.  They need to otherwise it’s hard to get the buzz going, customers on board, mentors’ interest maintained, investors’ appetites piqued – all that.

So, if the sauce is not really secret, how is it protected?  In fact, how will an investor really know if belongs to the company at all and that the company is investment ready?

To assess that, you need to analyse the recipe and be prepared to explain it to investors.  What is the sauce made of?

For most IT based start-ups, it’ll be what might loosely be called intellectual property – a combination of systems and processes, peoples’ knowledge and expertise and perhaps a bit of copyright overlaid on that.  Maybe with a registered trademark thrown in for good measure.  It’s unlikely there will be patents involved, although for physical inventions patents should not be ignored – even a provisional patent application can add value.

But, apart from patents and trademarks primarily, in New Zealand at least, none of the rest of that is registered.  It is all generated as part of the process of building a start-up, in determining its MDP, PDA, CTM, ONY, GSMPZ* and other strategies.

Its protection therefore rests on a combination of employment law, confidentiality, copyright, and unique branding giving rights in passing off and under the Fair Trading Act or supporting trademark registration.  In most target jurisdictions overseas, the position is similar.

That all means that you can’t leave intellectual property strategy until later.  Right from the start, you need employment or contractor agreements which specify that the company owns the sauce; confidentiality arrangements for those who access it (although that can be difficult), documentation of systems and processes so that there is copyright protection, shareholder’s agreements to cover this and more so that the IP doesn’t shatter if the relationships do.

It’d be tragic to have your investors, bitcoins at the ready, turned off, because their DD reveals that mate you used to come up with that vital ingredient for your sauce has gone and baked it into his own recipe.

Rick Shera
Partner
Lowndes Jordan
@lawgeeknz

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* I have no idea what those acronyms mean.