Challenges of Entreprenur

Question 1

Venture Capitalists before funding any startup consider several factors. Some of these factors include; the risk of the product being successful versus the rewards or the benefits that will accrue. They also look at how the product made or service provided will be managed. If the management is great, rewards will be high and therefore risk will be low and therefore are likely to invest in the product.

In the case of Bob, he has a great product that is likely to perform well in the market since millions of motorists may purchase it. However, the idea of forming two separate companies for one product will not go well with Venture Capitalists. This is because Venture Capitalists seek to benefit from the sale of the product. That is why they are putting their money into this venture in the first place. Venture Capitalists would rather prefer to protect their interests by accessing the patent to apply their expertise and knowledge to ensure the success of the product in the market.

Once they sense that Bob is trying to play safe and maintain the patent in one company while licensing the commercial venture with another, the Venture Capitalists may not be enthusiastic in investing in his commercial venture. This is because this action will show that he lacks the commitment to commercialize this product and see it to its success.

Second, Venture Capitalists won’t be willing to invest in a business that Bob does not own its main technology under that company since it is patented under another company.  To make matters worse, Bob is the owner of this patent. They will sense malice or an ulterior motive on Bob’s side. In the event that Bob does not register his patent, in future other companies may use it and he will not be able to get royalties. If someone copies his technology, he will not be able to sue since the patent is not registered under him. Venture capitalist firms will also be reluctant to invest in a commercial enterprise that does not have the patent registered under the founder. The benefit of patent rights is that it can create a monopoly in the early stages of the business and this allows growth. When Venture Capitalists want to invest in a company, they require one to be transparent with all details and chances are low that Bob will reveal that he owns the business company and that he owns another company under which the patent is registered and wants to profit from both sides.

In my opinion, Bob can license one company to own the patent and the license of the business. However, when seeking funding, he should put a restrictive clause in the legal agreement that once the Venture Capitalists put their money into the technology, they would only access the business side but he would have sole ownership of the patents.  Similarly, Bob can offer Venture Capitalists with a seat in the company to provide them a sense of identity and credibility in how the company is run.

Question 2