This ABC semi-reality show broadcast its season closer a few weeks ago, but a recent note in the AARP magazine on one of the “Sharks,” Barbara Corcoran, a real estate mogul from NYC, got me thinking about the show again. In the course of an hour, five Sharks, successful middle-aged entrepreneurs from businesses identified as software, TV infomercials, clothing, and the like, briefly interviewed a series of hopeful inventors and start-up founders (the “presenters”). The presenters do a quick dog-and-pony show, often with props and the Sharks individually, and sometimes in groups of 1-3, decide if they will invest (“their own money,” we are told), and at what level. Some of the newbie presenters go unfunded, but about half get counteroffers that they must accept or reject on the spot. Counteroffers by the presenters are usually ignored. Once in a while, two or more Sharks will get into a bidding war, but usually a presenter is lucky to get one counteroffer. It dawned on me that this is “speed licensing,” the business equivalent of “speed dating.” Without the restriction of having to actually arrive at a signed license with all of its definitions, schedules and qualifications, patterns started to emerge. A university trying to license nascent technology has all of the SWOT issues that the individual presenters face, so after watching several episodes, here are some “lessons” that stood out:
1. Look like you can run a business, or at least be an effective spokesperson.
The Sharks uniformly were impressed by upbeat, enthusiastic, articulate presenters. Half the war is won by showing up well-dressed, sober, and on time. This got the creators of a plus-size fashion line funded. However, if the nascent business was overly personality driven, e.g., in-home designer, shoe parties, or modern ice-cream trucks, the Sharks wouldn’t bite.
2. Sales, not commitment, are an indicator of potential.
The first question that the Sharks asked presenters 9/10 times was “What are your sales?” or “What was your net profit after costs?” or “How many orders do you have?” Often, the answer was unexpectedly (to me) small or nonexistent compared to the cleverness of the product and/or the size of the market (or the potential market). Of course we have all heard a pitchman tell us how well we would do if he got only 5% of the huge and growing market for his/her product. I was surprised that the Sharks put little value on how much the presenter, or his/her relatives, had put into the business. Unless the Sharks felt that the idea had breakthrough potential, their interest faded. An idea for a mail-order ink cartridge refill/resupply business was revealed to be just that – an idea. Ding! Even people with an established outlet were not funded to expand or sell franchises. That’s what banks are for.
3. Patents matter.
The Sharks were uniformly impressed when a presenter said he/she had filed for patent protection, or “had a patent,” even a provisional application. I wonder how much “due diligence,” the Sharks got to see ahead of time. If the presenter had IP, the Sharks would often try to buy the patents as part of any deal. Even fairly edgy inventions – like putting bas-relief faces on motorcycle helmets – drew interest when the biker-entrepreneur said he had a patent.
4. Minimize Up-Front Risk.
While a presenter would often open with something like, “I am asking $75,000 for a 25% stake in my business,” they often got a counteroffer involving a substantial investment that was, however, contingent on the Shark being able to license the patents to a major player. One presenter had invented and prototyped a sort of Lego® that could build circular or spherical structures. He got an offer contingent on the Sharks ability to get Hasbro or Mattel “interested.” The Sharks were not interested in presenters who dreamed of owning assembly lines and warehouses.
5. Identify the Competitive Space.
Cute bears, a gift shop for children, an entertainment center for children, and gift items with inspirational messages didn’t get funded. These were considered crowded areas and/or with no barriers to competitors. Maybe the Sharks don’t like kids. I was surprised at how often specialty food items were funded, but they often had sales, and the Sharks may have had acquisitions in mind.
6. Get Control.
If the Sharks made a counteroffer, it was almost always for 51% of the presenter’s business. If the Sharks decided that the presenter was important to the business, e.g., to be a charismatic marketer, the Sharks would occasionally settle for 50%.
So it took me much longer to write this note than it did for one entrepreneur to get a $1M offer for his safety belt – car starter interlink (no belt on, car won’t start). He turned it down, and is apparently having some success marketing his device as an after-market option to dealers one at a time. The guy with the portable golf ball cleaner wasn’t so lucky. I thought it was clever but, hey, it wasn’t my money he was after.
I will be part of a panel entitled “You Can’t Patent That! Can You?” at the AUTM National Meeting in New Orleans on March 19, 2010. The panelists will discuss developments in patentable subject matter, including new uses for old compounds, “business methods,” research tools, and mechanism claims. My colleague, Monique Perdok, will speak on trademark basics on another panel.