Things NOT To Say to An Inventor
by Harold A. Meyer, III
Some time ago Inventors’ Digest magazine ran an interesting article
about what NOT to say to an "angel" investor. Well, there are
two perspectives in every interaction, and I would like to respond from
the other side. There are some things that are not so hot to say to an
inventor as well:
1) "If it hasn’t been tried before, how do we know it will
A: If it already HAD been done, it wouldn’t be novel and it wouldn’t
2) "We’ll give you a licensing fee of 1%."
A: I don’t think so. Most licensing fees range from 5-8%; on high margin
products they range up to 10-15%. On software, they can go as high as 35%.
3) "If it’s such a great deal, how come noboby will invest?"
A: How does an investor know that nobody will invest? Just because
an inventor is asking them for money? Perhaps they are one of the first
people being solicited. A PRIME example of the lack of understanding of
business and new technology commercialization. Some of the greatest inventions
of all time were turned down for commercialization at early stages, but
they eventually prospered. Unreasonable. It is fascinating how venture
capitalists are afraid to think for themselves sometimes. Also, inventions
take a long time to commercialize, measured in YEARS not months. Freeze
dried coffee took 14 years to commercialize.
4) "I’m interested. I want an exclusive option for one year."
A: Huh? The investor wants to tie up the project for a whole year with
no reciprocal commitment, in exchange for $0 consideration? Does the investor
think the inventor is stupid? Unfortunately, the answer is probably 'yes.'
5) "We’ll invest, but only after you have sales."
A: After there are sales, the inventor probably doesn’t need the investment.
Certainly not as much as in the seed stage.
6) "We’ll invest, but you must give us 51+% of the company."
A: Majority control gives absolute control, allows them to fire you,
gives them the option to put the enterprise into bankruptcy, or to shut
down altogether. Don’t make the same mistake Ken Olsen made with multi-Billion
dollar Digital Equipment Corporation; at the seed stage he sold 80% of
the company to a venture capitalist for a paltry $100,000. And at Apple,
they fired Steve Jobs, and then ran the company into the ground. Follow
the advice of entrepreneurial guru Wilson Harrell who says that FREEDOM
(not solely money) is the real reason to be an entrepreneur or inventor.
7) "You have little cash in the deal."
A: The investor would be the first to see the value of, or the need
to get paid for, years of hard work if it were THEIR labor. And if there
is truly ‘no value’ to intellectual property (as many hard headed investors
would lead you to believe), how come the Pan Am Logo only sold for $1.3
8) "You have no experience doing this."
A: MANY successful people have started new endeavors with no specific
experience in that field. Before being recognized for his monumental genius,
Einstein was a clerk in the Bern Switzerland patent office. For new technology,
nobody has experience with it, again, otherwise it wouldn’t be novel or
9) "How come your credit and success isn’t so hot?"
A: There is the implicit criteria that you must be successful before
you are successful, a nice benchmark to reduce risk for stodgy bankers,
but a Catch-22 or unrealistic expectation which is difficult or impossible
for small businesspeople to attain. Again, if the inventor were sitting
on a mountain of cash from previous successes, the conversation asking
for financing would be moot.
10) "You have to give us collateral."
A: OK, take our patents. Interesting how patents worth millions of
dollars become worthless because of their il-liquidity. Then inventors
say ‘we don’t expect full value at this early stage of development, so
give us only 10-20% of their developed value.’ The inventor will be extremely
lucky if he gets offered anything over 0%.
11) "There’s no market for the product."
A: Funny, they said the same thing about the Telephone, Dry Photocopying
(Xerox) and the Airbag. Again, if the inventor had worldwide sales of the
product, he probably wouldn’t be sitting there asking for money.
12) "There’s already stuff on the market that does that."
A: Maybe, maybe not. Sometimes a small engineering change can make
a product a WHOLE lot better, such as the re-design of the space shuttle
Challenger’s external booster rocket O-Rings and sealing joints.
(c) 3/1997 by the author
Harold A. Meyer, III, 33, is Chairman of The Hook Appropriate
Technology, a performance based licensing, marketing and new product development
company. He can be reached at: The Hook Appropriate Technology, 52 Bank
Street, Suite A, New Milford, CT, 06776-2706 USA.
EMAIL: firstname.lastname@example.org WEB: http://www.thehooktek.com
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