Market Traction as Good as a Patent?
I was talking with an ex colleague of mine over a few beers last night and we were debating the merits of protecting your business ideas from copy cat rivals. It got me thinking about many of the current internet success stories and how their lack of any real IP hasn’t stopped them becoming multi-billion dollar companies.
We have this TV show here in the UK called Dragon’s Den. The concept, for those that don’t know, is you need to present your investment idea to a panel of “Dragons” and you must walk away with all the money on the table (The money is literally on the table) or you walk away with nothing. It’s pretty entertaining TV, you can tell that the producers pick businesses that aren’t at all prepared to make it more enjoyable for the viewer (unfortunately it’s the British way to like to see others make a fool of themselves I am afraid to say).
What I find quite interesting is the same negotiation point coming up again and again. The Dragon’s use the lack of IP protection as a way to make outrageous equity demands in return for disproportionate funding. It is true that a lot of the investment opportunities featured on Dragon’s Den are product related and therefore Patent protection is favourable. However where does that leave those of us with internet ideas or other service businesses that can’t be protected?
It is worth remembering that Dragon’s Den is a TV show and that in the real world it is very probable that the lack of IP protection of a new internet startup will make little difference to those forward thinking, new-breed investors looking for the next big thing on the internet.
Market Traction
I believe that market traction can make lack of IP irrelevant. An example I have used before is eBay, they were the first to build up the network of online auction users. No matter how much money Yahoo! threw at their online auction platform they couldn’t catch up with eBay’s market traction. Subsequently Yahoo! scrapped their version of eBay after spending millions promoting it.
The list doesn’t stop at eBay, the majority of the online successes haven’t any real IP in the traditional sense, the only thing stopping others creating a clone and competing is the dedicated following these websites already have. Dedicated, loyal user base equals market traction.
When launching a new internet venture special focus should be made to increase the “stickyness” especially if it is a unique concept, these initial early adopters will be your evangalists and help you build a very loyal user base which are stuck to your website like superglue, no matter what copy cat competitors comes along.
I think the British equity investment market is slightly different from that of the US, hence why we at Edge Venture have decided to go full global with our investment pitching system. We have a lot of creative talent in the UK and I am sure given the right vehicle we can attract some investment from US VC’s and Angels in to the UK. Maybe that will shake things up a bit and make the reliance on IP protection less of an issue for UK investors.
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