Now, let's turn to the venture community. Angel investors and venture funds are unapologetic in their quest to back entrepreneurs who have a "sustainable and unfair advantage" in the marketplace. If you think of entrepreneurs as elite runners at a starting line, venture investors want to bet on the runner who is already on the second lap. Even better, they want to back the entrepreneur who opportunistically puts up lawful hurdles and other obstacles to trip up the competition whenever possible.
Why is there such emphasis in the venture community on the head start? It's sad but true -- experienced investors and battle-scarred entrepreneurs know that the very best business ideas are soon copied by better financed, bigger companies. In a way, you can call this the unfair reality of capitalism.
One recalls earlier posts on IPBiz suggesting that VCs do NOT consider "the presence of patents" to be the most important factor in making an investment decision:
Venture capitalist stresses management; ideas are a dime a dozen
Are patents a key factor for venture capitalist investment?
A key historical point along this line is that Thomas Edison had his financial backing for electricity/electric light bulb in place BEFORE he had even filed for what became his key patent (which in any event did not even mention filaments made from carbonized bamboo, the key technical breakthrough).
Note that the SCHRETER article does mention other aspects:
Still, while patents are certainly good to have, they are not the only measure of venture viability. Investors will give you equal opportunity to convince them that you have integrated several "barriers to entry" or "tactical advantages" into your business plan. Here are some ideas for your work-around plan.
# Long-term, exclusive contracts or preferential contracts with large customers.
# Verifiable, superior cost or performance advantages to customers. Sometimes investors call these companies disruptive "change agents" with an ability to swiftly move customers away from established players.
# Strategies to develop a well-recognized brand and extreme customer loyalty. Think Starbucks.
# Multiyear partnerships, co-branding agreements or alliances with more established companies or product distributors. As a notable example, years ago Microsoft partnered with IBM establishing DOS as the dominant desktop operating system just as computers were entering homes and offices worldwide.
# Evidence of a truly distinctive service that is unmatched in the market and highly valued by customers.
IPBiz notes that, in the end, it's about people. The VCs have to believe in the man and the plan, including the management team. They are more comfortable with people they know. Historically, Edison, with the phonograph already under his belt, could convince more people than the Wright Brothers, two bicycle mechanics from Dayton. Further, recall that both Edison's "light bulb patent" and the Wrights' patent were strongly challenged. By the time the patents were vindicated, one had a different team than when the patents were filed. Wilbur Wright literally died in the patent wars.