Seeking Investment for your IOT business
Many businesses need investment or funding and IoT businesses are no different. The most common route for most technology businesses, appears to be, to give away a share of the equity. This type of investment is not without its risks and pitfalls so it is essential that you understand these obstacles and know your options. We would advise you to consider all of your options including debt financing, equity and alternative structures before you embark on this journey. Whichever route you take it is key that you take time to ‘get your house in order’ for investment/funding.
Here are a few key considerations:
Have a correct company structure in place
To receive equity investment you must be a company limited by shares. As such it is key that you have sufficient shares to allocate to an in-coming investor. There are specific conditions for an investor to benefit from SEIS and/or EIS tax relief so it is important that you work closely with an advisor who is aware of these requirements. When dealing with an investment round, getting advance assurance could set you up to be in a good position.
Carefully consider the ownership of intellectual property
Potential investors need confidence in the protection of your Intellectual Property and its value. Intellectual Property is a valuable asset to a Company and is something the investor will want to see is protected.
There are a number of different forms of Intellectual Property protection available to IoT businesses including possible patent registration, trademark registration of the name, logo and any product name, design rights and copyright.
An investor will want to see clearly that the company owns the Intellectual Property used in the business whether that is the brand or the product. Any trademarks should be in the name of the company and not in the founder’s name to ensure the value is with the company. This will be required by any investor. Intellectual Property Rights can only transfer in writing so there should always be signed agreements transferring any Intellectual Property created for the business, including that created by interns or contractors. It must be protected in all relevant jurisdictions not just the UK if you are planning to launch overseas.
Make the deal clear with co-founders
An important and early step that can be taken by all businesses to try and be as attractive as possible for investment is to have in place clear documentation regarding relationships with co-founders. An investor will want to see what arrangements and provisions you have in place and that you each agree the way forward. It should reflect an agreed plan (be that sales or investment or expansion) and in turn have adequate protections in place.
Limiting your exposure to liability
With new and innovative markets, it is important that your liability is clearly contained within the contracts so that an investor can take comfort that you have considered whether it is your liability, that of a software developer or business user. Where it is impossible to exclude liability you should show that insurance and alternative protections have been considered.
The nature of IoT is that investors tend to be attracted from both those interested in technology and those interested in the utilisation of the underlying product. Product liability is already a complicated field and IoT devices complicate matters. It is important that industry standard product liability is addressed head on with investors and covered in the contractual documents as well as having in place suitable insurances. You cannot exclude personal injury.
Know your obligations on data protection
With IoT it is fundamental that personal data is protected adequately. There are strict rules both under UK and EU law which place onerous obligations on people handling “personal data” (name, addresses, personal details) and a new regime is being implemented in May 2018. As such you need to keep abreast of new laws and updates, manage this effectively and make sure your documents have been updated to cover off these new issues. Make sure your policies are kept up to date to protect you.
Seeking investment or funding can be an exciting but nerve-racking experience. It is important that all founders keep in mind the benefits that they bring to the business, their experience, time and efforts and that these are not forgotten by potential investors. Time again we see founders accept bad terms and fail to negotiate key terms of an investment because they leave seeking investment too late or fail to recognise what they bring to the business. If you want to stay in the business or sell at a key point, ensure that this is documented and do not be afraid to protect your position going forward.
Jacqueline Watts is an experienced Company Commercial Solicitor at A City Law Firm who works closely with technology clients seeking and securing investment. A City Law Firm is a leading entrepreneurial law firm in the City of London, with a dynamic and diverse team of lawyers. It was awarded most innovative law firm, London 2016 and Best Business Law firm 2017. They specialise in start-up and scale-up technology businesses IP and investment.