Tech Startups and the Perils of Insolvency

Early stages and startups are delicate and tempestuous times for any enterprise, but a tech startup has its perils that must be circumvented. With all the “To Dos” and bustle of activity Intellectual Property or IP is often relegated to the back seat.

For tech startups, IP is the most important asset, and many times the most valuable asset the company holds. It could be the cornerstone for a new industry, it could be used to secure funding or serve the business in many other ways, and it is important to set down measures that protect it.

This will begin with a comprehensive understanding of what your IP wealth consists of and the extent it reaches, this will give you the plan for implementing robust protections systems and finding ways of commercializing this IP.

Following are some key points to consider when safeguarding your IP:

1. Formulate an IP Protection Strategy:  This is best practiced early in the game with all the appropriate rights to IP obtained from the very beginning. The product offering or service in question can be compromised if it is not.  Attempting to make adjustments and repairs later on down the line can be risky and expensive.

2.  Use “Clean Room” Procedures: When handling third party IP assets it is essential to use “clean room” procedures to prevent claims of IP ownership in the future.

3. Use only open source software with caution and make sure that all the stipulations regarding disclosure have been met for any derivative software.

4. Apply Escrow Protection from the first step

5. Proper documentation of the procedures is as essential as the application of the procedures themselves. These will serve you well in the future when looking for investors.

Which are the Most Relevant IP Assets in Technology Startups?

As a rule of thumb, developed software takes the first place, this includes database rights and copyright protection and any patents the Startup is holding. There will be indubitably a stash of little corporate secrets (confidential information) cloistered away as well, which underlies the use of technology and software that must be protected.

It will be significant to remember that the slick marketing of the business through the certain channels will be greatly facilitated if trademark protections is found and applied early to the business, brand, and logo.

What Options Exist for Tech startups facing Insolvency?

Insolvency issues place many of the same problems to tech start-ups as they do to many professional practices. With reference to the article published on EDP24.co.uk Mr. Jamie Playford who is a licensed insolvency practitioner faced a similar situation. They suggest that depending on the amount of development that has been accomplished, it may be that there are not many assets that can be sold and that all the true value of the company exists in digital information, notebooks and the minds of the founders. Restructuring can be a difficult process.

Creditors are not known to be patient, and it is often the best idea to seek out the advice of a qualified insolvency practitioner. The advice might be to go on trading, and this can protect the directors, but if not then they are sure to provide some information that can mitigate the situation.

Innovations and entrepreneurs behind them were meant to be protected by the Enterprise Act 2002, so a pre-packaged administration may be recommended, this would mean the idea business of will be saved and the idea can continue to flourish.

Company Voluntary Arrangements may be another idea worth looking into if you have a good standing with the creditors; it is a long shot as most often there is no track record and creditors would be hesitant to this.

Finally, liquidation would allow the directors to buy assets from the liquidator. The major benefit of an administration over liquidation is the continuation of the project as well as the ability to retain essential staff.

If facing the possibility of Insolvency, what are the primary factors that an Insolvency Practitioner will calculate when liquidating assets like licenses and databases?

One of the most complex will be the Data Protection issue; Insolvency Practitioners will have to consider if the data is manual or electronic especially when it comes to personal data like customer information.

This will also have to be considered in conjunction with the permissions given when the data was submitted, whether this is a notified data controller and many other particulars.

The considerations are vast and detailed and if you are not sure how to proceed it would be best to get some qualified advice from an expert in these things. The value of IP has to be ascertained by someone with experience and perspective in the field to be sure their are no intellectual or copyright infringements in the data.

Licenses themselves may be quite complex, and it will take a skilled eye to explain all the qualifications, and details, so be sure to have them reviewed by someone who can explain them in detail.

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