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New Invention
Old 12-16-2008, 08:00 PM   #1
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New Invention

Hi All:

I was approached recently about partnering/investing in a new invention.

My "partner" who I don't know too well claims there is NO other product currently on the market. He tells me he has a patent, as well. Naturally, I will verify this.

I was told today by someone else that "product liability insurance" is VERY important with ANY new invention.

Regardless, I realize the risk with new inventions and would welcome any and all comments, suggestions, advice, etc...

I will provide as much info. if needed from the knowledgable & helpful folks in this forum.

Thanks in advance.

Space Mountain
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Old 12-16-2008, 08:05 PM   #2
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Old 12-16-2008, 08:10 PM   #3
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Quote:
Originally Posted by Space Mountain View Post
Hi All:

I was approached recently about partnering/investing in a new invention.
This wouldn't be the 'franchise broker' you were talking with about investing in a franchise would it?

Buying a Franchise
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Old 12-16-2008, 08:14 PM   #4
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Quote:
Originally Posted by Space Mountain View Post
Hi All:

I was approached recently about partnering/investing in a new invention.

My "partner" who I don't know too well claims there is NO other product currently on the market. He tells me he has a patent, as well. Naturally, I will verify this.

I was told today by someone else that "product liability insurance" is VERY important with ANY new invention.

Regardless, I realize the risk with new inventions and would welcome any and all comments, suggestions, advice, etc...

I will provide as much info. if needed from the knowledgable & helpful folks in this forum.

Thanks in advance.

Space Mountain
Is this a form of bear-baiting? Can you imagine getting positive feedback from this forum, given our conservatism, our recent shellacking, and the meager information you supply?

Why not just say, "Hey, I have this really dumb idea, I don't really know anything about it, but I might drop some money into it. What say peeps?"


Sure man, get down! You may never have another chance.
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Old 12-16-2008, 08:25 PM   #5
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Very mysterious....
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Old 12-16-2008, 08:33 PM   #6
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ok, i'll take the bait, or i will be providing an informed answer if it's legit.
i am a dual patent holder (1 has issued, 2nd to issue very shortly). i have yet to see a dime. sigh.
it is a very long and arduous road from...big inhale...
the EUREKA! to the patent application to the patent issue to the "reduction to practice" to a working set of prototypes to
the beta testers to the procurement of investment capital to the licensing to the manufacturing to
the marketing to the market introduction of a new product.
whew, i'm out of breath!
the product liability doesn't come in until it is actually manufactured and released to the public, either beta testers or full open consumer market, i.e. commercial off the shelf.
methinks you are being approached as an "angel investor". beware!
caveat - having a patentable idea vs having an issued patent are two different animals.
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Old 12-16-2008, 08:49 PM   #7
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caveat - having a patentable idea vs having an issued patent are two different animals.
And having an issued patent vs making any money from it are even further apart. It happens, but it's far from a sure bet in many cases.
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Old 12-16-2008, 08:57 PM   #8
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And having an issued patent vs making any money from it are even further apart. It happens, but it's far from a sure bet in many cases.
ah yes...i forgot to add "ka-ching" at the end.
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Old 12-16-2008, 09:29 PM   #9
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Quote:
Originally Posted by Space Mountain View Post
Hi All:

I was approached recently about partnering/investing in a new invention.

My "partner" who I don't know too well claims there is NO other product currently on the market. He tells me he has a patent, as well. Naturally, I will verify this.

I was told today by someone else that "product liability insurance" is VERY important with ANY new invention.

Regardless, I realize the risk with new inventions and would welcome any and all comments, suggestions, advice, etc...

I will provide as much info. if needed from the knowledgable & helpful folks in this forum.

Thanks in advance.

Space Mountain
Take your investment money and go to Vegas, bet it all on a the fist column of numbers, you'll have better odds and triple your money instantly. And if you're lucky enough to win than use half your winning to invest in the idea as long as you're on a winning streak.
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Old 12-16-2008, 09:49 PM   #10
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Originally Posted by Space Mountain View Post
I was approached recently about partnering/investing in a new invention.
Get your wallet out of your pocket, verify its contents, hold it tightly, and run away fast.

Here's a contrary look at the proposition: If this idea is so hot, then why do they need you? Why aren't bankers fighting to lend them money? Why aren't angel investors & VCs lined up at the curb with limousines waiting to pitch them?

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Originally Posted by Space Mountain View Post
My "partner" who I don't know too well claims there is NO other product currently on the market. He tells me he has a patent, as well. Naturally, I will verify this.
You'll get to know him very well through the due-diligence process, which includes having a patent/IP attorney review his patent. Then you have to decide whether the patent belongs to him or to the company he wants you to invest in. If the patent belongs to the company then you have to decide if it has any value if the inventor walks away from the company. And finally you have to decide how easy it is for other companies to weasel their way around the patent.

You want scary patent stories then read about the copier (Xerox), the television, and the MRI machine. It took the copier inventor nearly 25 years after his first patent (which had been expired for years by that point).

If there's no other product currently on the market then the inventor is facing a tremendous effort of consumer education and buyer's behavior modification. It's unbelievable how people will stick to the same old less-efficient ways of doing something, no matter how "cool" the "new" product may be. Even getting on Oprah's Favorite Things is not a guarantee. It's just one more product that somehow has to gain traction, even if it's the next Segway and your inventor is Dean Kamen's smarter brother.

If he's planning to use his patent to make/market/sell his product then he's going to need an unbelievable pile of cash-- probably in the millions. If he's planning to license the patent then it's slightly less effort (and a bit less money) to attract the attention of someone who'll make/market/sell it for him. Even then there's the risk of another company legitimately sidestepping his patent, and the very real expenses of patent defense.

A huge mistake of enterpreneurs/angels is to focus on the product. No matter how cool it is, you don't give a crap about the product. You give a crap about the business plan and how much money the enterprise is going to make off the product. For the average bright idea you'd like to see returns of 20:1 within seven years. For business plans you want to see previous success, enterpreneurial experience, professional management like a contract CEO/CFO, a professional's product assessment, financial results on similar products (no invention is totally unique), and how much ownership your investment will buy. Then you want a timeline with specific milestones and penalties, such as having your equity shares double in value or you getting board control if the inventor doesn't achieve a milestone.

Quote:
Originally Posted by Space Mountain View Post
I was told today by someone else that "product liability insurance" is VERY important with ANY new invention.
Every product has liability insurance as part of its manufacture & sales. You shouldn't have to care about it. That's the company's responsibility and if they need you to teach them about product liability insurance then you need to find another investment.

Quote:
Originally Posted by Space Mountain View Post
Regardless, I realize the risk with new inventions and would welcome any and all comments, suggestions, advice, etc...
Your chances are somewhere around 1:100, only maybe not that good. Frankly you'd have better odds of going out in a thunderstorm, standing in a puddle of water, holding a three-iron over your head, and waiting for lightning to strike.

But that's the whole idea with angel investing-- making a lot of 1:100 investments and hoping waiting for one of them to yield 500:1. For more on the process (including how to lose money at it) you could read an excellent book recommended to me by ClifP: "Angel Investing", a harshly realistic look at the process and its returns (or lack thereof).
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Old 12-17-2008, 02:42 AM   #11
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Big disclaimer upfront: I am only going to give a couple small tips, but even so, don't take this as legal advice, because I am still only a patent agent at the moment (random advice on a forum shouldn't as professional advice anyways).

That said, I agree with Nords, be very careful. Having a patent only means that it has a decent chance there some unique element to it. Whether it is actually useful in a way that would make money is a totally different story. A patent can also have an extremely narrow coverage range. Be especially wary if it is a business method, those are the flimsiest of utility patents out there.

That aside, I can't even tell you how many craigslist ads...etc...I see of people looking for "partners." If entrepreneurialism is something you want to get into, you will want someone driven to succeed, especially as a partner. Usually these types of people have shown this type of behavior in the past and will have an array of accomplishments. Avoid upfront cash commitments like the plague as well.

I find this subject especially interesting since I have my own plans for starting an online business, but it is not likely going to involve anyone else other than myself, unless it ends up looking promising (since I can handle the webmaster/programming/financials/legal stuff/marketing/SEO/etc...myself). I plan on focusing a majority of my energies on developing my primary source of income though for now.
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Old 12-17-2008, 10:07 AM   #12
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Frankly you'd have better odds of going out in a thunderstorm, standing in a puddle of water, holding a three-iron over your head, and waiting for lightning to strike.
Hmm, I wonder if this method of being struck by lighting is available for patent! I can see its application as a money maker now--"Honey, now that your life insurance is all paid up, could you go out in that storm and see if I left you three iron in a puddle of water in the middle of the yard? If you find it, just stand there and wave it in the air to show me."
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Old 12-17-2008, 04:01 PM   #13
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I once thought of trying to patent the wheel or fire... but was talked out of it.
I lost a bunch of $$ on each of them.

If that bearded guy on TV is going to advertise it on an infomercial- you just may have a shot at making $$.
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Old 12-17-2008, 09:17 PM   #14
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Random thoughts:
+ the best patents are those in which the corresponding invention has already been reduced to practice. The patents I've seen where this hasn't (yet) happened ('conceptual' types) tend to be of low quality. If he doesn't have a working prototype already in hand that he can show you, and is looking for you to fund prototype development, you can put this opportunity in the 'extremely high risk' category. Very few prototypes come in under budget. Once he has some of your money, he'll be back asking for more.
+ if he already has a prototype and wants your money to turn it into a marketable product, you still may have substantial technical risks depending upon the invention.
+ if he already has a product and wants your support for business planning and/or marketing, then that's out of my area of expertise. However, there are lots of books on how to go about evaluating the market potential of a potential new product. You've got substantial risks here, too - there are many examples of technical successes but market failures.

Good luck!
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Old 12-17-2008, 09:30 PM   #15
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VCs interview scads of folks proposing new businesses. Those that look interesting they vet thoroughly. Of the few who make it through the process a small portion are really profitable.

My take: Unless you have money to burn don't get involved. If you do get involved make sure you protect your 'equity' in the business. Bottom line, go to your local casino and play Black Jack.

How do I know: My DD is a CFO of a VC.
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Old 12-17-2008, 09:39 PM   #16
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Gave $3k to a guy who was developing a switch for "hopper cars" - the cars that bounce up and down. That was several years ago and the best part of the whole deal is that i found that the mortgage professor (thanks FD!) has a spreadsheet on his website that will give interest and principle payments based on any fragmentary payment amount and day. Money has not been returned as and when agreed, but at least he doesn't come around wasting my time....
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Old 12-18-2008, 04:30 AM   #17
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Quote:
Originally Posted by Space Mountain View Post

I was approached recently about partnering/investing in a new invention.

My "partner" who I don't know too well claims there is NO other product currently on the market. He tells me he has a patent, as well. Naturally, I will verify this.
Space Mountain
Sounds like a quick way to lose your money.
If the product was worthwhile what does he need you for?
Also you dont know the guy.
Maybe if you tell us what this patent is on we can give you more advice on its feasability.
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Old 12-18-2008, 07:51 AM   #18
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Something that get forgotten sometimes - even a great idea and a seemingly great patent, and a great business plan can all be short circuited by some other big company using your idea in their product. They might be very clever, and find a way to do the same thing, but circumvent the technicalities of the patent. Even if they aren't so clever, you would need to go to court, and that is a big unknown to throw more money at. Even if they are wrong and you are right, can you stay solvent long enough to prove it?

Risky, but obviously great rewards for a few when the planets align with a great idea and hard work.

-ERD50
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Old 12-18-2008, 10:06 AM   #19
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While we're on the topic of patents, I'll go slightly off-topic and echo the widely held belief that the U.S. patent system is 'broken'. The ever-growing number of patent applications and ever-growing backlog of unreviewed applications and ever-growing delays in patent issuance are making the system far less effective.

So, what to do? One crackpot idea: a patent can only be issued for an invention actually incorporated into a product offered for sale. The patent examiners should be able to review the associated product literature as well as the usual claims and background information. So, for example, the guy who invented intermittent wipers couldn't have filed a patent application until he produced product literature and began trying to sell his invention to auto manufacturers. This would not be a 'first to invent' or 'first to file' but a 'first to market' system. Would this help reduce the flood of poor quality 'concept' patents? Would clever people find a way to abuse a 'first to market' system, by, for example, producing bogus product literature incorporating vague 'novel' ideas? Don't know. :confused:
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Old 12-18-2008, 11:55 AM   #20
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Patents in and of themselves mean little. When I worked for Xerox back in the day they bragged within R&D about X new patents per year and where that ranked them.

The company still had problems taking a vibrating toner application system to market (but it was patented). The application of a patent is more important from where I sit.
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