How to pitch your IP without giving away the secret sauce. PART 1 OF 3: The Pitching Conundrum – Getting Past the First Two Hurdles
Series Preface
This article is part of a three-part series on how founders can pitch intellectual property convincingly without revealing their “secret sauce”, written by IT technologist and angel investor Dr Anthony Harris. Across the series, Anthony explores the realities founders face when pitching to investors, the risks and rewards of patents versus trade secrets, and how to demonstrate IP value without over-disclosure.
Author Bio
Anthony has been a member of Cambridge Angels since 2019. Before that he was a member of Cambridge Capital Group (CCG) and continues as a member of the Oxford Capital co-investor circle. He has been angel investing for over twenty years, has invested in more than fifty companies, and is somewhat unusual in that he makes a living out of angel investing as well as investing in the capital markets (he was an early-stage investor in Amazon, PayPal, Google, Microsoft, PayPal, Motorola, Apple, Palantir and many other tech success stories). According to him he does this by ‘investing in things I know with a few fun investments along the way’ (Flit, and Oxitec being just two examples). Anthony originally studied computing at Oxford Brookes (when it was Oxford Polytechnic) and then went on to work in R&D and development in the computing industry (mainframes and microcomputers), including some time working in Silicon Valley. In 1989 he founded Software 2000, an OEM software house which he used to suggest was ‘the most successful company you’ve never heard of’. The company’s royalty and licensing business transformed inkjet and connected laser printer technologies world-wide, won four Queen’s awards for export, numerous other industry awards, and grew to $150m valuation with offices in three continents. Anthony exited in 2007 to a management buy-out and went on to study for an MA at Oxford, an MA(Res) at Reading and his PhD at Cambridge (Sidney Sussex). He has been mentoring on the ‘Accelerate’ programme at the Judge Business School since 2014 and continues to help start-ups with advice on intellectual property and business finance. He has just finished a research fellowship at Clare Hall (Cambridge) and is now a fellow and director of studies for computer science at Emmanuel College (Cambridge). Anthony sits on the board of Cambridge Angels as our treasurer and is on the boards of Flit and ScaleXP, two Cambridge Angels portfolio companies.
The Pitching Conundrum
The First Hurdle (Vetting) - Getting to the Pitch
It is unusual for early-stage founders to be able to talk directly to a business angel or VC analyst. Normally there is a front-end vetting process that they must go through where their pitch is sifted, by a person or persons unknown, from the hundreds or (sometimes) thousands sent to angel groups or VCs each year. Because the vetting process is, by its very nature, opaque founders don’t really know who will see their pitch deck first. As a result, they tend to be overly reticent about their product and its ‘secret sauce’. Hence, many pitch decks sent in for vetting don’t end up answering the crucial question, ‘What is it and what makes it unique?’ Founders fear putting this in a first-approach pitch deck because they don’t know where it will end up or who will see it but this means many pitch decks never get past this first hurdle because the front-end vetting team can’t work out what it does. The logic here is that if the founders can’t explain what their product does in simple terms, then they will be laughed at when/if they get in front of an angel group or VC investment panel and the vetting team will be left with egg on their faces if it did get through their process. Hence, to grab attention and to make a deck stand out it is extremely important to explain succinctly what the product does and why what it does is important (and hopefully unique). This means also explaining that there is a high cost of entry to competitors entering the market and doing the same thing quicker and cheaper! High costs of entry can be demonstrated through ‘patent(s) applied for’, ‘patent(s) granted’, ‘trade-secrets’, or ‘it’s demonstrably difficult’ (e.g. a unique hardware design that has taken years to develop, Quantum, or AGI). It’s worth-while having a couple of slides in the initial deck which state ‘here exactly is what it is’ and ‘here’s why it’s difficult for somebody else to do exactly what we do’. Generally, pitches that deal with this up-front are the ones that pass the vetting process and get moved on to pitch to the investors. ‘Many are called but few are chosen’ so it is important to get things right at this stage.
The Second Hurdle (The Pitch)
When founders pass the vetting process and do eventually get to pitch directly to investors, they naturally want to demonstrate the value of their product and its intellectual property. This means further justifying the valuation, demonstrating its defensibility in concrete terms, and validating the high cost of entry for potential competitors. Yet they are also acutely aware that the people they are pitching to will understand their market in some depth, have valuable networks directly in their area of expertise, and might not be the investors that they ultimately end up with. Hence the ‘pitching conundrum’. How much do they reveal without giving away the farm and how do they prove they have got something genuinely defensible without handing potential competitors a complete instruction manual of how to do what they are doing (or intend to do)?
Many founders default to patents as the answer, because patents are a familiar choice and having a patent, or ‘patent applied for’, feels like proper IP protection. But is this always the right choice?
In Part 2 of this series, Anthony explores why patents are often the default response to this conundrum — and why that default may be more dangerous than founders realise.