Choosing and Working with Your Service Providers

1. Choosing and Working with Your Service Providers An Guide for the Entrepreneur

2. SV Accelerator • We advise entrepreneurs and interface with investors • Enterprise and consumer software / Internet companies, looking to expand into Clean Tech • Operate out of Silicon Valley • Operational experience in management of technology • Technical expertise in in EE, CS, Mech E, Materials Science, Chemical Engineering and Biotech • Expertise in technology law (patent and transactional)

3. (Some) Services You Need • Financing (angel, VC, credit, govt grants) • Incorporation • Contracts (investments, employee agreements) • Patents and other IP • Banking • Real estate / office infrastructure • Finance & accounting

4. Provided By • Angels, VCs, government agencies • Attorneys (Corporate, transactional, IP) • Accountants and book keepers • Commercial bankers • Grant writers

5. General Thoughts on Service Providers • Substantive competence • Must be selective, don’t assume reputation = competence • Ask questions regarding domain expertise • Be aware of fit • Are you an appropriate client for this firm • Size/revenue appropriate? • Goal appropriate?

6. Service: Patent Filings • Objective: Obtain "crown jewel" protection on company's technical innovations • Whether available patent protection is narrow or broad, patent filings are usually necessary • An item on investor checklists, regardless of ultimate breadth, validity and enforceability

7. Patent Filings: Options • Large national/international law firm • Some are $1B revenue • Morrison & Foerster • Boutique patent law firm • Weaver Austin • Solo practitioner • Many “retired” from the other types of practices

8. Pros • Large national/international law firm • One-stop shopping • Boutique patent law firm • More technical specialists • Some work with small clients • Solo practitioner • Low cost • Usually work with small clients

9. Cons • Large national/international law firm • Focus on litigation and other high-revenue projects • May be scale inappropriate for a startup • Boutique patent law firm • Lack of cross-disciplinary understanding (corporate, transactional) • Solo practitioner • Uneven substantive competence

10. Patent Filings: Case Study • UC biotech faculty member • UC Office of Technology Licensing issues • Informal advice - document lack of responsiveness from OTL • Engaged large law firm to file a patent • Came to us about a year later • Complaint – not prioritizing his issues, using “last few brain cells at the end of the day”

11. Patent Filings: Case Study • We reviewed the case, saw some substantive problems, but more important process/project management problems • Also saw inappropriate bill items based on abandonment of patent application (law firm’s fault) • Probably not dishonest, merely disorganized • Poor billing processes • Size inappropriate client, but similar problems can be seen at smaller firms

12. Patents: Bootstrap or Angel Startup • Large national/international law firm • Generally competent, but may be too large for you • Can a specific department work effectively with you? • Don’t accept a blanket statement on this • Boutique law firm (specializing in patents) • Usually appropriate • Solo practitioner • Must have excellent recommendations

13. Patents: VC Funded/Fundable Startup • Large national/international law firm • Make sure patent group has specific technology expertise, and quiz them on this • Boutique patent law firm • Can be a good choice, if they communicate with your corporate and transactional attorneys (billing issues) • Solo practitioner • Might actually be too small for some startups • Should have pedigree from a well-regarded firm

14. More on Client Fit: Finance & Accounting • Clients: Five art school faculty members, teaching abroad • Service provider: Large accounting firm • Needed accounting/tax preparation while working abroad • Fee was flat rate $2K per person – not major revenue source

15. More on Client Fit: Finance & Accounting • Clients were assigned to the most junior associates • Lacked relevant knowledge such as foreign residency tax issues • Lacked experience and authority to fix the situation, such as bringing in other team members • Clients too small for partners to care to intercede • Classic example of size inappropriate client

16. More on Client Fit: Finance & Accounting • First failure in project management chain • Should never have taken on this client in the first place • You cannot rely on the service provider to make this decision correctly for you • Our advice, post hoc – if you care about the University’s money, demand a full refund • The firm cares little about making $10K, they will care little about writing it off

17. Another Case Study: Trademark • Client: “Swan” baby clothing designer • Service provider: TM department at large law firm • Filed Swan trademark registration and received first rejection due to existing “Swan outerwear” • Conducted extensive legal research to distinguish trademarks • Completely cost inappropriate for small client

18. Another Case Study: Trademark • Switching cost for large corporation is high (think Pepsi) • And large corporation has already considered this • For new, small clothing designer, switching cost is ~ 0 • Should have advised name switch, and/or TM registration for “Swan baby” clothing instead of “Swan” baby clothing, not extensive legal research • Law firm agreed to write off bill item, but why was it executed in the first place?

19. More on Choosing and Working With Service Providers • Seek input for referrals and vetting of service providers • Once selected, ask for past and current client recommendations/feedback • Seek out service providers that are appropriate for your company and stage • As your company grows and/or its needs change, you may need to replace even a good service provider • Consider having them work with/supervise a larger service provider

20. More on Choosing and Working With Service Providers • In all cases must be aggressive and organized about project management, don't rely on them! • Regularly monitor progress and quality of work, don’t be afraid to bring in a third-party for input • Review bills thoroughly and ask for explanations

21. Questions? Robert H. Lee robert@SVaccel.com Deepa Ravindranath deepa@SVaccel.com +1.510.427.2049 (California)