The decision to pursue an idea and attempt to bring it to fruition is not a novel concept. It is as old as the dawn of man, creating fire with two sticks. What follows is the first article in a series of what our startup went through and the steps we still have to take.
So, we believe we have a novel idea for a process. We build a prototype and get it to "skateboard" status. Once this happens, it is time for an attorney. The attorney is the key part of the puzzle that many people forget... or avoid because they think it is too costly.
This is not the step you want to skip.
Is it costly?
Is it something you can come back to... it all depends how lucky you feel. And this is not a time you want to test your luck.
By hiring an attorney and having him patent and trademark your idea, you at least begin the process of protecting your idea. I firmly believe this is not a step that should be skipped, and, more importantly, this is an essential and pivotal step in the life of your startup.
In our experience, the attorney comes at your idea from a different direction. It is a conservative, cautionary tale and generally provides you with pros and cons of doing things. In addition, this is not a step of your process where you want to try to save money; in fact, if you overspent in this area, it would not be a bad thing. Attorneys in the tech world are worth their weight in salt ten times over. A seasoned attorney has, hopefully, been through the process and seen what does and does not work. You are paying for this experience; gladly paying, I might add. Here's a perfect example...
Starting out, Bill and Ted thought, "Dude, we need twenty million to blow out this idea." Let's raise twenty million and crush it.
As our attorney explained, why would you take twenty million if you only need five?
"Because we're gonna blow this out, yo!"
He looks at us like a bunch of idiots.
Which we were.
If I get you twenty million at this stage, I would be doing you a disservice.
Confused looks all around.
Each time I get you money, there will be a valuation of your company. If we were to value the company today, it would be worth one million dollars, based on you guys not having much more than a good idea. If we take twenty million dollars at this stage when your company is worth one million, the percentage of ownership the investors will want would be egregious.
Less confused looks.
Now, if we take a pragmatic approach and only take the first five million you need and we use that five million to make the company more valuable while we do this, when we need the next FIVE million, your company will be valued again and, at that time, it will hopefully be worth five million. Now, we take the second five million when your company is now worth five million and you have, therefore, retained a greater percentage of your company than you would have if we had taken the twenty million up front.
And that, in a nutshell is why you pay for an attorney before you do anything else.
Basic stuff so Bill and Ted can have an excellent adventure.
This post originally appeared on The Whole Magilla and was written by Chris Meyer, co-founder of MagillaLoans.com.