The Value of Intellectual Property to a Startup Venture

April 12 2010 No Commented

The Value of Intellectual Property to a Startup Venture

Derek Sivers points out a critical issue to startup companies:  Intellectual Property has LITTLE OR NO VALUE without execution by the entrepreneur and management team.  Here is his blog:
 
IDEAS ARE JUST A MULTIPLIER OF EXECUTION
By Derek Sivers (http://sivers.org/multiply)

It’s so funny when I hear people being so protective of ideas. (People who want me to sign an NDA to tell me the simplest idea.)  To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.

Explanation:
AWFUL IDEA = -1
WEAK IDEA = 1
SO-SO IDEA = 5
GOOD IDEA = 10
GREAT IDEA = 15
BRILLIANT IDEA = 20

NO EXECUTION = $1
WEAK EXECUTION = $1000
SO-SO EXECUTION = $10,000
GOOD EXECUTION = $100,000
GREAT EXECUTION = $1,000,000
BRILLIANT EXECUTION = $10,000,000

To make a business, you need to multiply the two.
The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000.
 
This explains why, regardless of the number of patents and the apparent value of the technology, professional investors (angels and VCs) will likely value new enterprises between $0.75 and $1.5 million (pre-money valuation, prior to investment).

It may be a difficult principle to accept, but this is how investors view the world.  It is all about execution!

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com