By Julie Garcia
#160 #160#160 #160#160 #160#160 #160The path from original idea to market launch of a product can be a long and arduous road. There are many hurdles that must overcome prior to the launch and distribution of a product. The path usually begins in the mind of a few creative individuals or a scientist or engineer. Extracting the idea and turning it into a viable product or service upon which a company can grow to profitability is fraught with challenges, pitfalls and plenty of mountains to climb and the path generally includes: (i) determining if the idea is viable as either a product or service; (ii) determining the form of entity to be created from which business will be conducted; (iii) financing the endeavor; (iv) product development; and finally (v) market launch.
#160 #160#160 #160#160 #160#160 #160An idea can be a very powerful and important basis from which a product or service can be derived; however, initial research should be conducted to determine if the idea has already been protected by a patent or if the idea is viable from a technological standpoint. Although many ideas sound good in principle, the execution of the idea may not be feasible or even possible. In some cases, the idea has already been developed to a certain point and not marketed for a variety of reasons. Generally, an initial search through the patent office filings may provide enough information to determine whether or not the idea is worth pursuing. If the initial search is negative, further in-depth research should be conducted through more formal patent search methods. Services exist that will conduct searches that reach beyond the initial patent and trademark website search. Although the search may be costly, it may ultimately save money if the search returns positive results and further development of the product or service would ultimately be futile.
#160 #160#160 #160#160 #160#160 #160After the initial determination that the idea is feasible or at least worth pursuing, it is generally advisable to form an entity which will own or license the idea or invention and through which the product may ultimately be launched. The choice of entity is often a decision that requires some thought and consideration, particularly in light of the circumstances surrounding the founders and the future intent regarding financing for the entity. Generally, most technology companies will take the form of a corporation, either a C corporation or an S corporation or a limited liability company. There are various reasons that one entity is chosen over the other, including tax issues. Certain types of entities may not be feasible depending on the type of shareholders or members contemplated. For example, an S corporation is limited to a certain type of shareholder, which generally excludes other corporations or entities and the number of shareholders in an S corporation is limited. A consideration worth noting on the use of a limited liability company in California is the gross receipts fee. The fee due to the State of California is based on the gross receipts received by the entity for the year. In addition to the type of entity chosen, the jurisdiction of the entity may be important. Each state has adopted different rules and regulations regarding entities making some jurisdictions more company friendly than others. Case law in certain jurisdictions may make certain states more appealing than others and the filing fees may also create situations that are more favorable than others.
#160 #160#160 #160#160 #160#160 #160Generally, technology companies are not ready to launch a product or service upon formation of the entity. A significant amount of research and product development is important and requires funding. Unless the founders are independently wealthy and can manage financing the endeavor on their own, outside investors will be needed until a revenue stream is generated from the product or service. Although there are a number of investors that are looking for the next big technology, money is not as readily available as it had been at the peak of the “dot com” boom. During that time, investment money was free-flowing and available to most companies. Currently, investors are much more cautious about the companies in which they invest their money and are not as willing to fund small startup companies with unlimited funds. A significant amount of due diligence regarding the technology held by the company and the business plan are standard practice and very important. An investor will want reassurance that the technology has been protected, is owned by the company and is being developed in an efficient manner. In addition, the investors will want to see formation documents and review the business documents which show that the business has been conducted in pursuant to corporate and securities regulations.
#160 #160#160 #160#160 #160#160 #160Upon receiving funding, at least enough to move forward with the process, product development will follow. The successful launch of the product will depend on the proper market research and development of the product or service. In many cases, beta testing of the product will allow the company to test the product in a typical user setting and will provide valuable feedback from actual users of the product. Although beta testing may be useful, it is important that the company take proper steps to protect the intellectual property that will be released. Entering into a beta test agreement will assist in setting the parameters of the review and use of the product and establish expectations of both parties.
#160 #160#160 #160#160 #160#160 #160Once the product has successfully been developed and tested, market launch is the next step. Determining the most effective manner to distribute products will generally require a network of manufacturers, distributors and/or resellers. Most small technology companies will not have the internal resources available to manufacture and distribute the product and will need to look to third parties to provide such services. Establishing relationships with manufacturers, distributors and resellers will be important to the success of the company and the relationships should be properly documented.
#160 #160#160 #160#160 #160#160 #160Product development and distribution can be a time consuming process. Taking an idea from the mind of the inventor to market launch is a process that should be undertaken with great care and planning. Research regarding the viability of the product or service and proper planning will help make the process a little less traumatic.
Julie A. Garcia is an associate in Weintraub Genshlea Chediak Tobin & Tobin Sproul’s Corporate, Securities and Financial Institutions group.#160 Ms. Garcia has broad experience working with technology companies in a wide range of software and technology license transactions.#160 Her practice also focuses on private and public companies’ business planning scenarios including corporate formations, protection of intellectual property, licensing intellectual property, corporate financings, employee equity incentive plans and mergers and acquisitions.