The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Parvis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Friday, 15 August 2014

The start-up accelerator: love that mentor but what about those trade secrets?

This Kat recently considered whether the “lean start-up” approach to entrepreneurship might have the unanticipated consequence of serving as a disincentive for inventive activity of the patent kind, here. But what about trade secrets? Might the emerging structures for creating more effective training environments for start-ups and their founders affect the traditional role that trade secrets play in the process of creation and innovation? Against this backdrop, consider the role of the mentor within the increasingly important framework for start-ups, the accelerator.

First, a bit of context. An interesting dichotomy has emerged in the startup world. On the one hand, the start-up narrative continues to emphasize that entrepreneurship is often a solitary activity akin to the loneliness of the long distance runner, as the entrepreneur seeks to pursue his dream against push-back from all directions. On the other hand, talk and action about start-ups have come increasingly to focus on the centrality of the start-up endeavour as a community, itself part of a larger ecosystem. Perhaps the most notable example is the rise of the accelerator. Since 2005, when the first accelerator was established (Y Combinator, here), the focus has been on trying to create a setting more effective than the incubator for fostering start-up activity. The rap on the incubator was that while it did provide founders with a common roof over their head as well as certain services, it did not create an edgy enough innovative environment for its tenants, who could presumably stay for as long as the paid their rent.

Come the accelerator, which in various forms seeks to create a better training environment for would-be founders to obtain the skill set necessary to create a successful start-up. Each program is for a fixed period of time (usually three months), at the end of which the participants (from extremely selective to less so, depending upon the status of the accelerator) are called up to take part in “demo day” to sell their start-ups. The extent to which the program seems like a “real school” varies. Taking TechStars, here, as an example, as described by The Economist, here,
“it feels more like a real school than does Y Combinator: founders toil together in classes of dozen people, and they have teachers-cum-mentors who serve as a sounding board.”
Whatever the structure of the particular accelerator, the emphasis is on enabling founders to benefit from these communal resources whereby ideas can be shared, criticized and refashioned. As summarized—
“[n]ot only do they bring start-ups up to speed, provide access to a network of contacts and give them a stamp of approval. They also perform a crucial function in the start-up supply chain: picking the teams and ideas that are most likely to succeed and serving them to investors.”
One of the key actors in this process is the mentor who, depending upon background and personal inclination, can become a close confidant of the founder and his start-up project. During the course of this mentoring relationship, therefore, the mentor may well be exposed to certain kinds of confidential information about the start-up. It is here that a problem may be created. People presumably become mentors for a number of reasons: some do it for the pure joy of being able to interact with and assist budding entrepreneurs, but others (or even perhaps the majority) do so because they ultimately see mentoring as a vehicle to be better able to vet potential start-up investments. After all, most accelerators “are in it for the money” (as it should be), usually taking an equity stake in accelerator projects with an eye towards a lucrative exit by a critical mass of such enterprises. A mentor’s access to such confidential information may thereby give him an advantage in any subsequent investment rounds. It may also enable the mentor to fashion his advice to the founder in a way that sends the company off in a direction that might be of particular benefit for the mentor in his investment context, but might make the company less attractive for other investors.

The upshot is that the mentor’s access to the confidential information of the founder within the context of the accelerator might distort both the mentor’s consulting function and later investment activities. Thinking more broadly for a Kat moment, the community aspect of the accelerator milieu might have the effect of making it more difficult for a founder more generally to maintain its confidential information. The founder may be completely willing to absorb this risk to his confidential information as the price for being able to take part in a well-run accelerator of high reputation. That said, it still leaves open the question of how to view the role of confidential information and trade secrets in an age where start-ups and the accelerator-training environment have increasingly taken on a community aspect.


Jackie Hutter said...

Neil, I have been (and remain) both a mentor to numerous startups and the CEO of a startup that is part of more than 1 accelerator program. I have also been practicing Lean Startup for the past couple of years. As an IP expert, I can assert that the issue of trade secret disclosure is wholly manageable in these multiple contexts.

First, the most frequent opportunities for an entrepreneur to disclose confidential information involves business model or other types of financial/business information. Never have I been asked to disclose (nor would I ask as a mentor) the "secret sauce" of my technology. Thus, no issue relating to public disclosures that could affect patent rights has ever arisen. Indeed, I have been working at a substantive level with a business mentor for more than a year now, and I have never shared with him (nor has he asked to hear) the technical details of my technology, yet he has provided me with extensive mentorship.

Second, it is critical for all startup entrepreneurs to learn how to discuss their business model, technological differentiation and other company-specific info in broad terms. Indeed, investors will immediately consider someone who can't tell their story without confidential information as someone who isn't worth working with.

Third, in the few situations where I found it necessary to obtain from a mentee or to share my own confidential information, we have first gotten to the point where our relationship was robust and it made sense to "open the kimono". At this point, a NDA was a no-brainer.

More broadly, as someone who spent many years telling clients it was risky to share, I now believe the opposite: in today's business environment that is increasingly based on collaboration and shared value creation, it is more risky NOT to share. Of course, one needs to be judicious about doing so, but proper relationship development can signal when the other guy is not going to be a good partner.

Putting on my "lawyer hat," I can say that startup clients view us as "doomsday preppers" who immediately see risk before anything else. At the polar opposite are startup entrepreneurs who live for risk. Lawyers aren't going to be able to stop accelerators or mentoring because the startup ecosystem thrives on these models. Lawyers are therefore going to have to learn to participate in these communities or get left behind.

Anonymous said...

A mentor's value comes from their experience. They've got to be able to anonymise/generalise what they know so that it is useful to others, but is not detrimental the original party. Many service providers need to do that, and so I'm sure mentors too can find the right balance. Echoing what anonymous of 21:43 says one must be as open and as sharing as possible to gain most from outside parties and innovation ecosystems.

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