Posted on August 22, 2023
Hi everyone, I’m J.D. Houvener, and welcome to the Bold Today Show, where you, the adventurer or business owner, get your daily dose of inspiration. Happy Monday, everybody! Last week, we talked about all the different ways of making money, and I wanted to follow up this week with an even deeper dive. I felt like there was enough interest in the videos and in the discussion last week that it warranted a deeper dive.
So, this week, we’re gonna be talking about licensing specifically. We can take a deep dive into what it means to actually make money and how to do that contract at each step of the process because even this is a big win for you, the inventor. Having this goal in mind, actually feeling to make money on your invention needs to be very real. I love painting this picture for all of our clients and all of you listeners. It’s wonderful, so please put in the comments below any questions you have. You want to make sure I get to. If you don’t hear me talk about them today, I’m excited to get to this first step.
Today, we’re going to talk about the very first part of the agreement when a licensee and a licensor come together and form the license agreement. This first step is called the upfront payment. Believe it or not, it’s part of a royalty agreement that might come in monthly or quarterly based on sales. There is a lump sum, usually cash, that comes along with that to incentivize the contract, to sort of spit on the hands and get the handshake, you know, make sure everyone’s feeling good and energized from that first contract. This is the typical way it goes for a company that’s already existing, has revenue, and can put up a certain amount of cash to that licensee, which is the one giving up rights. You, the inventor, the licensor, like I said, are usually in a good position to give up this cash if they’ve been in business a while or if they have cash. It’s not always the case that they have that ability.
So, a small company that has a startup group of inventors or business people, they may be in a position where cash is just not around, but they’ve got a huge upswing, they’ve got a lot of leverage, and they have the ability to grow a company. Instead of being able to give up cash, they can give up stock in their company in exchange for this cash. Something that has it’s willing to license the rights to the invention to them, they can accept a form of stock. It’s a decision whether to accept common stock or preferred stock. Common stock is sort of the run-of-the-mill stock that you get when you become a shareholder in any company. It’s the default share type, and common stock actually has quite a lot of good principles. In between the two, common stock is gonna be the one that serves the party better because that is going to increase at levels that can go all the way up to however the company’s performing.
Preferred stock is called preferred stock because you get first in line. If ever the company needed to liquidate or if they had to sell, that preferred stock owners would get paid before the common stockholders. The only issue with preferred stock is that you’re usually capped in the amount of percentage interest return. So, if you want to really gamble a little bit and if you really believe in the business that you’re licensing your invention to, you want to see if you can take that right all the way up, see if they become unicorns or if they make it really big in the market and get a big exit.
So, we’ve wrapped up upfront payments. This is the first section of diving deep into that transaction that can take place, that begins with two parties coming together, the inventor giving up their invention, at least one of those four rights in making, using, selling, or importing to the licensee, and as upfront payments. If anybody has any questions about licensing or inventing in general, please give us a call.
