AI Startups - how to best prepare for getting an investment in 2023 and seal the deal.

Jeannette Gorzala
Head of Legal and Regulatory
Automatic Summary

A.I. and Data-Driven Start-Ups: How to Seal the Deal in 2023

Hello everyone, welcome to this insightful discussion on A.I and data-driven start-ups with a focus on the legal and strategic perspective. My name is Janet, an attorney at law and start-up coach. I work with tech start-ups and others to design legally sound business models, guide them throughout their life cycle and help them seal the deal with investors.

Key Points for Value Driver Management

Primarily, I will help you understand the main value drivers of your start-up. Most importantly, knowing how to manage these aspects correctly could be your winning pitch to potential investors. Secondly, I will guide you on how to approach collaborations and how to succeed in investor negotiations.

Importance of Intellectual Property Assets on Company Value

Research indicates that 85% of company value is made up of Intellectual Property (IP) assets. The significance of these intellectual assets in tech companies has been growing over time with current trends implying future growth. Start-ups should focus on these assets as they are primary value drivers in their business, negotiations, collaborations, and eventual investor pitches.

Data: The Invisible Asset

Contrary to popular belief, data is part of a company's IP assets, albeit not typically listed. The digital age demands that you gain control of your data, the technological building block of your Software as a Service (SaaS) platforms and A.I. companies. Understanding this factor shifts your perspective from "data to dollars." It is crucial to grasp the strategic point of data, which consists of data sources, monetization, organization, technology, and risk management.

Data Quality

Data quality is a primary factor influencing the strategic use of your data. The saying "Garbage in, garbage out" should be a guiding pillar in your data management strategy. As a result, it is paramount to ensure you meet the legal requirements of data relevance, representativeness, and up-to-date information. By doing so, you can mitigate costs and problems associated with insufficient data quality.

Data Monetization

Data monetization is a vital part of your strategy for business growth. Strategic utilization of data resources to monetize your business model can help generate customer insights, improve lead generation, optimize services and products, and upgrade your business positioning.

Organization, Technology, and Risk Management

The organization part plays a significant role in avoiding data silos, which overall limit growth. On the technology aspect, adopting scalable technologies like A.I., Blockchain, and Metaverse is also crucial for seamless business scaling. An adequate risk management strategy can also help reduce brand and financial risks, as well as resource mismanagement.

Main Value Drivers: What Investors Look At

Beyond the basics such as the founding team and funding, investors prioritize the Data Assets, Intellectual Property (IP) assets and Compliance Status in your start-up.

Data Assets

When considering data assets, investors keenly look at your readiness in terms of GDPR compliance and data governance. They also consider your ownership and use rights to the data. Investors are increasingly pushing for user access rights to their data, a policy direction that should be anticipated.

IP Assets

The Intellectual Property aspects of your start-up are also of interest to investors. They consider how well you protect your trademarks, patents, and even your business secrets. It is essential to have strategic policies in place to guard your business secrets and other IP assets.

Compliance Status

Your start-up's compliance status is a deal maker or breaker in the investment decision-making process. Regulations such as the A.I Act, highly regulated spaces such as fintech, health space and even the e-commerce business model are areas of compliance that investors are deeply keen about.

Negotiating with Investors: Steps to Successful Engagement

To make the most out of your engagement with investors, you need to approach the negotiation process strategically. The initial point is concluding a non-disclosure agreement (NDA), which protects your business and its valuable information during the discussions. Following the NDA, you may consider entering into a legally binding or non-binding term sheet to outline the main elements of potential transactions.


Approaching regulatory aspects of your start-up proactively, starting with a clean setup, and protecting your business and its company value are critical considerations as you set out to seal the deal in 2023. Your IP and data assets hold significant weight in your growth and ability to attract investors. It is thus crucial to not just focus on them but also to manage them effectively.

Questions, anyone?

Video Transcription

Welcome everybody to the topic A I and data driven start ups. How to seal the deal in 2023. The legal and strategic perspective, by way of introduction, my name is Janet.I'm an attorney at law and start up coach, working with in particular start ups from the tech field, but also other start ups on legally designing their business model and working with them throughout the entire life cycle. So from establishment to investor nego negotiations, funding rounds um and up until the exit, I prepared this presentation today and wanted to transport two main things. So uh first key point I want to make is what are the main value drivers for your start up for you to be aware of them to manage them correctly and also to make the point in pitching sessions and then how to start and proceed when approaching investors, when approaching collaborations and hopefully to seal the deal and to close them with a few recommendations from my side.

So let's dig right in 85% of the company values are made out of um intellectual property and IP assets. This evaluation is regularly done by a on which evaluates the proportion of tangible and non tangible assets of the most valuable companies um listed on the uh US stock exchanges. So the S and P 500 and as you can see clearly, um the portion of IP assets is increasing over time and now makes up 85% and more of the company valuations and the trend is increasing. So all the start ups uh should really um keep an eye on these assets they have because they are the main value drivers and in your business, in negotiations with investment in collaborations and throughout your journey. And when I say IP assets, um what am I talking about? I'm talking about, of course, the classic IP assets so called as you surely all know them patterns, designs, copyrights, trademarks, but also business secrets with which is uh kind of like a non registered IP you guard in your company and do not want to get out. But also about data. Data isn't listed. Uh Usually when you talk about IP assets, but of course, in the digital age, we are now in with all the data driven business models with all the technology out there.

Um SAS platforms A I companies, of course A is a main building block of your business model and of course also um of your company value. So from data to dollars, um what I want to recommend or what helps start ups usually get along very, very fine. Along the entire process. And which is very important. Also from an investor perspective is um looking at the strategic point of data. And usually when you look at that, um there are five components to think about. The first one is uh data sources. The second one is of course the monetization of your data sources then organization the technology. And of course, risk management, why do I bring up these uh five points? Because data quality is very, very important because we all know garbage in garbage out. And also there are beginning legal requirements to be established in the market. Uh For example, in particular, in the A I space that your data needs to be relevant, it needs to be representative, it needs to be up to date. Um And of course to mitigate the entire bias issue, we always have when working with data sets. So if your data doesn't have the sufficient quality for your business model and the quality you need can be different, of course, for every business model, but you need a certain level of quality, you have high costs and problems.

In particular, when you're working with personal data in Europe, we have the GDPR but there are similar regulations out there globally, for example, California Data Protection Act. Um and also other companies have regulations when it comes to personal data. Usually um when you breach those regulations, there's also quite a fine attached in Europe. It's um 4% of worldwide turnover or 20 million. So that's a considerable risk to bear in mind and also to mitigate the second point is monetization. Of course, you know, Mark Twain said, uh collecting data is like collecting garbage. You need to know beforehand what you're gonna do for it, do with it. So that um tackles the entire monetization angle because of course, you want to strategically build up your databases, your data resources, of course, to monetize them throughout your business model. For example, data can give you insights um on your customers, can help you generate leads can help you strategically optimize your services, your product, your business position. So um think about the monetization of your data because if monetization of your data resources is not a part of your strategy, you're probably missing out on substantial business value.

Of course, the organizational part is also very important because we know when the data sits in data silos, it's not quite very valuable and you have very small growth because it's here a bit there, a bit all pieces around and you're not connecting the dots to the full extent you actually could then of course, the technology aspect and here again A I Blockchain.

All the new technologies, the metaverse augmented reality, virtual reality come into place. You want to have the technology, of course, that is scalable where you can very, very quickly and efficiently scale the business model you built on your data resources and your data platform.

And of course, uh you want to manage risks um because if you don't have uh adequate risk management in place, that's also resource intensive. What do I mean, you're kind of like mitigating risks, you probably or potentially might have brand risks, you have financial risk, it requires resources.

Uh if some things go wrong in data compliance, in technology compliance and so forth, so you want to design a process to handle this quite well from the beginning to mitigate all those negative effects. So to sum it up, what are the main value drivers for you as a start up in this technology driven and data driven sector? But also what are investors looking at when they look at your start up and thinking about investing in a due diligence process. Apart from the classical things, they look at the founding team, of course, the funding you already have uh and so on and so forth. These three points are um very important because they determine of course, the value and the potential of your company going forward from an investor's perspective, which is very important for you. Of course, also because these are the key value drivers you are looking to build up to maximize your company value and to maximize your success on the market. Let's start with the first one. As already said, data assets, see the boy, yes, data assets, GDPR, data governance, ownership and use rights. I am sorry. Well, resuming again, sorry for that interruption.

As a matter of fact, I am actually on a start up conference now and taking the time in the private space to talk to you. So sorry for that. And coming back to the topic, data assets, of course, you want to make sure you are compliant. When you're working with personal data, you have the data governance in place adequate to your business model that allows you to monetize your data resources adequately. And also you want to have ownership and use rights to the data. Because what is currently developing the question?

Who owns the data is a question and that everyone's asking and that there is no quite clear answer until now. Currently, there are regulations being developed in Europe, for example, that give users certain rights to their data. For example, if you have a Fitbit that collects uh user data, so your health status, blood pressure, the kind of like steps you walk how active you are currently there is a sort of log in effect, right? So if you buy the product from one company, you're quite tied to that product. Because if you change the product, you are currently not really able to take all the data collected currently to another provider. This is something that uh the eu regulators are considering making possible.

So use a right to take their data and migrate to another service provider to another product. These things have significant impact on how you design your service, your product and you should think about these things uh beforehand because tearing down the product afterwards, if um these user rights, for example, are not considered sufficiently is quite cost intensive and also might give you a longer time to market.

Also B two BB two C and B two G data sharing is currently a huge topic in data spaces in Europe and being the ground for the development, for example of new products and new services which can be developed on these uh extensive data resources that have not been accessible so far.

One point of course, uh very important in the health sector then IP assets. Um I already talked about them in the beginning. So you want to protect your trademarks, you want to protect your patents if you're going for officially registered IP. Also you can take another route, the business secret route, which is of course, keeping all your business secrets and all your IP value in house. If you go that route, you need to make sure that you have adequate safeguards in place for your business secrets. Kind of like to be properly kept that you limit access, that you make sure that that is a business secret by guarding it, that you have policies in place. Otherwise um the ques the status as business as, as business secret could be questionable. And of course, you want to keep an eye on your compliance status in particular. Currently, when you're looking to fundraise, why do I say that? Um We've done a survey talking to venture capitalists and business angels across Europe asking them in particular in the deep tech and tax base. What are their concerns? What are they currently looking at? And what investors are currently concerned is, for example, da I regulations.

So if you're an A I start up, you want to be very clear where you're positioned in these A I regulations, you want to make sure and communicate, you're ahead of the curve, you have this topic on your agenda and you're dealing with this. Also, we have very highly regulated, for example, thinking about the fintech space. Also here you want to make very clear that you got the compliance, you know your requirements and everything is very well managed. The same goes as I already mentioned, for example, for the health space.

But also if you're thinking about an ecommerce business model, for example, or a platform business model, also, there you have regulations coming into place, you need to take care of your standards and make sure you are very well managed there because that may also have a significant impact on your start up on the one side and also from the investor's point of view on your start up.

So these three things are key and you need to make sure you cover these bases because here investors are looking very very closely when they do due diligence. When they make their investment decision, then because I see a lot of start ups currently in the chat GP T start up buzz, there are a lot of tools being currently developed with a lot of interesting functions. And also here investors are looking very closely. Why did I put this um kind of like meme because I found it very interesting and it also um very clearly articulates uh how investors are approaching these developments. Most start ups build an API to GP T three at GP for example, or GP T four. But investors are really looking about proprietary things, proprietary technology, proprietary business models. So something special, something that is not just another API to check GP T for example or another product. So also think about this when founding your start up, when communicating to investors and when you build on one of these large language models or other models, clearly communicate what sets you apart from all the other start ups. What is your proprietary angle and really kind of like get this across to investors to avoid being put into just another J GP T start up? How do negotiations with investors usually start? Or what should you keep in mind?

The first touch point I would recommend is concluding an ND A. So a basic non-disclosure agreement when you enter into confidential discussions with an investor, I approach it um in any way shape. Hm sorry for losing you. But, um, an ND A is very important because it protects your confidential information. It protects your IP assets when entering into discussions. Uh and it protects your business value because if you enter into discussions without protecting the confidentiality and protecting ownership to your important assets, um and exchange information freely, um that could be a huge problem in the end when, for example, um, business secrets are exchanged, business ideas are exchanged.

Um And another party just kind of like decides to terminate the negotiations to continue without you or to do something similar or the same thing. So here, um my reminder to you a basic nd A, if it's a start up, you have your template ready and just send it over is a good sign of commitment to the negotiations and also safeguards you and your business in negotiations with investors and now the term sheet. So when you already started negotiating with an investor, he uh looked at your start up, both have a good feeling for future transactions and you might enter into a term sheet. A term sheet is just um very basic, can also be bullet point based and records the main bullet points and main elements of the transactions you are continuing or thinking about entering into usually the term sheet, records the parties, the scope of the agreement. So for example, are you going to enter into a due diligence phase with the investor which information is supposed to be exchanged. Um Maybe kind of like what parts is the due diligence supposed to include legal financial tax potentially? Um Is it binding or non-binding? That's a very important factor to consider because a non-binding term sheet is of course, also nice to have it's a record of uh your negotiations so far. Um a binding term sheet um gives you kind of like a more legal binding value to the things you record there.

You also a start up uh are bound. Then for example, if you decide or if you include, for example, information shall be shared in a certain time frame. Keep in mind on that if you kind of like commit to sharing certain information um on the employment perspective, um information in regard to your customers and so on and so forth. So this is something to be aware of. Um it includes also classical things like termination confidentiality, governing law and dispute resolution. So that's kind of like just the way further. I want to uh sum up the impulse presentation I prepared and open the floor um for discussions and questions, maybe we can um go to the more interactive part but to sum it up um proactively address regular toy stop regulatory topics concerning your start up. So for example, the status under the A I Act, some start ups prepare um questions and answers for investors which are usually taking in um with very high regard. Because it gives the investor already some idea um how your start up is going to be on the compliance side, it saves the investor work.

Um And it also shows that you're ahead of the curve, um start with a clean setup because a clean setup saves you trouble in all stages of your further process. It helps you to more clearly define your business. It helps you to expand um your business further and quicker because you're not getting holed up by some hurdles by risk management, by some incidents. Um And it also saves you a lot of time in the due diligence phase because if you are already very nicely structured and prepared in, you can easily enter into due diligence phase with the investor. If everything looks neat and structured, it saves time in the entire process and also think about protecting your business and your company value by concluding, for example, an NBA. Thank you. Are there any questions?