Subject: VCs, FSB and the term "intellectual property"
From: Norbert Bollow <nb@bollow.ch>
Date: Fri, 5 May 2006 11:02:55 +0200 (CEST)

"Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp> wrote:

> 	rms> However, limiting the issue to "intellectual property"
> 	rms> doesn't really fit the investors' wishes either, since this
> 	rms> is simply part of a broader possible intention to get every
> 	rms> possible legal advantage over competitors.
> 
>     You "simply" are not in a position to make that judgment.  It's quite
>     possible given the presumption of free software business that the use
>     of the GPL for *all* the company's software has already been discussed
>     with the VCs, they're "on board," and they are concerned only that he
>     not be naive about enforcing the GPL and getting necessary licenses
>     for technology he plans to use, or distribute under the GPL.[1]

Richard Stallman <rms@gnu.org> replied:

> The term "intellectual property" frames the issues in terms of what
> typical VCs want.

I'd like to add that the whole economic model of venture capital
financing is based on that concept of "intellectual property" which
essentially means that the economic good of great value which they
they expect to be created with their investment will be some kind of
exclusive right that is somehow related to thoughts that are in other
people's heads.

Without this "intellectual property", the VCs simply don't have big
enough chances of making those really big wins with some of their
investments that they need to offset the losses they incur with other
investments.

Now there is a big difference of whether this "intellectual property"
consists

(a) in exclusive rights to patents, proprietary software or other
    proprietary information goods

or

(b) in social capital, such as brand value and the willingness of
    highly competent people to work for your business

While in the strict sense of the words, the term "intellectual
property" applies just as much to case (b) as it applies to case
(a), it'll be very hard to prevent everyone's mind from drifting
to case (a) when the term "intellectual property" is used in any
kind of discussion with VCs.

I view case (b) as morally acceptable while case (a) is essentially
a form of partial slavery.  

> You're proposing that there may exist unusual VCs who have 
> different goals.  I agree, that can occur.

The goal of all VCs is that as many as possible of their portfolio
companies should be so successful that they can sell their shares
in those companies for at least ten times more money than what they
invested.  Of course, like all humans, VCs will also have some
interest in other goals, but while working as VCs that must be their
goal.  Otherwise things cannot work out economically for them.

The primary difficulty is not that VCs are interested in
"intellectual property".  The difficulty is in finding a way to
create a great amount of social capital in such a way that the
economic value of the social capital will be an order of magnitude
greater than the necessary investment.

The term "intellectual property" is not helpful for this task, but
rather a counterproductive distraction.

But as soon as someone has invented a business model that will work
well enough to interest VCs, and found a way to convince investors
of this, it will not be necessary to look for "unusual VCs".  When
someone has a business plan for a Free Software business which is
good enough that venture capital investments make sense, just
convincing any venture capitalist of the merits of the plan will be
sufficient.

Greetings,
Norbert.