My comment is tangential to the actual discussion. It doesn't so much apply to companies with $5MM in funding as larger competitors. But, I'll post it here any

My comment is tangential to the actual discussion. It doesn't so much apply to companies with $5MM in funding as larger competitors. But, I'll post it here anyway because it relates a scenario that a founder needs to be concerned about when taking on a competitor with more resources than they have. Beware of opening yourself up to any kind of legal attack. Many well funded companies will sue a competitor they know has limited resources just to force them out of business. They view the legal expenses that they incur from such an attack as a cost of doing business. Many years ago (~15) I had a friend who had started a successful start-up in SFBA that provided specialized HA clustering software for large *nix machines. The start-ups funding rounds totaled ~$12MM IIRC, and the company had about ~50 employees, was cash positive, and growing quickly. After a couple years of nice growth, the company reached a size that caused it to be noticed by one of the large players in the HA space. The large player knew that the start-up, even with a multimillion dollar annual cash flow, did not have the resources to fend off a significant legal attack. They also knew that one of the start-ups' employees (not a key employee in product development or a founder) had worked as a software engineer on their HA product offerings before resigning to join the start-up. They sued. They claimed that the employee had walked out of their shop with IP that was used in the start-ups' products. My friend flat out denied this, and I believe him. But, there was no way for him to prove it. The start-up did the only thing that they could - have their corporate council counter sue and fight back as much as was possible. After a few months in court and seeing the burn rate associated with such a legal battle, the founders realized that they were pretty much done. They didn't have the money to win, even if they were in the right. They laid off most of their staff and directed all of their remaining resources into the legal fight. They found it impossible to get new funding or customers because of the IP dispute. Then, they started to lose existing customers because of the dispute and the doubt those customers had about their ability to survive it. After all the cash on hand was burned through with legal costs, the company closed up and shut down completely. The moral I got from the story is to be very careful about IP. VC's and Angels (and usually founders) are very good about doing due diligence on IP that is used to start the company. But, you have to maintain vigilance in regard to having clean IP and avoiding any liabilities.