We act for Aiode Sparrow. Aiode is a freelance sound engineer by profession.

Aiode has been in discussions with John Scanlon, a materials scientist who she met at an acoustic materials conference. They have since worked together on the development of a new type of fibre-reinforced plastic for the diaphragms of electrostatic speakers ("the Product"). The Product is not an acoustic improvement on existing diaphragms, but it is much stronger and less prone to degradation. This overcomes one of the main problems with electrostatic speaker design, so Aiode and John believe they have a marketable concept.

Aiode and John's research, which has been self-funded, has now reached the point where they have made sufficient progress in optimising the physical characteristics of the Product without compromising its acoustic properties. They believe that the Product gives rise to valuable intellectual property rights. As a result, they can now launch their product commercially. They estimate that they will need funding of approximately 500,000 to do so. They are each prepared to put in a further 100,000 of their own resources. They would prefer not to have their (equal) ownership of the business diluted by other investors at this stage of its development. They are mindful of the fact that the proposed business may not be successful and that they could incur substantial further liabilities in the development of the product. Each of them has a plenty of equity in their home (though in Aiode's case, the home is held jointly with her partner, Pierus).

In due course, if things go well, they intend to develop their own electrostatic speaker product. For this, they will need to raise further funding, which may involve sharing ownership of the business.

what are the issues from this case?