How can IP Strategy help you maximize your chances of attracting the investment you need?
Every new business grows from an idea. Turning that great idea into a great business will involve creating a supporting business plan to plot how to turn the great idea into a great business. And behind the business plan, there needs to be a strategy capable of delivering your business plan.
You’ve undoubtedly built your business plan and the supporting strategy, but have you thought about the pivotal role your intellectual property (IP) will need to play within the execution of your strategy?
You have probably considered which IP rights you need to protect your business. You may have even started to obtain these rights. However, have you thought about how best to present your IP so that your intellectual property maximizes the long-term value of your business?
For an early-stage business, arguably the most important short-term goal is to attract business. It’s fair to say that few if any businesses can succeed without the required finance.
Why is IP vital when you’re seeking investment?
Your IP will help you cement your attractiveness to a potential investor. We have seen valuations drop by as much as 70% when investors spot weaknesses in an IP portfolio if not force investors to walk away entirely if they don’t like what they see.
This means that if you are going to give yourself the very best chance of attracting investment, you will need an IP strategy that not only complements but maps exactly to your business plan from the outset. Investors recognize that a strong IP position from the start will support a strong exit and that is why they are investing in you.
Therefore, you need more than just a list of IP assets. You need to show investors that you have a strategy in place. This means you need to not only make sure your IP is presented alongside and as part of your business plan and strategy, but also make it as easy as possible for an investor to see your IP run alongside and as part of your business plan and strategy.
The physical embodiment of this is what you have in your data room.
Your data room must house everything you (and your advisers) want potential investors to see as soon as they begin their IP due diligence and what they want to see is:
A summary of current IP strategy.
A list of the patents, registered designs, and registered trademarks (preferably with status information, web links to published applications on Espacenet, ownership details, and comments on relevance to commercial products/processes).
An outline of key trade secrets relied upon by the company.
Copies of assignments.
Copies of license agreements.
Details of any collaboration agreements.
Details of likely future innovations in your R&D pipeline.
Details of awareness of FTO risks (including a summary of any FTO analysis that has already been conducted).
Instant access to all this information will allow the investor (and indeed their advisers) to review the IP position generally and identify any particular strengths or weaknesses in the IP and any related and relevant IP issues and work out if any form of FTO is required. Both of these can be deal breakers, even if the issues are just the investors’ perception rather than the commercial reality.
How do you make sure you are ‘investor ready’?
Having worked on both sides of the table – with investors and with start-ups and scale- ups – during the IP DD process we have developed a very simple 7-step checklist for businesses to use while they’re getting themselves ‘investor ready’:
1. Ensure all ownership is clear.
2. Create an IP register.
3. Map the commercial products to your IP.
4. Prosecute the IP intelligently.
5. Write down an explicit IP strategy.
6. Consider freedom to operate.
7. Then always return to the business plan.
And remember, getting ‘investor ready’ is about establishing a potential investor’s trust and once you earn it, maintain their confidence until they are comfortable making the investment decision you want them to.
Investing in the proper preparation at this stage will show an investor:
The innovation underpinning your technology is sound and can be protected.
Your intellectual property is correct and being correctly managed.
All possible risks relating to the IP have been correctly identified and evaluated.
In addition, from a purely financial perspective, being ‘investor ready’ will hugely improve the chances of you achieving the value you want rather than allowing the investor to drive down the valuation or, worse, walk away entirely.
Also, if you find yourself in the privileged position of having two or more interested parties, being ‘investor ready’ could even help you achieve a premium!
Potter Clarkson is Europe’s leader in IP due diligence. If you would like to speak to one of their IP DD specialists to discuss how you can get ‘investor ready’ and in the best possible position to attract the funding you need to take the next stage, you can email them directly.