When intellectual property is central to a company’s business plan it can be used to generate a higher return, ensure long-term growth, and support your desired exit strategy.
However, all too often we see IP misused, underutilised or disregarded completely, which could pose a significant threat to your investment.
What do investors need to consider?
Investors, stock market analysts and financial advisors are rightly placing more value on intellectual property rights. But how do you know whether the IP rights the company claims to have will return the value you need from the investment. And does the business plan contain plans for further IP to support its growth ambitions?
How do you distinguish between those businesses that utilise IP to support their long-term commercial objectives and add bottom-line value, from those that file patent applications out of vanity, wasting precious financial capital in the process?
As you might expect, it boils down to the business plan. When assessing a technology-led investment target, you need to ensure that their IP aligns with their plan and is relevant to its commercial objectives, whilst adding long-term value. It is also imperative that you identify – and take action to mitigate – the associated IP-related risks facing your investment target.
As the Government is incentivising support of IP-rich businesses through the Enterprise Investment Scheme, it is more important than ever to ensure the business you are investing in prioritises its IP if you want to maximise the return on your investment.
How can GJE help you?
When you make investment decisions, it’s always best to ask an expert to cast an eye over the business to make sure the promised innovation is protected by a solid IP strategy. More importantly, you need to make sure the business has protected it in line with its business plan. With so much at stake you simply cannot afford to place your complete trust in any claims the business has made.
Our proprietary Due Diligence Audit has been designed to provide that expert eye.
Essentially it is a health check that will confirm whether the company you are planning to invest in has obtained appropriate IP protection for their innovation, their products and, ultimately, the successful execution of their business plan.
We will map your potential investee’s existing IP protection to the list of products and services it offers. This will provide an initial confirmation that they have what they say they have and have taken the right steps to protect their IP. This will increase the likelihood your investment will generate the return you want it to.
At the same time we will also identify any gaps or redundant IP rights so you can work with the business to formulate a more practical, relevant and cost-effective IP strategy going forward, to maximise the return on your investment.
The result is a clear assessment of the company’s IP strategy which can be used to strengthen its position, and a better understanding of the IP-related risks it faces. Ultimately, it will help you assess the attractiveness of the investment.
Our approach is collaborative. We understand that your investment is in the team and their plan as much as it is in their technology or existing assets. As such, we take a non-confrontational approach and ensure we work closely with the business’ managerial team to understand the commercial objectives, before advising on how best to approach IP.
For more information on our Due Diligence Audit service, download our brochure here.
Why should you take IP due diligence seriously?
The following are just a few real-life examples of IP issues which had a significant impact on the investment process:
The importance of the IP to the future success of the company was oversold leading to a significant devaluation of the company when it became clear the IP was not as strong as first asserted.
The IP was not related to the current business plan and therefore of no apparent value (despite assertions to the contrary to support the valuation of the company) but still represented a significant on-going cost.
The company had no coherent internal policy for identifying and protecting innovation at an early stage. As a result, the opportunity to protect a particular innovation said to be key to the success of the business had been missed.
No international novelty searches were conducted on new patent applications within the first year and so the investors had no evidence to support the assertion made by the company that strong patent protection was available for the technology – a key factor in the pre-money valuation.
Unsophisticated patent filing strategy effectively delayed the grant of any US patents, to the detriment of the ability to attract US-led investment.
The patent applications were not written with the business plan in mind so the patent claim structure was inadequate to support the planned exploitation of the technology.
No on-going watch of published patent applications or patents by competitors had been put in place to give an early warning of risks. A simple infringement search revealed several infringement risks. This held up the investment process for several weeks and seriously undermined the value of the company.
Plans to exploit the IP were incompatible with existing agreements with third parties involved in joint R&D on key aspects of the technology. Joint ownership of inventions can limit the ability to fully exploit the IP. In this case, the planned trade sale to a major company was a wholly unrealistic exit strategy.
The company was not free to use its trade marks in the US so a new name was required. This arose from a failure to check at an early stage whether the trade mark could be registered and used in the US. Where branding is important it is not sufficient simply to obtain a UK registered trade mark and assume you can do the same elsewhere. Getting the trade mark strategy wrong can be very costly and disruptive.
All of the above should have been foreseen by the companies involved but were overlooked, largely because they didn’t have a systematic approach to the development and implementation of IP strategy.
If you demand an IP service provider that takes the time to work collaboratively with you to help you realise the commercial potential of your investments, then we want to work with you.
Complete the enquiry form below and we will be in touch within one working day. Alternatively, you can email us directly at firstname.lastname@example.org, or call us on +44 (0)20 7655 8500. We look forward to hearing from you.
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