NVCA Today

By John Cronin and Douglas Roth, ipCapital Group

Many early stage companies completely fail to capitalize on their intellectual assets.  They neither systematically create and manage their intellectual property (IP), as their processes are ad-hoc, nor are they guided by an IP strategy that focuses on a return on investment (ROI), as they have simplistic views of how to use their IP.

The result is wasted effort, lost IP assets, and IP that is not aligned with the company's business goals.

Successful early-stage companies and their investors benefit from a high value on their IP, such as, know-how, trade secrets, patents, and enabled publications, etc. They understand that managing IP is just as important as good financial processes and controls, when it comes to aligning the company's strategy with its overall business goals.

These start-up companies have low cost, systematic IP processes with:

• an agreed upon and documented understanding of their business issues and how they can earn a strong ROI from an investment in IP;
• a systematic extraction of existing IP, using proven
  non-legal methodologies;
• an IP landscape of the business, to map the company's existing IP and the patents of its competitors;
• a simple no-nonsense IP strategy which evolves from the aforementioned data driven approach that gets to the core of realizing the ROI;
• directed invention sessions to create IP in the areas defined by the strategy driven from the business issues;
• quarterly reports to the Board, monitored by the CFO, as to how the assets on the balance sheet are building, and
• simple processes installed to ensure the IP strategy gets executed.

The IP strategy not only guides these efforts but creates a focus on achieving a maximum ROI from the IP.  There are essentially six ways that early-stage companies extract ROI from IP:

1.     Define your boundaries - Stopping others through enforcement from violating your patents, if the company can afford the millions of dollars to put at risk.

2.     Expand & protect brand - leveraging your IP in marketing efforts.

3.     Generate licensing revenue - Making money through licensing deals is very possible for early stage companies, but they generally have no experience in these negotiations and therefore don't take advantage of this opportunity. Getting access to a competitor's IP through licensing and gaining access to IP that fortifies long term collaborations, particularly with potential customers or acquirers, is one key to sustained growth.

4.     Gain transaction leverage - Achieve more favorable contractual terms with suppliers, customers and partners by using your IP.

5.     Increase shareholder value - A process of getting an accurate valuation of your IP and driving that value up systematically, just like you would your revenues and assets.

6.     Improve competitive advantage - Use of IP against competitors by a strategic use of Non-Disclosure Agreements to prevent others from patenting a similar invention.

What is usually the case is that investors rely on their Chief Technology Officer or their inventors to help them achieve good and useful IP. But in reality, they have no time to actually manage and drive it to fruition effectively. ipCapital Group has seen companies rely on an outside patent attorney, however their training is in the strategy of writing good patents, not doing the work of non-legal extractions, landscapes, facilitating directed invention nor linking the business and IP strategy.

The bottom line question is: will the investors of the early stage company recognize the ROI of IP, the IP strategy needed, and the need to invest in some modest process? As investors become familiar with this area of focus, they can then add a substantial business tool to their toolbox. This will not only help them truly leverage the IP assets within existing companies, but will also provide a new means to evaluate companies during due diligence.