Every new business grows out of an idea. However, to turn a great idea into a great business you’ll need the support of a solid business plan that plots exactly how you plan to turn your great idea into a great business.
And behind this business plan, you’ll need a strategy capable of delivering your business plan.
We have no doubt you’ve already built your business plan and the supporting strategy, but have you thought about the pivotal role your intellectual property (IP) will need to play in the execution of your strategy?
You may have considered which IP rights you need to protect your business and you may have even started to obtain these rights. However, have you thought about how best to present your IP so investors can immediately see how your intellectual property will maximise the long-term value of your business?
For an early-stage business, your most important short-term goal is almost certainly to attract investment because arguably few if any businesses can succeed without the required finance.
WHY IS IP VITAL WHEN YOU'RE SEEKING INVESTMENT?
To be blunt, your IP will help you maximise how attractive you are 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 need an IP strategy that not only complements but maps exactly to your business plan from the outset. Investors will instantly recognise a strong, well-thought-out IP position will support a strong exit. Ultimately, this is why they are investing in you.
This means you need more than just a list of IP assets.
You need to show investors that you have a strategy in place which means you need to make sure your IP is not only presented alongside/as part of your business plan and strategy but also make it as easy as possible for an investor to see this is the case.
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 your current IP strategy.
- A list of the patents, registered designs, and registered trade marks (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 licence 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 enable the investor and their advisers to review the IP position and identify any particular strengths or weaknesses and any related and relevant IP issues and assess if any form of FTO is required. Both of these can be deal breakers, even if the issues are just their perception rather than the commercial reality.
HOW DO YOU MAKE SURE YOUR BUSINESS IS 'INVESTOR READY'?
Having worked on both sides of the table (with investors and with start-ups) during the IP due diligence process, we have developed a very simple 7-step checklist for businesses to use while they’re getting themselves ‘investor ready’:
- Ensure all ownership is clear.
- Create an IP register.
- Map the commercial products to your IP.
- Prosecute the IP intelligently.
- Write down an explicit IP strategy.
- Consider freedom to operate.
- Then always return to the business plan.
And remember, getting ‘investor ready’ is really about establishing a potential investor’s trust. Once you earn it, maintain their confidence until they are comfortable to make 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 IP 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 has helped hundreds of early-stage businesses get ‘investor ready’. If you would like to speak to one of our IP due diligence specialists, please contact us today.
