Venture capital forums are…usually private functions where the presumably knowledgeable, experienced, self-assured, yet risk-taking individuals with relatively deep pockets get ‘pitched’ and make invest – don’t invest decisions.
To those pitching an (their) innovation – technology…a venture forum is generally marked by straight-speaking, generally unforgiving, and seldom are there opportunities for ‘pitch’ do-overs with high stakes, deep pockets, and risk taking, being the standards for entrée.
Venture capital forums are ‘rapid fire’ environments…in which prospective investors (venture capitalists) are repeatedly pitched early stage innovations by intelligent, diligent, and often collaboratives of well intentioned (scientific) visionaries who are seeking capital to…
- advance to the next stage of their R&D, and execution of their business plan.
As would be expected, a growing percentage of venture capitalists have assumed vertical specializations…relative to sectors, technologies, or other categories of innovation which draw their interest, investment of capital, and business acumen, in return, of course, for a very lucrative and strategic exit strategy.
At the numerous venture forums I have attended, following a much abbreviated-purposefully condensed ‘pitch’, an obligatory and conventional Q and A commences…the former initiated by prospective investors, among them being ‘what is your intellectual property (IP) position’?
The most frequent response to that seemingly obligatory question…from those making their pitch, sometimes unwittingly or because they believe prospective investors want to hear is a patent…
- application has been filed.
- is pending, or,
- has been issued.
Given the consistency which prospective investors ask the ‘what is your IP position’ question…and the seemingly limited response options of holders, it’s evident both parties assume patents (registered, issued IP) are requisites to – represent the minimums for an affirmative investment action.
As an intangible asset strategist and risk specialist…having sat through numerous venture forums, this time-honored, but, in my view, very conventional Q and A, is not as relevant today as it was in, say, 1995. Instead today, it would be more prudent and provide far more insight to recognizing-assessing risk and then making invest – don’t invest decisions, if prospective investors – venture capitalists would (re-)frame the proverbial ‘IP position question’ to…
- reflect the economic fact that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability today, lie in – emerge directly from intangible assets rooted in intellectual, structural, and relationship capital.
- recognize, for early stage companies – research-based startups, the 80+% figure (sited above) often manifests as 90+%, because so much of the value is internally embedded amongst the collaboratives, in the form of their (individual, collective) intellectual and structural capital.
The global business transaction environment is becoming increasingly aggressive, predatorial, legacy free, and winner-take-all…which suggests, rather clearly, that the time-honored presumptions that conventional intellectual property enforcements, i.e., patents, trademarks, copyrights, etc., are…
- sufficient, standing alone, to adequately safeguard innovations’ foundational – underlying intangible assets,
- mitigate risks to a VC’s investment, and
- provide assurance of a lucrative exit strategy,
- do not, in my judgment, constitute sound or necessarily prudent standards for ‘invest – don’t invest decisions’.
As an intangible asset strategist and risk specialist…I advise early stage – startup company management teams, in advance of prospective investor meetings (forums) how to develop, put in place, and articulate intangible asset safeguards which are the foundations to any company’s ability to build-sustain its value and distinguish and sustain its competitive advantages.
Various studies of venture capitalist behaviors…rank the ‘what is your IP position’ question as #5 or #6 in (presumed) importance relative to making an invest – don’t invest decision, among the eight or so key questions prospective investors typically pose to early stage firm’s seeking (their) capital at a venture forum.
This time honored litany of such load bearing IP focused questions…and ‘pitch persons’ routine responses – explanations, suggests the parties (still) assume intellectual property enforcements are necessary preludes to securing investment, all-be-it largely symbolic, in my judgement.
I want to make my perspective very clear…I respect the legal prudence (importance) of filing for – holding an issued patent. After all, issued-registered IP does provide parties with the necessary legal standing (requisite) to pursue – bring enforcement action for (today’s inevitable) ugly, costly, time consuming, and momentum stifling allegations – realities of suspected infringement, compromise, misappropriation, counterfeiting, and/or theft. Either, of course, may occur whenever, however, and wherever a company’s IP (intellectual, structural capital) is in play, and therefore at risk! Also, of course, IP registration is a requisite for engaging in trade in WTO (World Trade Organization) countries and/or signatories to TRIPS (Trade Related Intellectual Property).
As for prospective investors, ala VC’s, investing in issued intellectual properties…does provide a level of ‘feel good’ insofar as risk mitigation and assurance exit strategies may eventually manifest on schedule as desired. There is no argument being made here that either party should neglect – be dismissive of conventional IP filings, registrations, and enforcements. It is worth noting though, a patent application provides considerable elaboration – distinction for the foundational intangible assets underlying an issued patent.
Of course, most patents start life as intellectual – structural capital, ala intangible assets…but, this reality is often overlooked or dismissed. Treating any proprietary intangible asset, ala intellectual, structural, and relationship capital in a cavalier manner is imprudent, if not fiduciarily irresponsible. Especially since it is clear and routine that intangibles play a significant contributory role to any early stage firm’s future, Being dismissive of intangible asset safeguards, suggests an entrepreneur may also neglect ‘best practice’ trade secret – proprietary information safeguards.
Neglecting to put-in-place relevant – timely practices and procedures…to sustain (protect, preserve) ownership, value, and competitive advantages produced by a companies’ proprietary knowledge and know how, ala intangible assets, will, with increasing certainty, contribute to the hemorrhaging of those requisites to investment.
Similarly, the absence of effective – relevant (intangible asset) safeguards…before filing a patent application, can elevate early stage company’s vulnerability – probability – criticality to the materialization of adverse risks, i.e., momentum stifling challenges, disputes, and exit strategy headaches for prospective investors.
Therefore, it’s prudent, in my judgement, for both investors and early stage companies…that so routinely develop and produce potentially valuable and competitive advantage intangible assets to acknowledge that patents and most other forms of IP, no longer serve as…
- stand alone deterrents, or
- reliable prognostications – indicators of the value of innovation.
In circumstances in which there is evidence that underlying know how considered for investment…has been treated cavalierly from its inception, i.e., absent minimums of proprietary status or trade secrecy, prospective investors would be prudent to conduct due diligence -ascertain the status, fragility, stability, and sustainability of those assets.
It is, for these reasons (collectively), that I urge prospective investors (VC’s) to re-phrase the conventional…‘what’s your IP position’ and, instead, engage innovators, entrepreneurs, and early stage – startup company representatives, to examine – bring clarity to…
- the probability, criticality, and ‘keystroke’ speed which knowhow (intangible assets) can be compromised, infringed, misappropriated, or stolen.
Doing this, will allow prospective investors to…more objectively assess whether control, use, ownership, and value of the ‘about-to-be-invested’ intangible assets are…
- sustainable relative to an intended exit strategy, and
- reflective of the assets’ functionality and value cycles.
Today, with increasing certainty…ineffectively safeguarded intangible assets will quickly hemorrhage in their value, competitive advantage and elevate investor’s vulnerability to costly, time consuming, and momentum stifling challenges, disputes, and certainly, produce exit strategy headaches for investors.
Michael D. Moberly August 13, 2018 St. Louis email@example.com ‘The Intangible Asset Blog’ (http://kpstrat.com/blog) where attention span and action really matter!