Archive for 'Due Diligence and Risk Assessments'
Michael D. Moberly April 21, 2017 ‘A intangible asset business blog where attention span really matters’.
Transaction due diligence is, most always warranted, particularly in today’s ‘always on’, aggressively competitive, predatory, and often ‘winner-take all’ global business environment in which asset loss, erosion, and undermining can occur at ‘keystroke speed’. However, when transaction due diligence is framed – conducted through a conventional, IP only (intellectual property) lens, opportunities to recognize and exploit the value of embedded IA’s and (proprietary) competitive advantages can be, and frequently are, under-estimated, overlooked, dismissed, or considered redundant, or irrelevant to the presumptive deterrent effects associated with conventional IP enforcements, i.e., a registered patent, copyright, trademark, or designating specific knowledge and/or knowhow (intellectual, structural, relationship capital) as a trade secret.
Today, business transaction due diligence must be far more than a cursory review of (legal, accounting) documents and the status of IP, i.e., P&L’s, financial statements, and/or balance sheets. Through my lens, these documents often constitute little more than ‘snap-shots-in time’ as incomplete glimpses into a company’s financial – competitive advantage circumstance.
Too, its unlikely such conventional ‘snap-shots’ will surface-reveal the contributory role, value, sources of revenue, and competitive advantages produced – generated by IA’s, which are embedded and interwoven in various levels of a company’s intellectual, relationship, competitive, and structural capital. More specifically, in conventionally practiced-conducted business transaction due diligence, these, and other characteristics and attributes of IA’s, are unlikely to be recognized as having actual dollar value and competitive advantages, or otherwise have a bearing on a transactions’ outcome, that is, for the IA ‘operationally un-familiar’.
Be it an acquisition, merger, alliance, partnership, buy-sell transaction, or new market entry initiative, each circumstance can quickly become mired in impediments if-when the IA’s in play are overlooked or not effectively unraveled relative to their origins, ownership, control, and the manner-in-which they are utilized and exploited. This-is-why, I recommend transaction due diligence be IA-centric and conducted in pre, and post (transaction) contexts.
Again, conventional ‘check the box’ conceived templates of due diligence are unsatisfactory because they are seldom inclusive, comprehensive, or sufficiently forward looking to capture, unravel, and monitor the (risk and value) relevant to the IA’s in play and are often constrained by unwarranted anxieties and requests for speed. Too, it’s worth noting again, it is a globally universal economic fact – business reality today that 80+% of both a company’s and a targets’ value and sources of revenue lie in – emerge directly from IA’s. This makes it all-the-more essential that any business transaction due diligence fully address IA’s.
The primary objective for any IA due diligence activity is unraveling the circumstances pertinent to the IA’s in play, which, in turn, serve as a basis for providing superior knowledge about a target and the transaction being undertaken in a manner that contributes to decision makers’ determination about whether the targets’ IA’s can sustain the terms and objectives of the proposed deal.
Specifically, IA due diligence should describe, for decision makers, the status, fragility, stability, and defensibility of about-to-be-purchased and/or exchanged IA’s, including IP, and other forms of proprietary competitive advantages, by revealing, among other things, any evidence of:
• over confident – embellished representations.
• purposeful or premature disclosures, or open source leakage that
leads to assets being compromised.
• internal/external entanglements involving the IA’s in play.
• probing by and/or adverse impact from business intelligence,
competitive advantage adversaries, or economic espionage.
A thorough pre-post IA-specific due diligence conveys a strong and important message to actual or prospective (transaction) targets, by zeroing in on their centers of value, competitiveness, revenue generation capacity, brand, and sustainability, etc., while minimizing non-essential – (irrelevant) information drawn from conventional and gratuitous ‘check-the-box’ actions which seldom provide the level of specificity that’s essential for today for IA intensive and dependent businesses and transactions in which IA monitoring is critical to lucrative, competitive, and sustainable outcomes. That’s because IA value and competitive advantage fluctuation, erosion, and/or undermining can commence at ‘keystroke speed’.
Michael D. Moberly February 20, 2017 ‘A business intangible asset blog where attention span really matters’!
Deploying IA-specific ‘risk mitigators’, at the right time, to the right set of assets, and in the right manner can deliver obvious benefits, i.e., counter, prevent, and/or mitigate risk. Those are the obvious and desired outcomes. But, also, when company leadership and (risk) management teams recognize IA-specific risk mitigators are applicable-relevant to most any circumstance where valuable – revenue generating – competitive advantage producing IA’s are being developed and/or already in play, their contributory value rises accordingly.
For most business circumstances, the presence of and the potential for significant (IA specific) risk to materialize and variously jeopardize an IA-dominant undertaking or transaction is real and persistent. The initial management team action, in my judgment, preferably undertaken in advance, should be to do what is necessary to try to mitigate or prevent those risks from materializing – elevating to the point they can adversely (irreversibly) affect an outcome.
Effectively mitigating-preventing risks directed to undertakings dominated by IA’s or myriad of other business transaction circumstances, for that matter, lie in recognizing that putting risk mitigators in place, at the right time, focused on the right set of assets, i.e., those in play, and in the right manner, can deliver obvious and necessary benefits. The benefits are two-pronged, i.e., (1,) to thwart, counter, and mitigate risk, and (2.) measurably contribute to more valuable and competitive (desired) outcomes.
Those business leaders and management teams who assume risks to a IA’s can be adequately dealt with via the purchase of conventional business insurance (riders), without deploying risk mitigators, I suggest, have misread – misunderstood the current risk environment. That is, the ‘keystroke speed’ and asset-specific targeting capabilities of ultra-sophisticated and predatorial global economic and competitive advantage adversaries with advanced data mining technologies, have indeed become the norm, certainly not an anecdotal (one off) exception.
The effective and timely deployment of IA-specific risk mitigators (at the right time, right place, and right way) are businesses’ prelude to – segue for ensuring the IA’s in play remain as fully intact as possible in terms of their capability to continue to generate value, produce sources of revenue, and underlie competitive advantages.
The primary objectives to deploying IA-specific risk mitigators are to affect the assets’, and their holders’ receptivity – vulnerability to compromise and/or undermining throughout the contributory value – materiality cycle of the assets. This is best achieved when there are coordinated processes – actions in place to recognize, monitor, sustain, and acknowledge…
• asset’s exposure to costly and momentum stifling (risk) acts-events.
• IA’s contributory role and value will favorably distinguish companies
within their sector.
• necessary levels of control, use, ownership, value, equity, and resilience
for the IA’s.
• deployment of IA-specific risk mitigators are not mere operational
electives that can be dropped, dismissed, or delayed indefinitely.
As consistently conveyed since the ‘Business IP and Intangible Asset Blog’ published its initial post in May, 2006, whenever, however, and wherever valuable, revenue generating, and competitive advantage IA’s are in play, company-business leadership and management teams are obliged to consider there will be various types, levels, and motives for (IA-specific) risks to materialize.
The acts of, assessing and monitoring IA-specific risks and identifying effective techniques – strategies to prevent, mitigate, or neutralize, does not require leaders to reach beyond-outside their professional domains of expertise in order to take the necessary action.
Perhaps the most important-relevant component to IA-specific risk mitigation is to…
avoid making purely arbitrary-subjective assumptions about
circumstances when, where, how, and why particular IA’s are
in play and their vulnerability to risk, e.g., fragility,
stability, defensibility, and liquidity if-when compromised.
A common denominator to most all IA-specific risk (and, management) is the persistent presence of (global) economic and competitive advantage (legacy free) adversaries, ultra-sophisticated data mining technologies and methodologies, anyone-of-which by their actions and capabilities, impose consistent risk.
Michael D. Moberly February 17, 2017 ‘A business intangible asset blog where attention span really matters!
Re: Mergers – Acquisitions – VC – Market Entry Planning – Litigation Support – University-Corporate Research Alliances -Organizational Resilience
Regardless of however, whenever, wherever, or why IA’s are in play (relative to the various types of transaction noted above) IA specific, and pre-post due diligence is absolutely-essential to each type-category of business undertaking and/or circumstance.
Conceptually, the purpose (intent, objective) for designing pre – post IA-specific due diligence is multi-fold…
1. It is an irreversible and globally universal economic fact (business reality) that 80+% of most company’s value, sources of revenue, and ‘building blocks’ to competitive advantage, reputation, and sustainability lie in – emerge directly from IA’s.
2. When companies, particularly ‘IA intensive and dependent’ ones engage in any type of transaction, it is highly like their IA’s will be in play.
3. A key objective of conducting both pre, and post IA due diligence is to ensure the value, revenue generation capabilities, competitive advantages, and reputation, etc., produced by the IA’s in play, are, and will remain fully intact and the risks will be known and satisfactorily mitigated on both (pre, and post) sides of the transaction.
So, in circumstances in which…
• there has been no due diligence conducted specific to the key IA’s in
• the due diligence conducted was absent specificity, i.e., was
generic, ‘one-size-fits-all’ and resembled a conventional ‘check-the-box’
(due diligence) template more relevant to physical-tangible assets than
• due diligence was conducted by personnel operationally unfamiliar with…
o IA’s and their contributory role(s) to retaining transaction value,
revenue generation, competitive advantage, and reputation, etc.,
o risks specific to IA’s that will, when they materialize, adversely
affect (undermine) IA’s contributory value, competitiveness,
transaction sustainability, and likely escalate reputation risk.
In circumstances when one, all, or a variation of the above occurs, the risk portrait for both the transaction and the IA’s in play will very likely shift from the probable to the inevitable, and that’s a ‘bad thing’ for investors and transaction sustainability.
Circumstances such as this, make it all-the-more essential for companies to have expertise at the ready to conduct effective and IA specific pre-post transaction due diligence. And, also, recognize how to leverage – exploit pertinent revelations (emerging from the due diligence) to…
• provide timely – objective insight to principals, i.e., regarding the
status, stability, fragility, defensibility, and sustainability of key
IA’s in play.
• serve as legitimate entrée for re-negotiating transaction terms, i.e.,
o increase probability transaction party will be positioned to hand-off
more valuable, uncontested, and competitive IA’s.
o reduce probability of incurring time consuming, costly, and momentum
stifling disputes that undermine IA contributory value and competitive
• elevate principle’s confidence in invest-don’t invest, buy-don’t buy
• ensure legitimacy-authenticity of the origins, ownership, contributory
value, and competitive advantages of the IA’s in play.
• determine why, how, who, and when the IA’s in play were targeted, risks
attached and materialized, and asset value-competitive advantage
hemorrhaging commenced, and by how much.
Michael D. Moberly August 24, 2016 ‘A blog intersecting intangible assets and business’.
A company initiating, or even contemplating, a M&A (merger or acquisition) would be well served today if a ‘company culture assessment’ was included in their due diligence strategy!
The primary reason of course, as consistently conveyed at this blog, is the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in or directly evolve from IA’s (intangible assets), which company culture is a prime example. It’s correct to assume then, that a substantial factor in the rationale of the initiator evolves around acquiring and then merging specific IA’s which the target firm presumably has already developed, and exist in some specialized form of intellectual, structural, and/or relationship capital.
From an operational perspective, intellectual and structural capital constitutes the knowhow and processes which underlie – are embedded in the target company’s means for generating revenue, competitive advantages, and creating efficiencies, etc. So, in M&A transactions, acquiring full and unimpeded control and use of these contributory IA’s represents the critical step toward realizing-maximizing the projected (anticipated, desired) outcomes.
To the uninitiated, a target company’s operational culture may be overlooked, dismissed, or even deemed irrelevant to a transactions’ projected outcome. It’s unwise for due diligence teams to assume, that should a proposed M&A transaction or strategic alliance, etc., be executed, the relevant-targeted IA’s will be wholly transferable or remain fully operable. Hence the prudence for transaction – due diligent management teams to assess – determine whether the IA’s being sought can remain intact. In short, can embedded IA’s originating-developed in one company be transferrable and operationally replicable in another company.
More specifically, transaction management – due diligence teams would be well advised to objectively study-assess the targeted company’s operating culture in personnel and temperament contexts. An objective is to determine if those (company) culture factors can readily (and rapidly) integrate and bond with the initiating company, its employees, and stakeholders? Grant McCracken, a well-known and experienced personality in this arena suggests company cultures are internal versions of a company’s brand. That’s largely attributable to a broader recognition of the reality that company culture generally encompasses its mission, vision, and values.
Understanding in advance, how company culture can impact a business, e.g., “culture is a company’s last mile” (McCracken). If believed, and I do, it makes a very compelling case that a company’s culture is marketing’s proverbial – millennial ‘silver bullet’. Certainly, no disagreement here!
But, before embarking on a company culture assessment (Margaret Mehta) the target company should be distinguished on several cultural dimensions. In a perfect world, there should be no resistance to company culture assessment as an integral component to most any transaction’s due diligence. The key is that due diligence teams are operationally familiar with the characteristics and features of company’s culture as unique convergence of IA’s, i.e., intellectual, structural, and relationship capital.
The deep and necessary insight that a company culture assessment (due diligence) brings to transaction management and oversight, in essence, prescribes a strategic path how (culture) performance will be replicated. But, transaction management (due diligence) teams should also recognize that culture performance is also a measurement mechanism that drives employee behavior.
So, if there are particular aspects of a target company’s culture that appear undesirable, non-transferrable, or un-yielding to adaptation-replication and therefore impede a transactions projected milestones for success, this should be clarified. Obviously, I am a strong advocate of conducting company culture due diligence for most any business transaction while recognizing standing alone, culture alignment may not be the singular guarantee to a successful and profitable transaction outcome.
.This post was inspired and adapted by Michael D. Moberly from the fine work authored by Monica Mehta in a February 2009 piece in Profit and Profit Online.
Michael D. Moberly August 1, 2016 ‘A blog intersecting intangible assets and business!’
Intangible asset specific due diligence is a necessary, but often overlooked component in consummating business transactions, especially pre and post monitoring.
For management teams, c-suites, boards, and stakeholders, it’s important, more so today than perhaps ever before, to recognize that merely because a deal, transaction, or M&A has been proposed, appears promising and has progressed to its relevant due diligence stage, does not constitute assurance any of the projected-anticipated value, synergies, efficiencies, scalability, and competitive advantages will actually materialize or be sustainable.
The probability that any calculated – anticipated projections related to a business transaction outcome will materialize to benefit its initiator, preferably sooner than later, is increasingly dependent on the sophistication of due diligence management teams to recognize the economic fact that today, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, future wealth creation, and sustainability reside in – evolve directly from IA’s (intangible assets). To increase the probability that initial projections (to a transaction’s outcome) will materialize as intended, the scope of transaction due diligence must include identifying, unraveling, assessing asset fragility and transferability, mitigating risks, and otherwise safeguarding-preserving the key – contributory IA’s value and competitive advantages.
The key forms which the dominant, most valuable, and competitive advantage driving IA’s exist are intellectual, structural, relationship, and competitive capital and reputation/brand. In most instances, it is these IA’s and their scalability which likely drew attention around which the initial and underlying rationale for imagining and undertaking a particular transaction was framed
True, in many instances, valuable – competitive advantage driving IA’s can be variously fragile and vulnerable to various risks, including value – competitive advantage fluctuation, misappropriation and infringement. For good reason then, the ability to monitor control, use, ownership, and value of key IA’s to the transaction, in both pre and post contexts, will sustainable and lucrative projections be realized. The rationale; more companies today engage in domestic – international trade and business transactions as a matter of routine. Too, for a significant percentage of those transactions, the negotiations are aggressive, competitive, predatorial, and come with winner-take-all outcomes. Under these circumstances, dismissing and/or relegating these business – transaction realities and fiduciary responsibilities about IA’s to the un-initiated, unaware, or unfamiliar when IA’s will inevitably be dynamic contributors to lucrative outcomes of transactions.
In that regard, I have had the privilege, over the years, to engage countless business decision makers and strategists across industry sectors. In private conversation, few, if any of these executive dispute my characterizations and advocacy of IA’s. Assuming these conversations are representative, it would seem prudent then that IA’s would be applied to all relevant aspects of a business transaction process, especially pre-post (transaction) due diligence where sustaining – monitoring control, use, and ownership of IA’s contributory role, value, and competitive advantages are paramount to the outcome.
Michael D. Moberly July 27, 2016 ‘A blog about business and intangible assets’!
By now there should be no question among company management teams that the global business transaction environment is increasingly competitive, aggressive, predatorial, and generally, winner-take-all.
A contributing factor to these circumstances is that growing percentages (80+) of most company’s value, sources of revenue, and ‘building blocks’ for wealth creation and competitive advantage reside in – emanate from intangible (non-physical) assets, not tangible (physical) assets. It would make sense then, due diligence – audit activities that dismiss or omit IA’s (intangible assets) from their purview will not provide decision makers with insightful and essential information. Dismissiveness and prejudiced insight are the foundations of transaction grief, frustration, and disappointment in terms of IA performance.
IA’s will always be in play. So it is, business transactions involve the valuation, buying, selling, development, and commercialization of IA’s. It’s prudent then, for parties to business transactions, i.e., IA buyers primarily, recognize the importance of ‘getting out front’ by acknowledging and mitigating risks that will adversely influence how a transaction will be valued, structured, and ultimately executed.
Business persons who remain unconvinced and trivialize the contributory value and role IA’s play in transaction outcomes are encouraged to consider when risks materialize, i.e., acts of misappropriation, infringement, and/or compromise how long will it take the adversary to integrate those assets into their products and/or services? The answer of course is, a matter of days or weeks, seldom months or years. Again, dismissing these realities all-to-frequently manifest as devaluation of reputation and minimal, if any, gains. To do otherwise, decision makers would need to possess prognosticative psychic powers which I am reluctant to attach much, if any, validity.
Exacerbating these increasingly probable risk events is the rarity that transaction initiator’s due diligence plan-strategy will include IA value and competitive advantage monitoring components designed to alert, stop, or stabilize asset hemorrhaging, or recover compromised assets before substantial, and many times irrevocable asset value, loss, and/or reputation risk materialize.
Transactions in which key IA’s have already been compromised (in one form or another) actually constitute a ‘head start’ for the adversary, i.e., parties or party engaged in the illicit acquisition and use of another’s IA’s. While actual IA losses in these circumstances, i.e., value, competitive advantage, reputation, image, goodwill, structural capital, etc., may appear somewhat subjective, it’s pragmatic, in my view, to measure losses – compromises less in (conventional) dollar value contexts, and more in terms of the speed which such adverse acts occur and their irrevocability. So, is a well-constructed, thorough, and IA-specific due diligence warranted, you bet!
Unfortunately, there remain many IA buyers (business transaction, M&A’s, etc., which I characterize as engaging in ‘permissive neglect’ with respect to identifying, monitoring, and safeguarding about-to-be purchased IA’s. That is, they repeatedly and erroneously assume…
• any economic and/or competitive advantage a competitor or adversary may glean from compromised IA’s will be
short-lived and/or outpaced by the rapidity of changes in consumer and market demands which only the
legitimate (asset) originator will be able to deliver.
• IA’s are (readily) renewable resources.
Respecting the narrowness of (profit) margins today, in any business transaction, management teams, legal counsel, c-suites, and boards alike, would be prudent to re-consider both of the above assumptions.
Michael D. Moberly July 26, 2016 ‘A business blog where attention span really matters’!
It is an undisputable economic fact – business reality that today, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from IA’s (intangible assets)!
It’s prudent to assume then, for every business transaction, initiative, or operation a company and its management team elect to undertake – engage, there will always be IA’s in play. This makes it’s essential for parties to recognize, when contemplating, structuring, and executing a transaction, particularly the due diligence component, that sustaining control, use, and ownership of relevant IA’s, will play increasingly significant roles insofar as valuation, measuring asset performance and outcomes, and defining an exit strategy.
Too, respecting the ease which valuable-competitive IA’s (particularly intellectual, structural, and relationship capital) can be misappropriated, undermined, entangled, lost, or merely walk out the front door, the impulse to consummate a deal in a gratuitously hurried fashion, absent pre and post due diligence focused specifically on IA’s, it becomes probable that some manner-form of IA economic – competitive advantage hemorrhaging will occur. In other words, in today’s aggressive, interwoven, predatorial, and winner-take-all (global) business climate, the IA’s a party believes they are buying – acquiring ownership, may lose various percentages of their contributory value.
Having been actively engaged in safeguarding and mitigating risk to IA’s for many years, my counsel on the issue of IA (specific) due diligence is straightforward. Decision makers responsible for deal structuring have fiduciary responsibilities that include sustaining control, use, ownership, reputation, and monitoring value and materiality of the about-to-be-purchased (acquired) IA’s. The most effective way to mitigate risk to those assets is an effective pre and post due diligence, specific to the relevant IA’s. The key to this due diligence is knowing what IA’s are, how they evolve-develop within a company, and their contributory role and value.
For maximum benefit, the due diligence is best commenced at the point in which the deal/transaction is being contemplated so the locus of the relevant IA’s can be determined and due diligence planned accordingly. Again, it’s worth noting, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from IA’s!
IA hemorrhaging (in deals and transactions) is frequently facilitated when two frequently held attitudes of decision makers converge, i.e.,
• unnecessarily high or unjustified sense of urgency attached to deal execution. (Urgency and speed often
mutate to become a dominant driver of a transaction which in turn can constrict – impede a thorough due
diligence, especially with respect to unraveling the origins, stability, sustainability, value,
and ‘mergability – transferability’ of the IA’s in play.)
• assumption that deals-transactions can be consummated and revenue streams commence before relevant IA’s fall
prey to depreciation or loss.
Mitigating asset vulnerability and probability to value – competitive advantage – reputation hemorrhaging, well in advance of the ink drying on a transaction agreement, is an essential contributor to achieving the desired (successful, profitable, sustainable) outcome.
Michael D. Moberly May 26, 2016 ‘A blog where attention span really matters’!
What Are Intangible Assets…
Company and institutional value has shifted from collections of physical (tangible) assets to synergistic assemblages of non-physical IA’s (intangible assets) rooted in – evolving from intellectual, structural, relationship, and competitive/entrepreneurial capital.
However, unlike conventional IP (intellectual property), i.e., patents, trademarks and copyrights, there is no certificate issued by the government that says ‘these are your IA’s and competitive advantages’. Instead, the responsibility for identifying, assessing, safeguarding and otherwise preserving the value of those assets is a fiduciary responsibility for each company – organization and its management team.
Margaret Blair and Steven Wallman, previously associated with the Brookings Institution’s ‘intangibles project’, serving as that project’s principle investigators, along with Jonathan Low, describe IA’s as…“non-physical factors of production that contribute to or are used in producing goods or services, or as factors expected to generate future benefits for the individuals or firms controlling the assets”.
I see, with increasing consistency IA’s are the product of uncoordinated, unplanned, variously collaborative, and occasionally serendipitous actions of knowledge relevant individuals, and not necessarily the result of a decision arising from a dedicated capital allocation. Specific examples of IA’s are described with considerable specificity in numerous posts at my ‘Business IP and Intangible Asset Blog’ and distinguished in some 14+ categories.
The relevance of IA assessments…
An IA assessment is a methodical, insightful, and ultimately prescriptive tool for identifying, unraveling, and distinguishing the contributory – competitive value of key – strategic IA’s that underlie (serve as the foundation to) a company’s stability, profitability, and sustainability, and reputation.
To be sure, IA-specific assessments remain relatively new. They have largely born out of necessity, that is, the economic fact – global business reality that 80+% of most company’s value, sources of revenue, and sustainability lie in – evolve directly form IA’s, no longer tangible-physical assets. As such, a new, non-conventional approach (method, model) to identify and assess those assets was needed; distinguishable from conventional IP valuations and inventories. To accommodate IA’s, this approach must, of course, be sufficiently flexible to (reveal) identify IA’s in a variety of inter-linked and global circumstances and contexts in which they’re being used and the formats in which they exist.
Michael D. Moberly May 9, 2016 ‘A blog where attention span really matters’!
My experiences as an observer of venture forums is that they are fast paced and highly charged ‘electric’ events wherein management teams of a growing array of RBSU’s (research based startups) university-based spinoffs, and early stage companies, most all of which are rich in – dependent upon IA’s (intangible assets) give impassioned ‘elevator pitches’ to prospective investors whose expertise and inclination – receptivity to invest have evolved to become increasingly narrow and specialized, as perhaps it should.
The format for venture forums I have attended is that pitches are limited to 3-5 minutes wherein the spokesperson explains their companies’ mission, key-competitive aspects of their innovation, additional research-trials necessary, fiscal projections, business model, why investment is warranted, and how the investments will be applied should an investor deem it a worthy risk. Should a ‘pitch’ be well received, the company representative will likely be peppered with questions from prospective investors or their representatives, one of which is invariably ‘what’s your IP position’?
What’s your IP position…
Of the numerous venture forums attended, the most consistent answer to this albeit over-rated, misunderstood, yet seemingly obligatory questions are…
• has a patent application has been filed (provisional),
• is a patent pending, or
• has a patent been issued?
Through my lens as an intangible asset strategist and risk specialist, the importance attached to achieving formal/official IP (intellectual property) status for one’s innovation is overstated, perhaps variously inflated. And, the consistency which prospective investors ask the IP position question collectively suggest both parties assume conventional IP, patents particularly, are requisites to securing investment capital necessary to proceed. I hold a somewhat different perspective. There are other equally, if not more relevant factors to any innovation under consideration which prospective investors should sort out as part of their ‘invest – don’t invest’ decisions.
True, IP status does provide investors with the necessary legal standing and recourse options should the invested enterprise fail, not meet its projections, or its (protected) proprietary information succumb to infringement or challenge within the typical 3 – 5 year exit strategy plan investors frequently demand. And, yes, patents and other forms of intellectual property are obligatory for WTO and TRIPS signatories.
But, the global business transaction environment is becoming increasingly aggressive, predatorial, competitive, and legacy free. This translates of course to proprietary information, irrespective of its IP status, is, all but certain, to be targeted and sought. That coupled with the persistent challenges and vulnerability to intangible asset (IP) infringement, theft, and/or counterfeiting make an RBSU’s IP position little more than legal symbolism. Should companies elect to pursue other strategies to safeguard their proprietary – competitive advantage intangible assets, i.e., trade secrecy for example, those legal portals for bringing action against the inevitable infringers, thieves, and counterfeiters in locales where a company’s most valuable assets are in play also carries some ambiguity.
Legal – economic safety nets…
Through my lens, conventional IP has less relevance as a legal – economic safety net than startup management teams – prospective investors should assume. Too, the costs associated with mounting an IP infringement – misappropriation suit are significant, if not cost and time prohibitive for resource conscious startups to pursue regardless of case credibility.
It’s prudent for investors and IP holders alike to acknowledge patents and most other forms of IP, no longer serve as…
• standalone deterrents, or
• reliable prognostications of innovation value.
The more relevant venture forum questions are…
I urge prospective investors – venture capitalists to re-phrase their ‘IP position’. For example, rather than merely asking ‘what’s your IP position’ assuming it is an important criterion, perhaps a more relevant and telling question would be…
has the proprietary know how, i.e., intellectual, structural, and
relationship capital that underlie the startups’ innovation and
serve as the cornerstone to the IP on which an investment would be
premised, been adequately safeguarded from its inception!
Important to recognize patents start life as proprietary information and trade secrets…
It’s a well acknowledged adage in the information asset protection arena that patents typically start life as trade secrets and proprietary know how. Therefore, if key – distinguishing know how underlying innovation and its prospective investment has been treated in a cavalier manner…
• absent the requisite minimums of trade secrecy or other best
information asset protection practices
• prior to filing a patent application,
• it’s prudent for prospective investors to ascertain
• the status, i.e., fragility, stability, and commercial-fiscal
sustainability of the assets being considered for investment.
Asset vulnerability, probability, criticality, and speed…
Today, the vulnerability, probability, criticality, and speed which know how, i.e., intellectual and structural capital assets particularly, can be compromised, infringed, misappropriated, or stolen are integral to any ‘invest – don’t invest’ decision.
Before making an investment in intangible asset rich and dependent companies, it’s important to direct probing follow-up questions to company management teams. Doing so will allow prospective investors to more objectively assess whether control, use, ownership, and value of the underlying intangible assets are…
• sustainable relative to an intended exit strategy, and
• reflective of the assets’ functionality and value cycle.
Today, with increasing certainty, ineffectively safeguarded intangible assets (IP) will quickly hemorrhage in value, competitive advantage, and elevate investor’s vulnerability to costly, time consuming, and momentum stifling challenges and exit strategy headaches!
Michael D. Moberly May 7, 2016 ‘A blog where attention span really matters’!
Once acts, events, or behaviors, perceived as adverse or illegal materialize, and are captured and distributed on social media, and intensified through photographic characterizations that convey indefensible aggressiveness, hostility, and confrontational demeanors by authorities…well, these are Dr. Nir Kossovsky’s prime ingredients for a hard to refute reputation risk.
The originating incident represented in this post occurred in November, 2011, sparked by an order from University of California-Davis administrators for their campus police department to remove ‘Occupy Wall Street’ (movement) protesters encamped on university property.
As if the manner in which that order was executed, i.e., the accompanying behaviors-demeanors exhibited by university police were not enough, in mid-April 2016, Sam Stanton and Diana Lambert, reporters for the Sacramento Bee (newspaper) learned and wrote that senior University of California-Davis officials, already operating under extremely tight economic constraints (placed on the entire UC system), had spent at least $175,000, following the 2011 incident to hire outside consultants to engage in an “online branding campaign designed to clean up the negative attention UC-Davis, and its Chancellor, Dr. Linda Katehi had received.”
It is not my intent here to re-litigate – second-guess the event and the actions of university police. That’s for others to interpret-decide ala reading the independent investigation chaired by Cruz Reynoso, a former associate justice of the California Supreme Court along with a separate, independent fact-finding document assembled by Kroll, a consulting firm that specializes in investigations.
The point I wish to make here is that the university’s resourcing for ‘an online branding campaign designed to clean up the negative attention UC-Davis, and its Chancellor had received” was misplaced, likely produced little, if any measurable return, and online activities for this purpose variously discount – are dismissive of intellectual memory.
To be sure, I am not suggesting an outcome of this incident, however needless and botched it was, would necessarily translate as stifling student applications to attend UC-Davis. Similarly, being reasonably well versed in reputation risk matters and their mitigation, I am hard pressed to embrace the premise that ‘online clean-up of negative’ – adverse publicity, standing alone, will measurably mitigate or reverse reputation risks which have already materialized.
Reputation, is a variously delicate intangible asset with relevance to every company, organization, institution, and individual. After all, reputation is perhaps the most complex of intangible assets which for the most part derives from perceptions, experiences, and observations of others. Respecting the expanding reliance on various social media as people’s primary means (source) for receiving – conveying information, I remain, at this point, unconvinced that the act of erasing or favorably modifying – re-writing existing (on-line) information in open source, is a viable path or perhaps even ethical practice for trying to re-attach or re-affirm reputation in which risk has materialized.