Archive for 'Early stage companies.'

Venture Capital Questions About Intangible Assets

May 9th, 2016. Published under Due Diligence and Risk Assessments, Early stage companies., IP strategy., Sustainability of intangible assets.. No Comments.

Michael D. Moberly May 9, 2016 ‘A blog where attention span really matters’!

Venture forums…
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.

Legal symbolism…
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.

Follow-up questions…
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!

Start-up – RBSU Success Dependent On Safeguarding Contributory Intangible Assets

January 21st, 2015. Published under 'Safeguarding Intangible Assets', Early stage companies.. No Comments.

Michael D. Moberly     January 21, 2015    ‘A blog where attention span really matters’!

For start-up management teams, the importance attached to launch their product or service cannot be overstated. It is important on many levels, one of which, it puts a new venture, on ‘the public stage’ and subject to all of the like – dislike variables which inevitably follow.

Should stake holder, prospective user, and investor reaction be favorable, launches can put a start-ups’ innovation a few steps closer to profitability, says Ans Heirman and Bart Clarysse formerly of Ghent University in their fine paper ‘Do Intangible Assets at Start-Up Matter for Innovation Speed?’

The speed which an innovation arrives at its launch stage is also important insofar as attracting initial rounds of investment. Another increasingly crucial factor that affects the speed which start-up innovations’ are positioned for launch is early recognition for safeguarding an innovations’ enabling and contributory intangible assets which in most instances are embedded in – underlie the innovation itself, i.e., intellectual, structural, and relationship capital or the proprietary know how and processes.

Unfortunately, I have observed many start-up management teams, be they RBSU’s or independent, imprudently directing their aspirations to seeking the issuance of a patent. Routinely, innovators rather naively assume ‘the patent route’, standing alone, will serve as sufficient safeguards for their innovation. And, most, if not every investor prefers, if not demands, an innovation be patented as a prelude to favorable investment consideration..

What innovators tend to discount or altogether overlook are equally valuable (enabling) intangible assets that routinely serve as the underlying foundation to every innovation. It’s now quite routine that 90+% of start-ups’ – innovations’ sources of value, revenue, and ‘building blocks’ for growth, profitability, and sustainability to reside in – evolve directly from intangible assets.

Even though Heirman and Clarysse’ paper was published in 2004, it still carries much relevance insofar as making a convincing case that antecedents to innovation, i.e., speed emminates from recognizing, safeguarding, and managing key intangible assets, again particularly, the intellectual, relationship, and structural capital.

Heirman and Clarysse also make a very favorable case that other equally important intangible assets, which they refer to as ‘pre-founding R&D efforts’, e.g.,

  • innovation team tenure,
  • the experience level of the start-ups’ founders and management team members, and
  • third party collaborations, are also important contributors to innovation speed.  

To this perspective, Heirman and Clarysse collected a dataset on 99 research-based start-ups (RBSUs) and applied an event-history approach. From this they found that experienced entrepreneurs understand that innovation speed is important for many reasons, i.e.,

  • attracting – acquiring early investment to achieve more (greater) financial independence,
  • achieving broader external visibility and legitimacy for their innovation as quickly as possible, and
  • delineating the innovations’ competitive advantages as early as possible.

I agree with both Heirman and Clarysse that innovation R&D cycles can vary widely based on, among other things, the number and phases of product development, along with specialized technologies that may be required.  Being an intangible asset advocate and strategist no surprise here.

Collectively, this confers additional credence on the view that identifying inter-connected clusters of contributory intangible assets is important insofar as they may re-emerge at some point as enablers to another RBSU innovation. In other words, RBSU management teams should avoid dismissing or neglecting intangibles as if they are a single use asset. Too, it’s perfectly feasible that certain intangibles can be extracted from an already launched innovation to become independent sources of value and revenue.

Heirman and Clarysse also found that RBSUs frequently differ with respect to their starting conditions, for example…

  • start-ups which are further in their product development cycle (at founding) will likely launch their initial innovation (product) faster.
  • innovations that require a beta-version (test) will obviously experience slower product launch times.
  • experience level of startup founders and management team members can lead to faster launch times.
  • a start-ups’ alliance with other firms does not significantly or favorably affect innovation speed.
  • startups which collaborate with universities (perhaps as a spin-off, etc.) generally lead to longer innovation development and launch times.

As always reader comments are encouraged and welcome!

The Question VC’s Should Stop Asking, Why, and What Questions Should Be Asked!

December 12th, 2014. Published under 'Safeguarding Intangible Assets', Early stage companies., Venture capital.. No Comments.

Michael D. Moberly   December 12, 2014   ‘A blog where attention span really matters’!

Venture forums…

Venture forums are typically fast paced and highly charged events where management teams of intangible asset intensive startups, university-based spinoffs, and early stage companies give impassioned ‘elevator pitches’ to prospective investors.

Most pitches are purposefully limited to 3-5 minutes wherein the spokesperson explains their companies’ mission, the innovation, further research that’s necessary, fiscal projections, business model, why investment is warranted, and how the investment will be used should an investor deem it a worthy risk. Following the ‘pitch’, prospective investors may ask the company questions, one invariably is, ‘what’s your IP position’?

What’s your IP position…

Of the numerous venture forums I have attended the most consistent answer to this albeit over-rated, misunderstood, yet seemingly obligatory question is, a patent…

  • application has been filed (provisional),
  • is pending, or
  • has been issued.

The attention startup company’s attach to achieving IP status for their innovation, coupled with the consistency which prospective investors ask the IP position question, suggest each party believes that conventional IP, patents particularly are influential requisites to securing investment capital. Of course there are other factors considered in ‘invest – don’t invest’ decisions.

Legal symbolism…

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 IP is infringed or challenged within the 3 – 5 year exit strategy plan investors typically 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. That coupled with the persistent challenges and vulnerability to intangible asset (IP) infringement, theft, and/or counterfeiting make a startups’ 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 should be 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…

  • stand alone deterrents, or
  • reliable prognostications of innovation value.

More relevant venture forum questions…

I urge prospective investors – venture capitalists to re-phrase their venture forum questions. For example, rather than merely asking ‘what’s your IP position’ assuming that is an important criterion to ‘invest-don’t invest’ decisions, 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?

Patents start life as 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 the know how underlying a 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 only prudent for prospective investors to ascertain
  • the status, i.e., fragility, stability, and 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 issues that should be fully explored as being integral to any ‘invest – don’t invest’ decision.

Follow-up questions…

Before making an investment in intangible asset rich and dependant startup 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!

As always, reader comments are respected and welcome.

Early Stage Companies: Mitigate Risks To Intangibles Assets

December 1st, 2014. Published under 'Safeguarding Intangible Assets', Early stage companies.. No Comments.

Michael D. Moberly     December 1, 2014    ‘A blog where attention span really matters’!

There are four (typical) ways in which early-stage companies’ proprietary intangible assets, i.e., IP and its underlying intellectual, structural, and social/relationship capital become ensnared in time consuming, costly, momentum stifling, and sometimes irreversible personal disputes and/or legal challenges. That is, they are frequently a consequence and/or combination of…

  1. misplaced (or violation) of trust in business partners, research collaborators, employees, colleagues, and/or professional service providers, etc.
  2. operational or procedural miscues, etc., i.e., poorly executed manufacturing and/or design and delivery of product/services, market entry planning and launch, being dismissive about sustaining control and use of key assets, or monitoring their value, materiality, and risk.
  3. unethical or illegal conduct of others (internally, externally), etc., i.e., theft, misappropriation, infringement, intentional leakage, etc.
  4. key intangible assets acquired through competitor/business intelligence, data mining initiatives, and/or economic espionage, etc.

Entrepreneurs and early stage company management teams who are inclined to mistakenly characterize or dismiss any of the above as merely constituting a necessary risk of doing business, do so at their peril. That’s particularly evident in today’s instantaneously competitive, globally predatorial, and winner-take-all business (transaction) environments.

For even what may be ostensibly well managed early stage companies, asset monitoring and safeguard practices must go beyond ‘mba light’ takeaways because absent such attention, asset vulnerability and criticality will rise beyond being a mere probability to inevitability!  In other words, the probability an early stage company, especially those embedded with particularly innovative, commercializable, and possibly dual-use intangible asset rooted technologies will have one or more of the above risks materialize, elevates.

Understandably, it’s often tempting for early stage company decision makers, to focus their time, attention, and limited resources on what may appear, at the time, to be more immediate concerns such operations, management, raising capital, marketing, and commercialization issues. The reason, the latter largely represents the conventional, sole, and time-honored path to successful startup, while the stewardship, oversight, and management of key, foundational intangible assets beyond patent filings or trade secrecy requisites frequently remain mis-portrayed as unrecoverable costs and elusive initiatives versus on-going fiduciary responsibilities.

Equally unfortunate, some early stage company management teams presume a patent application, provisional, or issuance are sufficient (stand alone) forms of protection and/or deterrence, something which I refer to as the ‘patent and walk away’ syndrome.

This contributes to making most any delay in or reluctance to execute relatively simple, yet absolutely necessary asset value – competitive advantage preservation safeguards as risks which elevate the probability that economic – competitive advantage risk will materialize.  Too, absent the presence of value and competitive advantage safeguards, options for legal recourse will be limited. Collectively, this positions early stage companies to lose everything their principals have worked so hard to achieve, particularly in this ‘winner-take-all’ global business – market entry environment.

As always, reader comments are welcome and respected.

Articulating Intangible Assets to Prospective Investors

November 10th, 2009. Published under Early stage companies., Intangible asset training for management teams.. No Comments.

Michael D. Moberly   November 10, 2009   ‘A blog where attention span really matters’!

Anytime I am in a engaged in a conversation with a member of some companies’ management – leadership team, I find it revealing if they express indifference toward intangible assets in general, or worse, trivialize or dismiss intangible assets their company has produced, particularly intellectual, structural, and relationship capital. Too me, as an intangible asset strategist and risk specialist, such expressions are akin to a ‘climate change denier’ and revealing in the sense that it’s probable this business leader…

    • does not understand what intangible assets are,
    • is operationally unfamiliar with intangibles’ contributory value to a company,
    • does not recognize how certain intangibles’, again, intellectual, structural, and relationship capital are already firmly embedded in their companies’ key – mission essential processes, procedures, and practices, or
    • relegates intangibles’ stewardship, oversight, and management into one the proverbial boxes, i.e.,
      • it’s too difficult to do,
      • I don’t have time for it,
      • what difference does it make, or
      • I will do it only when I see my competitors doing it.

Not surprisingly, the opposite should occur, particularly for early stage – newly launched companies that are seeking investment capital to expand and grow. In these circumstances (seeking investment capital), I find it useful to apply a very straight forward strategy, i.e.,

  • anticipate (know) what information prospective investors will be seeking – demanding, and
  • how that information can best be articulated (communicated).

My experience clearly suggests a significant percentage of prospective investors in early stage – newly launched companies have already achieved operational familiarity with intangible assets and their strategic contributory role and value to a companies’ trajectory for growth, profitability, and commercial success. That said, prospective investors frame their ‘invest – don’t invest’ decisions in a fairly conservatively.

Collectively, I am suggesting that whenever one is positioned to seek investment capital engages a venture capitalist or angel investor absent a thorough operational familiarity with their companies intangible assets, they may well be operating at a irreversible deficit.

I can say with some surety that, at minimum, savvy prospective investors, as part of their ‘invest – don’t invest’ decision making process, will want to know and see evidence of…

  • what the company identifies as their key (mission essential) intangible assets, and
  • how the company assesses, utilizes, manages, and safeguards those intangible assets.

While the answers to these important questions will vary, relative to a company’s sector and product and/or service offerings, the attention any business leader gives to their language – narrative to prospective investors should never be taken lightly or underestimated.  In other words, responses should be conveyed in clear and understandable business contexts, but, most importantly, each must be immediately recognized as being viable.

For example, managing a company’s intangible assets should be articulated on, at least, two levels:

–  The first is a company’s ability to identify, unravel, position, leverage, and extract value from its intangible assets.

–  The second is a company’s ability to sustain control, use, ownership, and monitor the value, materiality, and risk to its intangible assets.

In any communication with investors about how a company manages its intangible assets, the collective importance the company attaches to both ‘levels’ is essential as is how both levels are managed (executed) simultaneously. There is certainly no shortage of information available to management teams about all facets of intangible assets.

As always, reader comments are welcome and respected.

 

Mitigate Intangible Asset Risks to Early Stage Companies

June 15th, 2008. Published under 'Safeguarding Intangible Assets', Early stage companies., Managing intangible assets. No Comments.

Michael D. Moberly    June 15, 2008    ‘A blog where attention span really matters’!

My experience suggests there are four (typical) ways in which early-stage companies’ proprietary intangible assets, i.e., IP and its underlying intellectual, structural, and social/relationship capital become ensnared in time consuming, costly, momentum stifling, and sometimes irreversible personal disputes and/or legal challenges. That is, they are frequently a consequence and/or combination of…

  1. misplaced (or violation) of trust in business partners, research collaborators, employees, colleagues, and/or professional service providers, etc.
  2. operational or procedural miscues, etc., i.e., poorly executed market entry planning and launch, being dismissive of sustaining control, use, and ownership of key assets, or monitoring their value, materiality, and risk.
  3. unethical or illegal conduct of others (internally, externally), etc., i.e., theft, misappropriation, infringement, leakage, etc.
  4. key intangible assets acquire through competitor/business intelligence or data mining initiatives, and/or economic espionage, etc.

Entrepreneurs and early stage company management teams inclined to characterize or dismiss any of the above as merely constituting ‘a risk of doing business’, particularly in today’s instantaneously competitive, globally predatorial, and winner-take-all business (transaction) environment, does so at their hard work and company’s peril.

For even early stage companies, well designed, executed, and sustainable procedures, processes, and practices must go beyond the ‘mba light’ aspects of business to preserving and monitoring one’s hard earned intangible assets and IP. Absent such attention, asset vulnerability and criticality to risk rises beyond probability to becoming an, inevitability!  In other words, the probability an early stage company, especially those with innovative and commercializable intangible assets and IP, will have one or more of the above risks materialize, elevates considerably.

For early stage company decision makers, it’s often tempting to focus time, attention, their limited resources on seemingly more immediate concerns such as company management, raising capital, and operational-commercialization issues because they represent the conventional ‘must follow paths’ to successful startup.  Too, the stewardship, oversight, and management of key, foundational intangible assets and IP, beyond patent filings or trade secrecy requisites are mistakenly portrayed as unrecoverable costs rather than perpetual fiduciary responsibilities.  Equally unfortunate, some early stage company management teams presume a patent application provisional, or issuance are sufficient (stand alone) forms of protection and/or deterrence, something which I refer to as the ‘patent and walk away’ syndrome.

Delays executing adequate asset value – competitive advantage preservation safeguards is exceedingly risky today and proportionately elevates the probability than one or more of the aforementioned (forms of) risks will materialize and adversely affect the company.  To be sure, when risks perpetrated by economic – competitive advantage adversaries materialize, absent the presence of safeguards, legal recourse options may be limited. And, in this ‘winner-take-all’ business market entry environment, early stage companies stand to lose everything their principals have worked so hard to achieve.

As always reader comments are respected and encouraged.