Venture Capitalists: Are You Buying Unnecessary Risk?

Michael D. Moberly     June 14, 2008

The asymmetric nature of risks associated with investments in early stage company’s and/or commercialization of R&D have literally moved from being just another risk of doing business that, when left unchecked, become inevitabilities which can quickly (a.) stifle transaction momentum, (b.) undermine an exit strategy, and (c.) erode projected returns.

When making ‘invest – don’t invest decisions’ today, its essential to:

1. arm venture capitalists and investors with all of the risk mitigation weaponry available.

2. recognize that 75+% of the deals’ value, sources of revenue, and future wealth creation will lie in intangible assets, IP, and proprietary know how.

This begins by providing the principals with much more than a mere ‘snap-shot-in-time, generic due diligence.  Rather, it involves providing the principals with a comprehensive and forward looking picture of the deals’ risks relative to:

1. sustaining control, use, ownership, and value of the about-to-be-purchased intangible assets and intellectual property. 

2. the exit strategy

This encompasses:

1. Applying a business impact analysis approach to identify, unravel, and assess the status, stability, and sustainability of the targeted assets…

2. Identifying under-the-radar circumcumstance (vulnerabilities) known to be preludes to costly and time consuming (legal) disputes, challenges, entanblements and ensnarements…

3.  Respectfully examining the targets’ work-research environment and (their) internal-external relationships relative to asset (value) loss, shrinkage, and sustainability… 

4. Respectfully  examining the intellectual – human capital underlying the investment by unraveling and ensuring the integirty of the origins of the idea and/or concept on which the proposed investment is premised…

5. Determining whether appropriate (adequate) measures-practices have been in place prior to the invest decision designed specifically to protect, preserve, and monitor the assets’ value…

6. Leveraging (newly) identified risks/vulnerabilities to the targeted assets in subsequent (deal, transaction) negotiations…

7. Synchronizing (post-investment) strategies to effectively counter (mitigate) additional – other risks and vulnerabilities to the targeted assets!