Michael D. Moberly April 16, 2012
Many, if not most companies want to attract investors. For intangible asset intensive companies there are particular strategies that company management teams should consider to elevate investor curiosity and render them more attractive investments.
I encourage management teams, c-suites, and boards to read intangible asset and IP-related surveys and studies, particularly one’s previously produced by Howery which, among other things, found prospective investors are more likely to have more than a passing interest in companies that have practices in place to identify, assess, monitor, safeguard, and (e.) fully utilize their intangible assets as effectively as possible.
Two key reasons why experienced (prospective) investors are focusing more attention on intangible assets are:
- their correlation to a company’s attitude for recognizing and consistently monitoring the value of intangible assets, IP, competitive advantages, and sustainability.
- they obviously understand that intangible assets comprise 65+% of most investment’s value, projected sources of revenue, and ‘building blocks’ for growth and overall sustainability.
Therefore, investing in companies that have either no, ineffective, or inconsistently applied procedures – practices to identify, assess, and sustain control, use, ownership, and monitor the value and materiality of about-to-be-invested intangible assets presents, at minimum, a cautionary yellow flag insofar as an invest – don’t invest decision is concerned.
Too, when asset management and oversight (of intangibles and IP) are deemed lax, non-existant, or when management teams exhibit indifference or trivialize the prudence, or worse, don’t recognize the necessity to safeguard their (intangible) assets, it would be quite proper to presume risks and vulnerabilities (to those assets) will elevate and probably materialize. When, not necessarily, if those risks materialize, asset contributory value will almost assuredly erode. For prospective investors and stakeholders then, circumstances like this can, quite literally push an investment initiative and/or strategic alliance beyond acceptable (risk) thresholds.
It warrants being said again, that in today’s globally competitive, increasingly predatorial, and ‘legacy free’ business (transaction) environment, the mere fact that a company has been issued a patent, is standing alone, not likely to negate the aforementioned risks or produce much additional investor confidence as it did in previous decades.
Unfortunately however, many management teams, naively in my view, remain inclined to assume conventional IP enforcements, i.e., patents, trademarks, and copyrights are applicable to other forms of intangible assets and therefore suffice as an intangible asset protection strategy.
More aggressive and targeted due diligence can mitigate, if not alleviate, a good portion of risk. Due diligence questions should, among other things, determine whether the IP and the underlying intangible assets been adequately safeguarded:
- from inception, and
- in pre and post transaction-investment contexts?
If so, this generally translates as greater assurance that asset value and utilization remain intact. Its worthy to remember though, in this globally competitive and predatorial business environment, neither can be assured solely because a patent has been issued.
On a positive note, increasing numbers of prospective investors – stakeholders are experienced enough to recognize that conventional IP protections do not supplant a comprehensive set of policies, practices, and procedures to safeguard and monitor valuable (intangible) assets. But, when management teams proceed indifferent to the risks, prospective investors should exercise their options to:
- abandon the investment altogether, or
- ratchet-up the due diligence and asset assessment process to identify and leverage the (pre – post) risks for better terms.
The result often is, in the absence of managerial oversight on these increasingly critical aspects noted above, investments are increasingly likely to manifest themselves as frustrating experiences that fail to meet the projected (desired) outcomes.