Venture Capital Pre-Post Investment Due Diligence, It’s No Longer Optional!

A key, to achieving lucrative venture capital investments…in start-ups and other early stage companies, in my judgment, lies in balancing the attention-necessity for…

  • putting in place experienced management teams (in the invested firm), and,
  • ensuring control, use, ownership, value, competitive advantages, and revenue generation potential of the invested intellectual property and their foundational-contributory intangible assets, i.e., intellectual, structural, and relationship capital, are collectively lucrative to sustain the negotiated exit strategy, absent challenges.

Effective strategies for achieving that essential balance…begins by recognizing that a well constructed (IP, intangible asset) pre-post assessment and due diligence process can provide investors (venture capitalist’s) with current and projective insights and perspective is an essential prelude to consummating and facilitating secure, competitive, lucrative, and sustainable transactions, not impede them!

A strategic path to achieve this, prospective investors are obliged to have…current, relevant, insightful, and forward looking (over-the-horizon) insights which extend beyond the conventional ‘snap-shot-in-time’ assessments, valuations, and due diligence of intellectual properties. with an over-emphasis on whether IP has been applied for, issued, and registered.

Instead, timely and transaction specific strategic paths…are necessary for elevating the probability that both investors and inventors will achieve a lucrative investment transaction that reflects the negotiated exit strategy.

In part, the objectives of pre-post (intangible asset) investment due diligence is to reveal, unravel, mitigate, and/or mediate…

1.  embedded, under-the-radar risks, vulnerabilities, and operational – usage complexities which, if adversely exploited, could impair and/or entangle any foundational – contributory intangible assets and become preludes to costly, time consuming, momentum stifling legal disputes and challenges.

2. to identify and unravel any additional (internal) centers (chains, clusters) of valuable, leveragable, and potentially revenue producing intangible assets and competitive advantages beyond what is espoused (boasted) publicly, and

3. invested intangible asset safeguards and value-competitive advantage preservation measures to ensure alignment with (a.) the investers’ objective, (b.) the company’s strategic business plan, and (c.) the respective functionality (life, value, materiality) cycles’ of the invested intangible assets.

4. circumstances that can adversely affect the company’s and the investor’s respective capabilities to sustain control, use, ownership, and value of the invested assets.

Investors and company leadership alike, are (fiduciarily) obliged to recognize the economic fact that 80% to 90+% of…research-based start-up’s – early stage firms’ value, sources of future revenue, sustainability, and competitiveness lie in – emerge directly from IP and other forms of intangible assets.

If – when kpstrat’s asset specific assessment – due diligence reveals key assets are suspect, impaired, or have been compromised, an investment may warrant reconsideration and/or inclusion of specific (risk mitigation – transfer) covenants before proceeding further.  When such adverse circumstances are present or likely to emerge due to risk, its unlikely that an investor’s management team, standing alone, respecting their experience and skill sets, can fully overcome or reverse significant (intangible) asset transgressions absent costly, time consuming, and momentum stifling legal challenges!

Michael D. Moberly January 15, 2009  St. Louis  [email protected]  ‘Business Intangible Asset Blog’ where attention span and business realities meet!

Risk Assessment and Due Diligence For Venture Capital Investments

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