Venture Capital Forums: Are IP Position Questions Still Relevant?

Venture forums are…usually private, invitation only, ‘rapid fire’ events where self-assured, deep-pocketed, and risk-taking venture capitalists are ‘pitched’  specific, generally early-stage, innovations – inventions, and ultimately make invest – don’t invest decisions. https://kpstrat.com/wp-admin/post.php?post=5961

Those making the pitches are...similarly intelligent, diligent, and may often be part of a collaborative of well intentioned (scientific, technological) visionaries seeking capital to advance their researched-based startup (RBSU) to the next stage/level of research and development and/or execution of a business plan.

Venture forums are routinely marked by…straight, often unforgiving talk, with few, if any, opportunities available for do-overs, if misjudgments in presentation or procedure are noticed, after all, venture forums are environments in which high stakes and high risk are the common denominators for entrée.

As would be expected, most venture capitalists are…no longer generalists, instead have assumed vertical expertise and specialization relative to sectors, technologies, or other categories of innovation which draw their interest, investment of capital, and business acumen, in return, of course, for lucrative exit strategies’. https://kpstrat.com/2016/05/09/venture-capital-…ntangible-assets

At numerous venture forum’s I have attended…the pitches are highly condensed, time limited, and well rehearsed summations which focus on what, how, when, and who.  Following each inventor’s – innovator’s pitch, comes the obligatory, but, often very conventional Q & A where forum attendees, ala prospective investors, direct their initial inquiries.  One of the 6-8 key questions asked by prospective investors, if it was not satisfactorily addressed in innovators the pitch, is some variation of…‘what is your intellectual property (IP) position’?

Insofar as the innovator’s response to that obligatory question…to their audience of prospective investors, is one which they have been advised prospective investors want to hear, i.e., a patent…
     1. application has been filed.
     2. is pending, or,
     3. has been issued.

Given the consistency which prospective investors ask… ‘what is your IP position’, and the preferred responses (options), one could readily conclude both parties assume the presence of some form of intellectual property enforcement is a requisite – prelude to a favorable path to investment.

As an intangible asset strategist and risk specialist…having sat through numerous venture forums, this time-honored, but, in my view, very conventional question, i.e., what is your IP position, is not nearly as relevant-pertinent today as perhaps it was in, say, the early 1980’s.  https://kpstrat.com/2008/11/12/replicating-inta…ital-investments/

My counsel to venture capitalists – prospective investors today…is to frame questions which have direct bearing on the risk inherent to each specific ‘invest – don’t invest’ decision. Frequently, that translates as framing questions to glean more decisive relevance and insight insofar as recognizing – assessing (investment) risk and ascertaining the status, stability, fragility, and sustainability of the intellectual and structural capital in play.

Necessarily then, I counsel (help) prospective investors to develop – frame questions to…

  • reflect-encompass the economic fact that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability today, lie in – emerge directly from intangible assets, i.e., intellectual, structural, and relationship capital possessed by the innovators.
  • acknowledge, for early stage companies – research-based startups, the 80+% figure (sited above) often manifests as 90+%, because so much of the innovation’s prospective value, competitive advantages, revenue generation potential, and sustainability, is internally embedded amongst the collaboratives’ innovators, in the form of their (individual, collective) intellectual and structural capital.
  • acknowledge the global business transaction environment is now correctly characterized as predatorially aggressive, legacy free, and winner-take-all.

It’s clear to me…the time-honored assumption that conventional intellectual property enforcements, i.e., patents, trademarks, copyrights, etc., are…

  • sufficient-‘standalones’ to adequately safeguard innovations’ foundational – underlying intangible assets mitigate risks to outside investment, and
  • provide assurance to investors a lucrative exit strategy is possible,

but, do not constitute sound standards for making ‘invest – don’t invest decisions’.

As an intangible asset strategist and risk specialist…I advise early stage – startup company management teams, in advance of prospective investor meetings or forums, among other things, how to develop, put in place, and articulate intangible asset safeguards which, after all, are the cornerstones to any startup’s ability to build-sustain value, competitive advantages, and develop same as sustainable sources of revenue.

Various studies of venture capitalists’ behaviors…rank the ‘what is your IP position’ question, as 5th or 6th in (presumed) importance relative to making an invest – don’t invest decision, among the eight or so key questions prospective investors typically pose to early stage firm’s who are seeking their investment of capital and oversight at a venture forum.

Too, this time-honored litany of presumably influential IP focused questions…and innovator’s – inventor’s routine responses (rationales) suggest each party still assumes intellectual property enforcements are necessary preludes to securing investment, all-be-it largely symbolic, in my judgement.

I want to make my perspective very clear…I respect the legal prudence (importance) of filing for – holding an issued patent. After all, issued-registered IP does provide parties with the necessary legal standing (requisite) to pursue – bring enforcement action for (today’s inevitable) ugly, costly, time consuming, and momentum stifling realities of suspected (asset) infringement, compromise, misappropriation, counterfeiting, and/or theft.

However, it is critical for stakeholders to recognize…that anyone of the aforementioned, may, can, and with higher probability, will occur, whenever, however, and wherever a company’s IP (intellectual, structural capital) is in play, and therefore at risk!

Also, of course, IP registration is a requisite for engaging in trade in WTO (World Trade Organization) countries and/or signatories to TRIPS (Trade Related Intellectual Property).

True, investing in an issued-registered intellectual property…does provide a certain level of ‘feel good’ insofar as risk mitigation and some assurance exit strategies will manifest on schedule and as desired. There is no argument being made here that either party should neglect – be dismissive of conventional IP filings, registrations, and enforcements. It is worth noting though, a patent application provides considerable elaboration – distinction for the foundational intangible assets underlying an issued patent.

Professionally, I know of no intellectual property that did not start life as intellectual and/or structural capital…ala an intangible asset.  But, this reality frequently goes un-acknowledged, overlooked, or wholly dismissed. As a business leader, startup or maturing company, treating the intangible assets produced or acquired, i.e., intellectual, structural, and/or relationship capital in a cavalier manner is unwise, if not fiduciarily irresponsible.

This is especially relevant since it is now routine that intangibles…consistently play significant contributory roles and value to most every early stage firm’s future. Acting dismissively toward safeguarding – preserving the value, competitiveness, and sustainability of existing intangible assets, suggests an entrepreneur may have also neglected ‘best practice’ trade secret – proprietary information safeguards. If so, such omissions should be regarded by prospective investors as having explicit relevance to any ‘invest – don’t invest’ decision.

Neglecting to recognize these safeguards and implementing-practicing same at the earliest stages of asset development…are requisites to sustaining and preserving ownership, value, and competitive advantages produced by the assets is essential. On the other hand, not doing so, will most assuredly, become precursors to asset hemorrhaging, well in advance of invest – don’t invest considerations.  The probability that deal-transaction debilitating risks can be mitigated by merely framing initial – venture forum questions as described above should be thoughtfully explored with the aid of an intangible asset strategist and risk specialist.

Similarly, the absence of effective – relevant (intangible asset) safeguards…before filing a patent application, can elevate early stage company’s vulnerability – probability – criticality to the materialization of adverse risks, i.e., momentum stifling challenges, disputes, and exit strategy headaches for prospective investors.

This should give credence, to prospective investors and early stage company leadership…the latter routinely seeking, acquiring, developing, and producing potentially valuable and competitive advantage intangible assets, i.e., intangible asset intensive and dependent companies, to acknowledge that conventional forms of intellectual property enforcement, no longer serve as…

• standalone deterrents to economic – competitive advantage adversaries operating globally, or

• reliable prognostications – indicators of innovation-invention value, revenue generation, competitive advantage, or    sustainability.

In circumstances in which there is evidence that the know how underlying an innovation-invention being considered for investment…has been treated cavalierly from its inception, i.e., absent minimums of proprietary status or trade secrecy, it would be prudent for prospective investors to conduct (pre-post transaction) due diligence, specific to the key intangible assets in play, to ascertain their status, fragility, stability, and sustainability.

It is, for these reasons (collectively), that I urge prospective investors (venture capitalists) to re-phrase the conventional…‘what’s your IP position’ and, instead, engage innovators, entrepreneurs, and early stage – startup company representatives, to examine – bring clarity to

  • the probability, criticality, and ‘keystroke’ speed which knowhow (intangible assets) can be compromised, infringed, misappropriated, or stolen.

Doing this, will allow prospective investors to…more objectively assess whether control, use, ownership, and value of the ‘about-to-be-invested’ intangible assets are…

  • sustainable relative to the projected exit strategy, and
  • reflective of the assets’ functionality, materiality, and value (life) cycle.

Today, with increasing certainty…ineffectively safeguarded intangible assets will quickly hemorrhage in value, competitive advantage, and elevate investor’s vulnerability to costly, time consuming, and momentum stifling challenges, disputes, and certainly, produce exit strategy headaches for investors.

Michael D. Moberly August 13, 2018 St. Louis [email protected] ‘The Intangible Asset Blog’ (https://kpstrat.com/blog) where one’s attention span, business realities, and solutions converge!

Readers are invited to examine other relevant resources I have published at https://kpstrat.com/books/, i.e., papers, books, posts, etc.

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