Investor-ready IP: how intangible assets could be the key to your next investment

Intellectual property is the ideas, research and innovations behind a business’s products and/ or services. By protecting it, businesses can prevent competitors and other third parties from copying or stealing that intellectual property for their own gain. This allows a business to protect its commercial advantage and increases the likelihood of a return on the investments it has made in researching and developing its brand, products and services.

The most valuable forms of IP protection are registered rights, such as patents, registered trade marks, and registered designs. These are more easily enforced and signal to both investors and competitors that the business is serious about protecting its IP.

Securing registered IP rights also reassures investors that the business has a novel product or service, and thus a validated competitive advantage.

In fact, having a patent or registered trade mark – particularly a European one – can significantly increase a business’s likelihood of securing investment.

According to a joint study by the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO), European startups applying for patents or registered trade marks during their initial seed or early growth stages are up to 10.2 times more likely to secure funding from investors, with the likelihood of a successful exit for investors also more than twice as high.

Any business that wants to make its IP a key selling point must ensure that it is developing a strategic IP portfolio, supported by a clear and comprehensive set of documents for providing information about the IP portfolio. This should include:

• The type of protection the business has, and what it protects. This could include registered rights such as patents, registered trade marks and registered designs, as well as unregistered rights such as trade secrets;
• Evidence of any registered rights from the relevant intellectual property office;
• Schedules for renewals and the status of any IP rights. A business will need to include how long any IP rights will last, and when they need to be renewed. If rights have not yet been granted, the portfolio should indicate where they are in the application process;
• A summary of the scope of any patent protection and how this is relevant to both the technology and the business plan.

The power of patents: Quinas Technology

Quinas Technology achieved acceptance onto key accelerator programmes and significant investment in its early years, due in no small part to the patents for its flash-like floating gate memory ULTRARAM™. Read more about Quinas Technology’s story here.

Developing an IP portfolio is only part of the pitching process, however. Early-stage businesses must also demonstrate how this IP portfolio fits into, and complements, the business’s wider strategy for growth.

As such, it is important to develop an IP strategy that explains:

• How the business identifies any potential IP, examines its strength, and selects the most suitable form of protection;
• How the business manages its existing IP. For example, how regularly does it audit its IP portfolio? Does it work with a professional adviser, such as a patent or trade mark attorney? How does it monitor for potential infringements?
• In which jurisdictions the business has, or wants to have, registered IP rights. If a business has any plans to expand or export internationally, for example, these should be reflected in its IP strategy, with a reference to the relevant filing programmes;
• Plans for commercialising its IP. This section is particularly important, as it demonstrates how the IP itself will be exploited to generate revenue. This may include, for example, licensing the IP to a third party (or third parties), or selling it to a similar business. Businesses could also include the results of any professional IP valuations to demonstrate their proactivity in assessing their IP’s commercial and strategic value;
• How the business manages IP-related risks. This should outline the business’s processes for mitigating the risk of infringing the IP rights of others, such as Freedom to Operate searches and ‘design around’ strategies. It should also highlight how it is managing ownership risks, such as assigning IP rights to the trading company or an IP-holding company, rather than the IP being owned by an individual.

According to Sam Meiklejohn, a partner in Gateley Legal’s corporate team, what investors look for in IP-rich businesses will depend largely on the type of business and the sector in which it is based.

“In life sciences, for example, investors will look more closely at the terms and status of any patents to understand exactly how important they are to revenue generation and defensibility,” he says.

“In software, however, investors will usually prioritise more basic elements of IP, such as whether any registered trade marks are held by the company, not by the directors.”

According to the World Intellectual Property Office (WIPO): “IP ownership helps to convince investors/ lenders that real market opportunities exist to commercialize [sic] your product or service.”

To make the most of this IP, however, early-stage businesses must be able to demonstrate a comprehensive IP portfolio and strategy that exemplify the value of their IP and how it enhances the business’s wider strategy.

This is particularly crucial for IP-rich businesses in highly technical sectors, which may only be able to rely on their intangible assets to attract potential investors, at least in the early funding stages.

By ensuring that its IP and business strategies go hand-in-hand, and that they are reviewed regularly as the business changes and grows, early-stage businesses can enhance their IP into a valuable asset and, ultimately, secure investment before a physical product is even developed.