Few start-ups are established without the founders having an eye on a future exit, even if they hope to change the world along the way or as a final outcome of their efforts. And equally few founders do not wish to maximise the financial rewards from such an exit for themselves and for their partners. For the tech start-up there is little doubt that the chances of a successful exit and the rewards from that exit are hugely dependent on the Intellectual Property generated along the way and the extent to which that IP is captured and protected.
Some start-ups may arrive at a point of exit with the good fortune to have captured and protected their key IP assets by way of happy accident. Or, they may have been in the fortunate position of having inherited foundational and hugely valuable IP from a predecessor: that might be true in the case of a spin-out from a university. These companies are rare beasts. For many start-ups, critical IP assets will have slipped through the net as they approach an exit point, meaning that the company’s value will be dictated primarily by unsecured know-how, trade secrets, people and relevant contracts, assuming even those safeguards have been taken advantage of. In all cases, at the very least, value will have been lost on the journey from foundation to exit.
An IP driven start-up does not rely on good fortune to capture and secure or inherit its IP, not that it would turn that down of course. Rather, from day 1 or even before, it is driven by the need to generate IP that is relevant to the products and services that it is developing, to capture that IP in the sense that it is identified as being novel in the relevant commercial space and of commercial value, and to protect it insofar as that is possible. The IP driven start-up sees this approach as being critical to the company’s success, right up there with the recruitment and retention of key employees and the development and bringing to market of successful products and services.
Research and development work is carried out with the express intention that patentable inventions will be created. How can this not be the case when so much investment is made in highly skilled engineers and scientists, not to mention equipment and materials? Even if that is doubted, surely, if the product or service being developed is expected to be successful, it will have features that very significantly distinguish it over the competition. Given this certain knowledge, the IP driven start-up needs to have in place processes to make sure that the IP assets generated are captured and appropriate actions taken.
There is a recognition that capturing and securing generated IP is not cheap and can be an unpredictable process. Consequently, whist making prudent decisions regarding the how, what and when, significant sums are directed towards IP and this investment is deemed to be as critical as product development and testing, marketing etc. Investing in IP is not seen as a gamble, but rather is viewed as being a perfectly proper way to safeguard all of the other investments that the company makes.
There is a recognition that value is added to an IP portfolio by careful management and presentation. Being able to demonstrate a systematic approach to IP, with written procedures and allocated responsibilities, is critical, as is the retention of properly signed and collated documentation. The company will allocate resources to deal with these issues and build internal IP knowledge. Crucially, it does not see internal IP roles as a distraction from other important tasks.
The successful conclusion of this approach is that the start-up arrives at an exit point with an IP portfolio that is critically relevant to the products and services that have been developed and which will form the basis for future commercial success. More than that, the portfolio secures a technology space surrounding those products and services that will prevent or significantly inhibit competition. This is the fundamental reason why we secure our IP after all: to establish a technology monopoly which drives up future profits, increasing the company’s value and making it more attractive for investment or sale.
If these are the traits of an IP driven start-up, what factors cause a start-up to adopt them? That probably comes down to the experience of the founders, mentors and investors. A serial entrepreneur who has been through the process before has probably learned from his or her mistakes and wants to get it right from the outset. Mentors and investors are also likely to have an impact, particularly the latter who will see securing IP assets as a way to secure their investment. Of course it is not uncommon for a start-up to move its focus more towards IP as it progresses, due to the experience gained and the influence of partners as they join. But investing time and energy into understanding IP at the outset will certainly pay dividends in the long term.
