Most investors invest with little or no knowledge about the company's intellectual property. Two big reasons why is they don't understand IP, and they don't know the value of IP to the business.
Pharmaceuticals is an example of an IP intensive industry where investors are more savvy about IP, since patents are the life blood of these companies. But that is rapidly changing, as many industries are becoming IP intensive, such as media, telecom, automobiles, health care, and financial services to name a few.
Investing in a company without understanding the intellectual property is like sailing on the Titanic, unaware of the icebergs waiting to hit the ship. Some of these icebergs include potential infringement on other patents, failing to capitalize on licensing opportunities in other markets, or lacking an internal process to capture and protect IP from leaking out of the company.
Instead of investigating the IP value, investors focus on the financial numbers and completely miss the real value of the company. One of the big problems for investors is the lack of transparency when it comes to information about a company's IP. It's intangible and its value is often not seen on the balance sheet. The IP value is hidden, and investors only see the tangible form of the IP – such as the software, medical device or branded product.
The second issue is most business plans focus on the traditional tangible side of the business – marketing, distribution, production and sales. What's missing is the IP data.
So how can investors make better decisions about the IP inside a company? The best ways are through an IP audit (due diligence), competitive patent analysis, and Freedom to Operate. These are key research tools to compile the needed data about the IP. Without them, critical information about a company's IP is missing, and it leaves investors in the dark when it comes to understanding the potential risks, opportunities and potential value of the IP.
IP is the core asset of every business, and it's the foundation of what creates current and future value. Most industries today are IP intensive, and protecting, managing and leveraging IP must be part of every company's short and long-term business strategy. And it means investors must also be IP intensive when analyzing the value of a company to invest in. They must become educated about a company's IP and how they are managing and using it to launch, build and grow their business and shareholder value.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He's licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid's action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He's also a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.