Most investors invest with little or no knowledge about a 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, telcom, 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.
Many investors following the “invest in the jockey” – the management team approach. But today’s investors must look beyond that and ask “is the management team managing the IP assets the right way?” If not, it puts the business on the wrong path, ultimately leading to declining sales, poor performance, or bad marketing decisions leading to spending valuable financial resources in the wrong places.
IP Due Diligence
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.
So how can investors make better decisions about the IP inside a company?
The best ways are through a IP due diligence. It includes an audit of IP assets, a competitive patent analysis, and a Freedom to Operate analysis. 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 company and its IP.
Today investors have to look at intellectual property assets of the business. It’s the quality of IP that’s the real differentiation for value today. In many cases, the IP is more valuable to in terms of what it represents in value then the tangible pieces of the business such as the products, materials, equipment, and even management team.
Contact Licensing Consulting Group today to learn how we can assist you with IP due diligence.