When it comes to planning an exit strategy most often it’s the best guess. Especially for startups where a solid exit strategy can make a difference in attracting investors. That’s when creating an exit based on a well-thought-out licensing strategy provides investors with the confidence they need to make the investment.
Recently a company that specializes in fabric technologies for stain, odor and moisture resistance, acquired one of its longest-running licensing partners. The licensee is a textile company who makes a variety of different products using their fabric technology including upholstery, bedding, wall coverings, and drapery.
In this case, the licensor is using the acquisition as a market expansion strategy, investing in the acquired licensee’s production capabilities to increase production so it can expand into new product categories using its fabric technologies.
The licensing acquisition exit strategy is a realistic target because often the IP is the asset that the company or licensing partner is missing, such as a great product or technology, management, team and/or customer list. But most entrepreneurs and startups don’t think of their IP in this way.
Yet in today’s IP intensive economy, intellectual property value and importance is skyrocketing as companies such as Apple, Google, Microsoft, and Facebook, acquire IP as part of their growth strategies. This, in turn, is creating big exit opportunities for startups. Other industries that use licensing as an exit strategy include big pharma, where licensing and M&A are the ultimate exit strategy for most biotech startups.
Licensing is also starting to gain more attention as a core investment criterion for VC and private equity firms. One example is a venture-capital firm that focuses on investing in startups with disruptive IP in the clean-tech industry. The investment firm sources its startups from a variety of places including federal labs, incubators, and universities. Their strategy focuses on startups with technologies ready to enter the market through licensing agreements and other strategic alliances that provide the exit window for their investment.
Don’t overlook licensing as an exit strategy. Once your startup launches its IP into the commercial market, consider switching into a licensing strategy to partner with one or more companies. At some point during the licensing term, if your IP is generating significant royalties, your licensing partner will most likely want to buy you out. You’ll have several years of sales and royalty payment history on which to determine the buyout price.
Now you’ve got an exit strategy that leverages licensing partnerships and provides investors with the “realistic” type of exit they need to jump on board.
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.