Increasing Valuation In Bear Market

Leveraging IP to Raise Funding and Improve Your Valuations in a

Bear Market

by John Cronin, CEOipCapital Group, Inc....

April 15th , 2001

Leveraging IP to Raise Funding and Improve Your Valuations in a

Bear Market

by John Cronin, CEOipCapital Group, Inc....

April 15th , 2001

© 2001, ipCapital Group, Inc. All Rights Reserved. 2www.ipcapitalgroup.com

AgendaAgendaToday’s Environment

Challenges

Lets discuss IP and leveraging

Protected InnovationSM

Case Studies

Actions Your Can Take


Today’s EnvironmentToday’s Environment


End of the Bull MarketEnd of the Bull MarketNasdaq Composite Index, 1974 - dateNasdaq Composite Index, 1974 - date


VC Funding is DroppingVC Funding is Dropping

PWC

Mon

eyTr

ee™

, Feb

ruar

y 6,

200

1


Internet Investors are Shying AwayInternet Investors are Shying Away

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Dolla

rs in

Mill

ions

Q196

Q296

Q396

Q4 96

Q197

Q297

Q397

Q497

Q198

Q298

Q398

Q498

Q199

Q299

Q399

Q499

Q100

Q200

Q300

Q400

Internet-Related Venture Capital Investments 1996 - 2000

PWC MoneyTree™, February 6, 2001


New Expectations are EmergingNew Expectations are Emerging

"We are moving into the stage of the cycle when growth is strong, inflationary pressures build

up and interest rates rise. Investors prefer the security of profits today to the promise of

profits in the future."

Owain Evans,global strategist at Merrill Lynch


Knowledge will Drive Future Economic Growth

Knowledge will Drive Future Economic Growth

“Intellectual property rights is an area of law and business management which is enjoying a recent explosion in significance. Many governments and

businesses believe that knowledge will increasingly drive economic performance in the

industrialized countries.”

Ruth Soetendorp, Director,Centre for Intellectual Property Policy and

Management, Bournemouth University


VCs are Recognizing the Value of IPVCs are Recognizing the Value of IP

“The venture capital arena is quite savvy to the importance of an intellectual property portfolio.”

Lance D. Reich,partner Bockhop & Reich, LLP


IP is Becoming a Strategic IssueIP is Becoming a Strategic Issue

“Intellectual property management has become a new corporate strategy issue. A patent strategy

can help Wall Street see a company’s true competitive prospects and earnings potential.”

Kevin G. Rivette & David Kline,authors Rembrandts in the Attic


Companies are Taking Action to Manage Their IP

Companies are Taking Action to Manage Their IP

“The new economy barters, trades, and produces one integral asset more than any other:

intellectual property. Today, nothing is more valuable than an individual's ideas. And companies are taking steps to capture and preserve any and

all innovation born within them.”

Gregory J. Pleshaw – Fast Company


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999

U.S. Patents Issued, 1963 - 1999U.S. Patents Issued, 1963 - 1999

U.S. PTO

The Number of Patents has JumpedThe Number of Patents has Jumped


The Entrepeneur Needs More Than a Good Idea

The Entrepeneur Needs More Than a Good Idea

Entrepreneurs needs to bring more to the table than just the idea, early proofs, and the team. They must “own the right” of their technologies to compete with others who understand thisEntrepreneurs must use IP to leverage their business and their plan, and to create the upside and downside protection to the investors


ChallengesChallenges


Value Creation—Inventory at Source Value Extraction---Convert to capital

Human CapitalExperienceKnow-howSkillsCreativity

Leveraging Human CapitalTools to Direct the Inventive MindTools and Services to Create The Value

Human CapitalExperienceKnow-howSkillsCreativity

Leveraging Human CapitalTools to Direct the Inventive MindTools and Services to Create The Value

Intellectual AssetsPrograms MethodologiesInventions DocumentsProcesses DrawingsDatabases Designs

Intellectual AssetsPrograms MethodologiesInventions DocumentsProcesses DrawingsDatabases Designs

Intellectual PropertyPatents

Enabled PublicationsCopyrightsTrademarks

Trade secrets

New Economy Companies are Built on Intellectual Capital

New Economy Companies are Built on Intellectual Capital


Challenges of the New EconomyChallenges of the New Economy

Time is your enemy in…Loss of Human and Intellectual Capital

Processing your Innovations

Realization of Asset Potential

Conversion of Assets to Capital

Intellectual Property is CapitalSM

The market for a solution is huge – every company of significance today is concerned about the loss of human capital and the management of intellectual assets.


Alignment of Functions Needed in BusinessAlignment of Functions Needed in Business


Aligned Companies

New Economy Companies

Most Companies

MarketBusiness

IPLegal

Inventors

MarketBusiness

IPLegal

GAP

GAP

Inventors

Business Market

IPLegal Inventors


Alignment of Strategies, IP Should Lead BusinessAlignment of Strategies, IP Should Lead Business

IPIP

BusinessIP

Aligned Companies

New EconomyCompanies

Most Companies

Business

Business



Let’s Discuss IP and LeveragingLet’s Discuss IP and Leveraging


What is IP?What is IP?

Key Hidden RightsTrade Secrets – Coca-Cola Formula – forever

“Exclusitory” Rights – Stops others if enforcedPatents – Protects idea or concept – 20 yrs Copy Rights – Protects the form (not the idea) – 50 yrs Trade Name – Protects the name or logo – 75 yrs

Blocking Rights – Stops others from patentingPublications, make, use or offer for sale

Documented Enabled Ideas


Ideas to RealityIdeas to Reality


IP Position in Ideas to RealityIP Position in Ideas to Reality

IP Wave Companies

Leveraging means understanding the “Position” of IP in the flow of ideas to

reality!

IP Wave Companies

Leveraging means understanding the “Position” of IP in the flow of ideas to

reality!


IP Rings – Across all areasIP Rings – Across all areas

Build your IP in surrounding Ringsto raise your value

IP.COM


Very New MarketsVery New Markets

Strategy dictates the size of your IP Rings to raise your value


Improvement MarketsImprovement Markets

Strategy dictates the size of your IP Rings to raise your value

IP.COM


IP is Global – take advantage of the lawsGNP vs. IP

Strength of IP Laws

Size

of G

NP

of a

Cou

ntry

Value of Intellectual PropertyValue of Intellectual Property

DEVELOPINGCOUNTRIES

USA


IP is related to your Market CapMarket Cap vs. IP: Where are you?

# of Patents + Execution

Mar

ket C

ap o

f C

ompa

ny

LOW TECHINDUSTRY

HIGH TECHINDUSTRIES



Mergers & Acquisitions Valuation vs. IP

B

M

K0 1 2 3 4 5 6 7

$ Fo

r Mer

ger

# of Patents



Venture financing is related to IPIP enhances upside

“Own your space”IP reduces downside risk

Creates barrier for entry in market

MM

M

K$ Fo

r Ven

ture

Depth of your IP Story



Raising MoneyAngel Rounds – IP is the almost only tangible assetFirst/Second Rounds – IP Valuation Storyshows a serious business especially if IP story is

ComprehensiveRelated to the business plan

IPO – Stock market wants insurance



Maximize the Defensive Value of IP

Maximize the Defensive Value of IP

Legal Lawsuits cost $$ Lawsuits delay product introductionLawsuit impact company stock value

Market ShareKicked out of markets – Kodak & Polaroid

PeoplePeople switch companies – unprotected IP moves with them

ProcessesCan’t compete against competitors who have systematically owned the space


Protected InnovationSMProtected InnovationSM


Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human Capital

Innovation

Products


Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human CapitalHuman Capital

IP

Invention (IP)Innovation

Products


Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human CapitalHuman Capital

IP

Invention (IP)Innovation

Products


Protected InnovationSMProtected InnovationSM

Human CapitalHuman Capital

ProductsWith IP

Invention (IP)

ipCapital SystemSM

Innovation

Products


The ipCapital SystemSM

The ipCapital SystemSM is a comprehensive and systematic series of rapidly deployed services designed to empower our Clients with the means to

execute well-defined IP strategies and quickly increase valuation.


Case StudiesCase Studies


ipCapital Group Insight:• Owning your IP space enables you to “prove” your business model and technologies.• “Proving” your business model and technologies attracts Investors.

ipipCapital Group Insight:Capital Group Insight:• Owning your IP space enables you to “prove” your business model and technologies.• “Proving” your business model and technologies attracts Investors.

A Silicon Valley start-up, has developed breakthrough, proprietary pattern recognition, visualization and simulationtechnology with application to a broad range of industries. The technology is based on the principles underlying how nature, with a single strand of DNA, can encode a complete organism from a simple one-cell bacteria to a complex human being.

Although the company had filed five patents on its core technologies, they engage ipCapital Group to conduct the complete suite of ipCapitalSystemSM services so as to fully develop and exploit the value of their existing inventions.ipCapital Group performs an ipScanSM and captures 50 inventions. We also scan one of the company’s subsidiaries and identify an additional 56 inventions.ipCapital Group interviews the inventors and produces 25 ipDisclosure™ documents for the subsidiary.ipCapital Group also creates an ipLandscapeSM, ipAnalyticsSM, ipStrategySM and ipValuation StorySM for the subsidiary.

ipCapital Group writes up 24 of the 25 ipDisclosures ™ as ipAdvanced Disclosures ™, which help the subsidiary’s patent counsel to file patent applications quickly.The subsidiary uses the ipValuation StorySM to help raise a second round of $25M in funding.The subsidiary now has a strategy for managing and further developing its intellectual property.Having proven its business model and technology, the parent company is preparing to apply its core technologies to several new spin-offs in other fields.ipCapital Group continues to work with the company and its subsidiary to build their ipPortfolios.

SituationSituation Our SolutionOur Solution OutcomeOutcome

Proving the Business ModelProving the Business Model


ipCapital Group Insight:• “Packaging” your IP story to supplement traditional valuation methods strengthens your

negotiating position.

ipipCapital Group Insight:Capital Group Insight:• “Packaging” your IP story to supplement traditional valuation methods strengthens your

negotiating position.

A $30 million startup computer networks company with an innovative network security technology needs to document their technology rapidly to support a significant increase in their valuation in impending acquisition talks with another company.

Within four months, ipCapital Group performs an ipScan to create an inventory of the startup’s intellectual property and documents the enabled inventions in 27 ipDisclosures. Based on the ipDisclosures, the startup’s attorney prepares and files 25 patent applications.ipCapital Group also develops the ipValuation Story to enable the startup to demonstrate its true value to its potential buyers.

Within 18 months of ipCapital Group’s initial services, the startup is purchased for $278 million – an increase in value of $248 million from the startup’s pre-purchase valuation.The executives credit much of their negotiation success to their comprehensive ipPortfolio, clearly defined ipStrategy, and powerfulipValuation Story.Prior to the purchase, the acquiring company had no patents. Its executives indicate they valuedthe startup so highly because of its intellectual property.The General Counsel of the startup becomes the General Counsel of the acquiring company and invites ipCapital Group to capture its IP.

SituationSituation Our SolutionOur Solution OutcomeOutcome

Increasing ValuationIncreasing Valuation


ipDue DiligenceSM TestimonialipDue DiligenceSM Testimonial

“I was very pleased with the approach, timeliness, and substance of the work you did to support our due diligence with regards to intellectual property.You provided a high level summary in a matter of days and followed that up with a more detailed report describing approach and findings with a couple of days after that.Your work was informative and very helpful.I also know that the Company enjoyed the exchanges that they had with you. I look forward to working with you again in the near future.”

Thomas PattersonWeston Presidio CapitalApril 9, 2001


Actions to take - CompanyActions to take - Company

Perform and immediate ipDue DiligenceSM to know what you have Create the new IP you need to fill the holes in your IP and to position your future marketsCreate the link between your IP, business and your exit strategy – improve direction focusUse your IP to “sell” into the market to raise gross marginsUse your IP to raise money and increase valuation


Actions to take - EntrepeneurActions to take - Entrepeneur

Perform and immediate ipDue DiligenceSM to know what you have. Your core technology definition requires understanding the underlying IP – provides the vector to highest value for your businessObtain core patents and publish around them using IP.COM to really expand your IP sphere of ownership Update business plan to tell your IP story

Show investors your understand your true value


Intellectual Property is CapitalSMIntellectual Property is CapitalSM

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Increasing Valuation In Bear Market

Economy & Finance