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
© 2001, ipCapital Group, Inc. All Rights Reserved. 3www.ipcapitalgroup.com
Today’s EnvironmentToday’s Environment
© 2001, ipCapital Group, Inc. All Rights Reserved. 4www.ipcapitalgroup.com
End of the Bull MarketEnd of the Bull MarketNasdaq Composite Index, 1974 - dateNasdaq Composite Index, 1974 - date
© 2001, ipCapital Group, Inc. All Rights Reserved. 5www.ipcapitalgroup.com
VC Funding is DroppingVC Funding is Dropping
PWC
Mon
eyTr
ee™
, Feb
ruar
y 6,
200
1
© 2001, ipCapital Group, Inc. All Rights Reserved. 6www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 7www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 8www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 9www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 10www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 11www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 12www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 13www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 14www.ipcapitalgroup.com
ChallengesChallenges
© 2001, ipCapital Group, Inc. All Rights Reserved. 15www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 16www.ipcapitalgroup.com
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.
© 2001, ipCapital Group, Inc. All Rights Reserved. 17www.ipcapitalgroup.com
Alignment of Functions Needed in BusinessAlignment of Functions Needed in Business
Challenges of the New EconomyChallenges of the New Economy
Aligned Companies
New Economy Companies
Most Companies
MarketBusiness
IPLegal
Inventors
MarketBusiness
IPLegal
GAP
GAP
Inventors
Business Market
IPLegal Inventors
© 2001, ipCapital Group, Inc. All Rights Reserved. 18www.ipcapitalgroup.com
Alignment of Strategies, IP Should Lead BusinessAlignment of Strategies, IP Should Lead Business
IPIP
BusinessIP
Aligned Companies
New EconomyCompanies
Most Companies
Business
Business
Challenges of the New EconomyChallenges of the New Economy
© 2001, ipCapital Group, Inc. All Rights Reserved. 19www.ipcapitalgroup.com
Let’s Discuss IP and LeveragingLet’s Discuss IP and Leveraging
© 2001, ipCapital Group, Inc. All Rights Reserved. 20www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 21www.ipcapitalgroup.com
Ideas to RealityIdeas to Reality
© 2001, ipCapital Group, Inc. All Rights Reserved. 22www.ipcapitalgroup.com
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!
© 2001, ipCapital Group, Inc. All Rights Reserved. 23www.ipcapitalgroup.com
IP Rings – Across all areasIP Rings – Across all areas
Build your IP in surrounding Ringsto raise your value
IP.COM
© 2001, ipCapital Group, Inc. All Rights Reserved. 24www.ipcapitalgroup.com
Very New MarketsVery New Markets
Strategy dictates the size of your IP Rings to raise your value
© 2001, ipCapital Group, Inc. All Rights Reserved. 25www.ipcapitalgroup.com
Improvement MarketsImprovement Markets
Strategy dictates the size of your IP Rings to raise your value
IP.COM
© 2001, ipCapital Group, Inc. All Rights Reserved. 26www.ipcapitalgroup.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
© 2001, ipCapital Group, Inc. All Rights Reserved. 27www.ipcapitalgroup.com
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
Value of Intellectual PropertyValue of Intellectual Property
© 2001, ipCapital Group, Inc. All Rights Reserved. 28www.ipcapitalgroup.com
Mergers & Acquisitions Valuation vs. IP
B
M
K0 1 2 3 4 5 6 7
$ Fo
r Mer
ger
# of Patents
Value of Intellectual PropertyValue of Intellectual Property
© 2001, ipCapital Group, Inc. All Rights Reserved. 29www.ipcapitalgroup.com
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
Value of Intellectual PropertyValue of Intellectual Property
© 2001, ipCapital Group, Inc. All Rights Reserved. 30www.ipcapitalgroup.com
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
Value of Intellectual PropertyValue of Intellectual Property
© 2001, ipCapital Group, Inc. All Rights Reserved. 31www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 32www.ipcapitalgroup.com
Protected InnovationSMProtected InnovationSM
© 2001, ipCapital Group, Inc. All Rights Reserved. 33www.ipcapitalgroup.com
Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human Capital
Innovation
Products
© 2001, ipCapital Group, Inc. All Rights Reserved. 34www.ipcapitalgroup.com
Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human CapitalHuman Capital
IP
Invention (IP)Innovation
Products
© 2001, ipCapital Group, Inc. All Rights Reserved. 35www.ipcapitalgroup.com
Connect Innovation vs. Invention (IP)Connect Innovation vs. Invention (IP)Human CapitalHuman Capital
IP
Invention (IP)Innovation
Products
© 2001, ipCapital Group, Inc. All Rights Reserved. 36www.ipcapitalgroup.com
Protected InnovationSMProtected InnovationSM
Human CapitalHuman Capital
ProductsWith IP
Invention (IP)
ipCapital SystemSM
Innovation
Products
© 2001, ipCapital Group, Inc. All Rights Reserved. 37www.ipcapitalgroup.com
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.
© 2001, ipCapital Group, Inc. All Rights Reserved. 38www.ipcapitalgroup.com
Case StudiesCase Studies
© 2001, ipCapital Group, Inc. All Rights Reserved. 39www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 40www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 41www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 42www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 43www.ipcapitalgroup.com
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
© 2001, ipCapital Group, Inc. All Rights Reserved. 44www.ipcapitalgroup.com
Intellectual Property is CapitalSMIntellectual Property is CapitalSM