Forbes – Why You Need An Intellectual Property Strategy Before Filing An IPO
Anant Kataria, CEO & Co-Founder @ Sagacious IP. Ensuring Sagacious’ clients’ success with excellent IP support by a global 300-member team.
An initial public offering is a corporation’s first sale of stock to the public. It generally means a substantial inflow of cash into the company, multi-fold escalation of the stock’s value and an equivalent increase in the scrutiny of events associated with the company by the government and public.
However, events from the past two decades have shown me it is crucial to have a strong intellectual property strategy in place before going all out with your IPO plan.
The Role Of IP And Intangibles In Company Valuation
If you look at the S&P 500 — which includes companies such as Amazon, Google and Apple — intangible assets are “crucial drivers” of company value, according to Visual Capitalist. Although I believe all companies have creations that are worthy of becoming valuable intangible assets, only a few of them follow a systematic approach to capture such creations and convert them into legal valued assets.
Private companies that intend to go public work hard on growing tangible aspects of the business to increase its value prior to an IPO. It is also important for them to start building their intangible assets and enhance the value of their company further.
Retaining ‘Unicorn’ Status Post-IPO
When a company is a unicorn — a term that refers to a private company with a valuation exceeding $1 billion — and pursues an IPO, it would not want to lose its unicorn status due to IP disputes. Several companies have borne the brunt of a lack of an IP strategy at this stage. Consequently, at the most crucial time of growth — i.e., tapping into the public market for additional funding — they ended up paying significant penalties.
In the past, some big companies have paid hefty bills because they, from my perspective, failed to realize the importance of IP. However, a few tech unicorns have shown me how implementing an effective IP strategy before an IPO filing can save them from legal hassles.
For instance, shortly before Facebook’s IPO, the company paid $550 million to Microsoft to buy hundreds of AOL patents, according to Reuters. Additionally, Uber hired a team to put together an IP strategy and create a fortified position. The company went public with a $45 share and raised more than $8 billion. Dropbox was even more interesting to me. Before its IPO filing, it entered into numerous deals and amassed IP, and later, it went public with a $21 share and raised $756 million.
Gauging Your Position In The IP Awareness Journey
So far, we have established the importance of IP in the value creation process. Now, let us discuss how you can assess your IP position. Consider which stage you’re in:
• Stage 1 (germination): This is the first stage in an IP awareness journey wherein companies are aware of the IP concepts. They do not have an IP strategy in place yet. However, they are considering ways to devise one.
• Stage 2 (growth): This is the intermediate stage wherein companies have a fair idea about the importance of IP. They have identified creations and built IP assets, but the mode of identification and management is still ad-hoc.
• Stage 3 (maturity): This is the final stage wherein companies have a working process of identification of creations. They are actively protecting and managing the creations while benchmarking their existing strategy with the world’s best strategies.
The Next Steps
Regardless of which phase your company is in of the IP awareness journey, it is critical to evaluate and refine your strategy. Outlined below are the components to do so:
• Conduct an internal IP audit: Within a company, IP is generated by its employees and operations. An audit of employee agreements, invention/creation capture process, inventorship attribution process, invention ownership agreements, trade secret protection, etc. ensures that the company’s creations are protected from theft or unnecessary legal issues.
• Conduct an external IP audit: An audit of agreements with suppliers, collaborators, distributors and/or other partners of the business can help identify any loopholes that might lead to loss of ownership of your inventions and creations. Based on the results of the audit, proper processes, agreements and infrastructure can be put in place.
• Launch an innovation capture program: If you do not have an innovation capture program, you must launch one depending on your short- and long-term strategic goals. In addition to helping capture innovations, such a program also helps to create the foundation of an innovation culture in the organization, which can contribute to the long-term success of your company.
• Get the C-suite’s buy-in: Setting up an effective innovation capture program or an IP governance council requires the C-suite’s agreement and commitment. This is crucial to put plans into action and track progress against set goals and objectives.
• Develop a plan for risk assessment and mitigation: An IP strategy is incomplete without a robust plan for the identification of IP risks. Along the IP journey, companies are faced with numerous IP risks, making it crucial to evaluate and define measures to mitigate them.
When enterprises start preparing for an IPO, not all of them consider IP as a priority. However, in this knowledge-based economy, I believe it is essential to accumulate IP assets and develop an IP strategy as soon as possible. This is because the sooner you start, the better prepared you will be for your impending IPO filing.