Discover Your Startup’s Value: A DIY Guide to IP Audits
What makes your business valuable? Your freshly printed business model or the uncommon drive you have to succeed? Ask any investor and they will tell you that it’s your company’s assets that make it and every business valuable.
At the turn of the century, major companies changed the way they viewed assets. Prior to the dotcom era in the late 1990s, a company’s assets were machinery, buildings, and raw materials. Although tangible assets are still a factor, the most valuable assets today are intangible: intellectual property or IP. In 1970, global royalties and licensing revenues related to IP totaled $2.8 billion. Now, in 2012, those same revenues total more than $180 billion globally.
Yet, even while IP assets drive boardroom decisions, many startups mistakenly leave decisions regarding IP for another day. Some founders even deliberately ignore potential problems because they think that once they raise enough capital, they can throw money at whatever problems were created through neglect of the company’s IP. Instead, getting a jump start on a solid IP strategy shows investors that your company is serious, understands today’s the maturing IP economy, and is positioned to capitalize on the enormous royalty and licensing market.
The Do-It-Yourself IP Audit
Find a green visor, Velcro it firmly around your head and audit your company! Start your IP audit by making a spreadsheet of every potential piece of intellectual property your company currently generates or will generate in the near future. Make four column headers: 1.) Trademarks; 2.) Copyrights; 3.) Patents; and 4.) Trade Secrets.
1.) Trademarks. Under the trademark column, start with your brand names. It may not seem important in the beginning, but as you build your client base and market share, you also build your company’s reputation and goodwill. Consumers begin to associate your brand with your products/services and will use it to differentiate you from competitors in your market. Don’t forget to jot down slogans and logos. No matter the business, no matter the product, every company will generate trademarks.
2.) Copyrights. In the copyright column, think about all the ways your company expresses ideas. Don’t just list ideas, but the actual medium in which they are manifested. This includes any copy on your website, marketing materials, in-house sales strategies, designs, and even software code. Copyrights are especially important for companies that deal in the arts.
3.) Patents. As for patents, mark down any inventions or discoveries made by the company and its employees. Although patents are a complex matter, put anything in there that you feel might be worth exploring. There are time limits on filing for patents that can catch companies unaware.
4.) Trade Secrets. If you have any other proprietary information that doesn’t fit into the first three categories, throw it under trade secrets. This includes any secret family recipes and the almighty client/customer list.
Determine IP Ownership
Before you start touting proprietary code and client lists to investors, make sure your company actually owns this IP. It sounds elementary, but founders often overlook the simple mechanics of legally assigning IP over from the creator to the company. Unless you have an agreement in place with that third-party code developer, he still owns the code, not your company. Or, double check that your key developer didn’t just bring code from his past employer to your company. In a startup world where handshakes and verbal promises are common, these issues are unnecessarily typical.
Think about how valuable your company would be to an investor who discovers your key source code isn’t even part of the deal. To avoid this, go through your IP spreadsheet and circle any items that may have not been assigned to the company. If you are unsure, investigate now! Be sure to track down each creator and work out a deal to assign the intellectual property to the company. Don’t wait until an investor closes his checkbook because he’s staring at a company that may not even own the very essence that makes it valuable.
Clear It For Take Off
Little is more frustrating than building a company around a brand only to find out later that the brand cannot be used. To make matters more frustrating, clearance checks for trademarks cost little compared to fighting an infringement suit or rebranding. Even if you simply do a web search for a brand name and see others using that mark, you could still inquire about licensing the name for your business. Regardless of your tactics, being proactive will save you money and legal headaches later.
For patents, the cost of clearance is definitely more substantial than trademark clearance. But so are the costs associated with patent litigation. If your business involves patentable inventions, get this sorted out in the beginning. If you don’t think this is serious, just use your iPhone to call Samsung.
Put it in the Pitch
Today’s investors understand that IP is an important variable when determining ongoing viability and whether a company can generate significant returns. Translation: they want to see that the company has an IP portfolio, that is owns the key pieces, and that they can use those pieces to make money.
Show them! Be sure to include a slide in your investor presentation or a page in your business plan that communicates all of the information you discovered during your IP audit.