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VCs

IP questions for VCs and PE

by Andrew Watson on 14 November 2008

A quick note to mention that we’ve put out a list of 10 questions related to IP for venture capitalists, private equity, and other investors to ask of their portfolio companies. My personal top three out of this list are:

1. What proportion of business value do IP and intangibles represent for your investment?

2. What is the business’s IP strategy and does it cover all IP assets, including patents, designs, trade marks, copyrights, know how/trade secrets and contractual IP? Is it written down and known throughout the business?

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6. How is the core know-how protected? Does the company have identifiable trade secrets and a know-how control policy? Does this extend into all areas of the business?

For more, see the full list. Anything that you’d like to see added or any thoughts on the ten we selected? Please post a comment or contact me directly.

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Scottish funding trends in the downturn

by Andrew Watson on 5 November 2008

Over the weekend the FT ran a piece on a recent report by Scottish Enterprise on the risk capital market in Scotland Scottish start-ups could face funding gap. The highlights:

  • Angel investors are moving to a “cradle-to-exit model”, thus changing the more standard model of angel-to-VC;
  • Overall investment in 2006 and 2007 went up (£85m to £114m) but investments in start ups went down (45 deals at £15m to 10 deals at £2m); and
  • Last year 32 deals were university spin outs and formed 29% of risk capital at £30m.
  • “[A]s the size of deals increase in re-investment rounds, the available capital for investment in new companies is reduced and so new start-up companies are facing a struggle.”

I’m wondering (naturally) what the trends mean for IP in these companies. As funding becomes tighter, generally the IP position of a target investment company would be looked at in more depth by VCs (as would all other areas).

If trends move towards angel investors staying in longer without other investors, I would also think that the lack of “fresh blood” in the company (and accompanying diligence reviews) might mean that IP could stay a neglected issue. The diligence process is often a time (or the only time) when the IP situation at a company get looked at in any detail. Investors already committed with a company might engage in the IP end of the process less stringently.

Also in light of my recent focus on patenting rates, I note the article also discusses ITI Scotland‘s investments:

In the year to March, ITI Scotland invested a further £11.3m to launch three new research and development programmes – bringing its total funds committed to £134m across a portfolio of 25 R&D programmes. The innovations from these have led to the filing of more than 130 patents to date.

While the importance of patents to some businesses can’t be understated, patents aren’t the only form of IP protection nor are they the best indicator of innovation – companies can quite sensibly forgo patents for trade secret protection or be innovative in ways that aren’t patentable. It’s a nice number to have (especially for a newspaper article), but it deserves some expansion.

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