A Venture Capitalist’s View of IP Assets

META Group - Ing. Luigi Amati

12 July 2006

• Finance for Innovation

• Investor needs

• IP Assets: a strategic leverage

• Challenges

R&D: Risks and Financial needs

Basic Research Public Support Grants, incentives,

scholarshipsDiscoveryInvention

Applied research Public and private partnerships

Equity (BA, seed finance), Convertible

loans, guarantee schemes

Patenting and licensingPrototyping

Industrialization Private Intervention VC, IPO

Risk Level

R&D: Risks and Financial needs

Innovative Companies:

• do not have out a sound track record

• need years before generating a positive cash flow (no self-financing)

• their Business activity not understandable

• could not provide guarantees

• require a small amount of money

Traditional Financial tools Vs Innovative companies

INNOVATIVE COMPANIES ARE NOT APPEALING FOR BANKS!

Time

Capital ($)

Needs

START-UP FINANCING

SEED FINANCING

EARLY STAGE FINANCING

EXPANSION FINANCING

Company Growth

FIRST STAGE FINANCING

PRE-SEED FINANCING

Finance for Innovation, BA

VENTURE CAPITAL

The financial gapEQ

UTY

GA

P

Knowledge based companies needs money

3 Fs are not enough! (Fools, Family, Friends)

New Financial tools Vs Innovative companies

•Seed funds

• BAs

• VCs

…But what are investors looking for?• Balanced & committed Management

Team

• High growth potentials

• Sustainable Business Model

• Suitable strategies: with deliverable goals

• A clear way out strategy …

…But what are investors looking for?

… defendable products!

IP as added value, Why?

•Legally protected

•Able to create income

•Competitive Advantage

•Can be evaluated

•Can reduce “valley of death” time and size

IP & Investor needsInvestors have the following concerns:

• freedom to operate PA report • possibility for an international coverage

• clear ownership status facilitating a well established exploitation strategy

• barriers to entry

Case Studies: the IP diligence in the assessment process

Case A:Patent owned by the company (and not the inventor)World patent Protection of both Product and ProcessVarious fields of applicationsProject independent by original research team (testing phase)

But …

Agreement with inventor?Research project consortium agreement?

Good patent, unclear situation

Case B:2 Patents owned by the company Still PCT process, Patenting process supported by Patent

Attorney from the beginning Various fields of applications

But …

Similar technologies covered by patents on the marketEPO expert written opinion, 1 positive and 1 with claimsProject dependent by original research team

clear situation, good patents?

Case C:No Patents owned by the company Patentable technology?Still in the head of researchers, afraid of disclosing informationSolid teamGuiding milestones towards IP defendabilityFreedom to operate

But …

Alternative technologies covered by patents on the market

unclear situation, no patent … potentially good deal and

great market potential !!!

Some ideas:IPR is a strategic leverage, at least to start the discussion

Team, market and business model are also essential

Innovation finance vs ipr market is just starting in Italy, therefore …

Watch out “self made” IPR and look for professional fund managers

Ing. Luigi Amati

Meta Group www-meta-group.com

Grazie!