Seal the Deal: IP Essentials for Fundraising and Exit

Today’s blog was written by our CEO and former M&A banker, Dylan Dryden.

Getting the house in order is crucial for any company preparing to raise money or sell itself. Intellectual property (IP) and intangible assets are likely 90% of the value of your assets so unsurprisingly they are at the heart of these transactions, influencing both valuation and continuity post-closing. Here are key pointers from Intanify to help you prepare your IP assets for a successful sale.

Ideally, you should start thinking about these pointers and taking action at least a year before a deal, as this will give you enough time to make any fixes you may need.

Conduct a Comprehensive IP Audit

Begin with a thorough audit of your IP portfolio. Identify and document all IP assets, including patents, trademarks, copyrights, and trade secrets. Ensure that all IP is correctly registered and free of encumbrances such as liens or ongoing legal disputes.

A clear and well-documented IP portfolio enhances your company’s attractiveness and maximises its valuation.

Ensure Clear Ownership of IP

Verify that your company has clear ownership of all IP. Review all employee and contractor agreements to ensure they include present assignment clauses, which transfer IP rights immediately upon creation. This is also key for tech and IP developed in collaboration with others.

Addressing any gaps preemptively can prevent deal delays and legal complications.

You’d be shocked how many well run businesses find they have holes when they get to the finish line — we see it all the time.

Be prepared with your own valuation

While you probably won’t want to share this with the buyer, you should have a handle on what your assets’ estimated value range are. This would be a floor in any negotiation though you’ll expect much more.

A rough valuation can be done quickly and cheaply, so better to have it in your pocket than not.

Evaluate Third-Party Licenses and Dependencies

Assess all third-party licences your company relies on. Buyers will scrutinise these licences to ensure they remain valid post-transaction. Identify any restrictions, such as change of control clauses or transferability issues, which might be triggered by the sale. Understanding these dependencies and addressing any potential issues beforehand can safeguard your operations and maintain your company’s value.

Protect Trade Secrets and Confidential Information

Trade secrets and confidential information often constitute a significant portion of a company’s assets. Ensure these are adequately protected through robust non-disclosure agreements (NDAs) and industry-standard security measures. Verify that all employees, contractors, and third parties with access to sensitive information have signed appropriate NDAs. Proper protection of trade secrets enhances the buyer’s confidence in the transaction.

Address Joint Ownership and Affiliate Issues

Joint ownership of IP can complicate an M&A transaction.

If your IP is co-owned with other entities, each owner has the right to exploit the IP independently, creating potential conflicts during the sale.

Carefully review any joint venture or co-development agreements and consider the implications for the transaction. Additionally, ensure that broad definitions of “affiliate” in licence agreements do not unintentionally extend IP obligations to the buyer’s entire portfolio.

Prepare for AI-Related IP Considerations

With the rise of artificial intelligence (AI) in business, it’s important to address any AI-related IP issues. The legal framework for AI-generated content is still evolving, so it’s crucial to understand whether your AI-generated outputs are protectable under current laws. Review the inputs where you’ve used AI to avoid potential infringement claims.

Streamline Your IP Management

Streamline your IP management processes to make due diligence easier for potential buyers. This includes organising all IP-related documents, ensuring they are up to date and accessible. Consider using IP management software to track and manage your IP assets efficiently. A well-organised IP portfolio demonstrates professionalism and preparedness, making your company more attractive to buyers.

By following these pointers, you can effectively prepare your IP assets for a successful sale. Addressing these issues proactively not only enhances your company’s valuation but also ensures a smoother transaction process, ultimately positioning your company for a successful exit.

Good luck from Intanify!