Adam Bulakowski, Principal Partner, is the Author of "The VC’s playbook: Diligence essentials for technology-based IP"  

Below is an excerpt from the February, 2017 white paper. Read the full paper here.

Summary

VC investments can improve monetization options and mitigate risk when diligence considers IP assets from a holistic business perspective, beyond the traditional legal opinions.

When doing venture-stage diligence on a candidate’s IP rights, fundamental business questions should include:

• What is the intrinsic value of current and in-process IP?
• Does this IP provide an advantage in disrupting large market(s)?
• How and when can we realize the value given the current and projected environment?
• How do we balance investment in IP versus product development or marketing?

Yes, legal diligence should also inform investment decisions, with tests like ownership, pending third-party demands, assertion entity risk, and freedom-to-operate. But those legal opinions don’t answer the above questions.

The following steps of IP diligence go beyond the legal checkboxes to inform economic decision-making:

• Strategy: What are the business issues and is there a basic IP strategy that addresses these opportunities and threats?
• Assets: What is the inventory of technical IP, including patents, trade secrets, software?
• Alignment: How do the existing assets align with strategy, particularly the current and future products?
• Landscape: How are the assets positioned relative to others?
• Optionality: Could the IP extend to applications beyond the core business?

Across most VC-intensive sectors, candidate investments require higher quality and more focused IP rights to improve the likelihood of returns. With this broader, business-oriented perspective of IP diligence, investors can mitigate and/or diversify their risk. In addition, post-investment, they will have a stronger base of IP rights from which to capture opportunities.