The Top 5 Things Every Start-Up Entrepreneur Needs to Know about Maximizing Exit Value

Using Intellectual Property and Intangible Assets

Jackie Hutter, MS, JDDecatur, GA

404-797-8124www.HutterGroup.com

www.PatentMatchMaker.comwww.ipAssetMaximizerBlog.com

Twitter @ipStrategist

Agenda

Presentation Breakout Groups Group Discussion

Photo: Flickr/InTouch

#1: The primary value of your business to yourself

and others is intangible

#1 You are Intangible > 70% of business

value today For early stage

companies, value approaches 100%

Photo: Flickr/Lani_Barbitta

#1 You are Intangible

Your Business’ Intangible

Asset Value

Patentable Inventions

TrademarksBrand Equity

Business Processes

Relationships(Customer/Suppliers)

Employees

Others Specific to Business Model

#2: Intangible value does not exist just because we say it

does. You must identify, capture and protect it in

order to realize it.

#2 How to Realize Your ValueA. What makes Your Business different from its competitors?• What is your unique competitive advantage?

• Identify each and every one

B. Would Your Business be harmed if this difference was lost to a competitor?• If so, you must capture and protect it so that you can

realize it!

Important qualifiers

• Copying is legal and appropriate if you don’t protect your competitive advantage

• Some things are not protectable, but knowing this is the case allows you to plan accordingly

#3: You must incorporate intangible asset strategy

into your business strategy to prevent the “goodwill

problem.”

# 3: Preventing the “Goodwill Problem”

Goodwill is that value of your business attributable to intangible assets• Example

You think your business is worth $50 Million but accountants can only find $10 Million in “hard” assets

Where does that $40 Million come from?

Goodwill is often in the eye of the beholder• You are responsible for

demonstrating why your business is worth all that extra money!

1. Indentify your short and long-term business goals•Immediate and likely future competitive issues•Investment opportunities•Exit strategy

2. Understand those elements of your business model that create

competitive advantage

3 . Develop cost effective, executable intangible asset management strategy

to allow to maximize long-term business value

4. Ensure that•You and your team have skills necessary for strategic plan’s execution

•Appropriate legal and business (if necessary) resources identified and obtained

# 3 Preventing the Goodwill Problem

# 3 Preventing the Goodwill ProblemBONUS POINTS FOR THOSE WHO ADOPT INTANGIBLE ASSET STRATEGY

Those who can articulate their business value will be perceived by potential investors or acquirers as having better management skills• Will allow you to stand out

from others

#4: Make sure really need a patent before you spend

the money and effort to obtain one.

# 4 Make Sure You Really Need a Patent

When determining whether to get a patent, the worst person to ask is a patent attorney.

They’re job is to draft patents, not give business advice.

Photo: Flickr/Alibubba

# 4 Make Sure You Really Need a Patent

Do You Really Know What a Patent is Good For?

Many business people assume that filing for a patent is a necessary step in creating a business• Could be waste of resources

Money and time Others assume that not

necessary in their business• Often wrong

Photo: Flickr/marco_bellucci

#4 Make Sure You Really Need a Patent

COMMON MISCONCEPTIONS ABOUT PATENTS

Does not guarantee your business idea is valuable• Nothing more than government recognition that idea

meets legal requirements of invention• Free market and business savvy determines actual

value of idea

Often thought of as first step but this likely wrong

• If there is business value in idea, then patent might be necessary

Most filed before there is a marketable product• Issued patent often does not cover actual product• Lawyers recommend early filing for legal protection,

but this often ignores business realities

IMHO

• Most patents are likely worthless: perhaps 90% or more

Photo: Flickr/dreamingaboutdreams

#4 Make Sure You Really Need a Patent

PATENT IS WORTHLESS TO YOUR BUSINESS UNLESS

Competitor• Knows about and respects the patent• Many companies don’t even have

patents on radar screen

You as Patent Owner • Knows about the infringement and has

money to find out;• Often hard to find out• Legal opinions very expensive

• Is willing and able to sue infringer• $1MM to $5MM thru trial for “average”

caseTHE covered invention infringed• Perfectly legal to “copy” unpatented

features• Competitors often use product itself and

patent as roadmap to design-around

Photo: Flickr/Mag3737

#4 Make Sure You Really Need a Patent

REALITIES OF PATENT PROCESS REDUCE VIABILITY AS BUSINESS DECISION

Costly

• Minimum of $10K for simplest technology• $20K or more of moderately complex cases• Foreign filing in top line countries can easily

end up costing $250K or more

Lengthy

• Average pendency in US is 3 years or more• Significantly longer in foreign countries

• No protection until issuance• Market often exhausted by time patent issues

Systemic problems in Patent Office enhance difficulties

• Even the most carefully drafted and skillfully prosecuted may never issue

• Costs cannot be recovered if patenting efforts ultimately fail

Photo: Flickr/Khalid A.K.

#5: Even if you can get a patent, consider alternatives

that are less costly and provide protection more

quickly.

#5 Alternatives to Patenting

Trade secret protection• Good when idea cannot be reversed engineered

• Coke® formula, customer lists• Can be licensed or sold, but harder because

often not well-recorded

Trademark protection• For some business ideas, strong trademark

protection more valuable than patent rights• UPS: “What can Brown do for you”• Lifelock: “He’s the guy who gives his Social

Security number and a million dollar guarantee”

Copyright protection• Good for software and logo• Statutory damages of at least $100K available

if register prior to bringing suit

Design patent protection• Protects ornamental aspects of invention• Can exist with utility protection• Recent case law make stronger

• But not as strong as utility patents• Inexpensive and quick

• < $2K and typically 1.5 years or less from filing to issue Photo: Flickr/manywinters

Other protection pathways: The Regulars

#5 Alternatives to PatentingOTHER PROTECTION PATHWAYS: THE NOT SO REGULARS

First Mover Advantage

• Sometimes first to market ends up effectively owning the relevant market, especially when• Limited distribution opportunities; • Short shelf life; or • Only enough customers for 1 supplier

Ride on coat-tails of another patent holder

• Strategic alliances, joint ventures• Ex: If supplier has patent to raw material and

you obtain exclusive rights to use in your product, can be almost the same as obtaining own patent

Commercial relationships

• Contractual-based market exclusivity

Many others!

• Will be market and product specific

Photo: Flickr/manywinters

Break Out Session: 15 minutes

1. Pick one or more business ideas from your group and identify the competitive differentiation.

2. Develop a preliminary value for the competitive differentiation.

3. Suggest ways to protect and realize each competitive differentiation.

Discussion Session: 15 minutes

1. Competitive differentiation.2. Preliminary value for the competitive

differentiation. 3. Ways to protect and realize each

competitive differentiation.

Photo: Flickr/YellowCakeMushroom

Thanks!