Improve Venture Capital Returns With IP Portfolio Management

For all of the glamour and attract surrounding the Venture Capital trade, one would expect the investment returns from VC funds to be considerably higher relative to other investment vehicles that are a lot of widely available.

However, industry research indicates that over time, venture capital returns are roughly equal to the stock market in general. Indeed, over half of all venture capital-backed corporations fail and roughly the same fifty% of all money invested in venture capital funds is lost. This article discusses how a comprehensive IP management strategy could facilitate VC companies lower their risk and increase the come back in their respective funds.

In keeping with some conversations I've had with people in the VC trade, the statistics on top of don't tell the full picture. Additionally to half of the venture funded companies that fail, there are people who are described as the "walking dead" - companies that neither go out of business, nor ever give the substantial returns required to satisfy typical VC models. One panelist I saw at a venture conference last year recommended that for his or her monetary model to create sense, they required a minimum of 1 out of 10 firms to produce a 20x come on their investment. This could be particularly troubling for the industry, given the rising trend towards fewer and lower valued liquidity events.
However what if a venture fund could extract incremental investment returns from their portfolio firms, as well as the failed firms and from the thus-called walking-dead companies? I feel a comprehensive cross-portfolio IP management strategy might provide increased returns to venture investors.
IP Due Diligence to Lower Business Risk
VC's usually invest in firms at the earliest stages of their respective life cycles. At the point of constructing the investment call, the venture capitalist is placing his or her bet on the business idea, the management team; and whether or not they understand it or not, they are additionally inserting a bet on the IP that underpins the business.
It's vital that VC firms perform proper and adequate due diligence in support of their investment decisions. Sorry, but simply having a listing of patents and applications is not enough. Investors would like to perceive whether or not the patents are strong patents, with adequate coverage for the business and also the technology in question. The following quote sums it up better than I will:
"In specific, before you invest in an exceedingly new business idea for a replacement venture, why would not you want to grasp whether or not you can own the business plan in the long run or whether you have minimal opportunity to innovate freely in relation to that business plan? Or, why would not you want to grasp whether another firm has invested $100K or additional in patent rights alone within the new business plan that you're investigating?" - from IP Assets Maximize.
These all-necessary questions ought to be answered during the investor's due diligence. Be warned however, that topographical patent landscape maps or alternative abstract visualizations do not represent a sufficient level of analysis. They'll be an improvement over a easy list (although some might argue that time), however a proper analysis must involve a close examination of patent claims within the context of the business and of the technology in question.
IP Portfolio Management to Lower Prices & Increase Margins
Although most of the portfolio firms financed by a given venture fund can be relatively tiny, and have a comparatively tiny portfolio of patents, it may be value it for the VC to look across the complete IP portfolio in aggregate.
I did a quick analysis of a pair regional VC companies - with comparatively little portfolio's of firms, these firms had an invested interest in over 300 and 600 patents. By company standards, these are sizeable portfolios. I might expect to search out even larger portfolios with larger venture firms.
In businesses with portfolios of this magnitude, it's important to perceive the portfolio in multiple dimensions. For example, IP professionals, marketers and business leaders want to know what IP assets support which products. Knowledge of those relationships can permit a corporation to dam competitors, lower costs, raise margins and ultimately increase returns to investors. Additionally, they will wish to categorize their patents by the markets and technology areas they serve, because it helps them understand if their patents align with the business focus.
Bringing this discipline to IP Portfolio management has the added benefit of showing patents that are not core to the business of the company. With this information in hand, a typical company can request to lower prices by letting patents expire, or they may request to sell or out-license their non-core patents, therefore creating a new supply of revenue.
IP Licensing to Increase Returns
Patents that are not core to the business of the owning company may still be valuable to alternative firms and other industries. There are some well-known examples of firms who have been ready to generate vital revenues from their non-core patents through active licensing programs -- Firms like IBM and Qualcomm return to mind. However there are a variety of different firms that have generated vital returns by monetizing their non-core IP assets.
Within the case of a VC portfolio of firms, every company may only have a tiny number of non-core patents. But across the portfolio of firms, the venture firm might have rights to a significant variety of patents that will be valuable to different firms/industries.
We can extend the concept of monetizing non-core assets of the prime companies in the venture portfolio to the "walking-dead" and even the defunct portfolio companies (although with these latter 2 teams, we have a tendency to might worry less regarding the excellence between core and non-core patents). In several cases, the business model and therefore the due diligence supporting the initial investment in these were in all probability sound, however the business failed due to execution or market timing issues. In several cases the underlying IP assets might still be totally valid, valuable and available for entry into a centered licensing and monetization program.
A multi-million greenback licensing revenue stream would nicely compliment the periodic liquidity events in nowadays's VC market.

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Nikky has been writing articles online for nearly 2 years now. Not only does this author specialize in Venture Capital , you can also check out his latest website about: Dolls For Sale Which reviews and lists the best American Girl Doll

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