Late Stages: Reaching the Summit

Congratulations. Your company is now sufficiently mature that you are looking for others to join you on your journey.

You may not have overcome all the challenges of the middle stages yet—your IP territory may not be fully developed, fully fenced in, or fully anchored to a development strategy. Still, your company has evolved with a clear enough value proposition that you can reach out to others who can help you reach your goals.

As you enter the more mature phases of your company’s existence, its ambit expands, along with its attractiveness to potential partners, investors, licensees, or acquirers. This means you’ll be encountering unrelated third parties who will want to know more about you, just as you’ll want to know more about them. An important IP-related responsibility for a later-stage company is preparing for the inspections and inquiries that set the stage for the transactions your company is seeking.

Ideally, you’ve been generating IP assets and managing them throughout your earlier stages. But things can change once a third party enters the picture.

For example:

A potential partner may want to examine the IP assets and business opportunities your company brings to the relationship, just as you’ll want to be doing when you assess what they can offer. They’ll be aiming understand what you can do for them, both commercially and in terms of IP, and vice versa.

A potential investor may want to evaluate whether your company can deliver the return they expect, and whether your IP portfolio supports the valuation.

A potential acquirer or licensee may see something in your company they want—technology, a revenue stream, or a customer base—and will want to know whether your IP assets will allow them to expand, defend, or capitalize on what they hope to obtain.

To understand all this, the party exploiting, investing in, licensing, or acquiring IP will engage in IP due diligence so they can form their own conclusions about the IP-related benefits and risks associated with the transaction.

In this diligence process, the prospective partner, investor, or buyer (the “Buy Side” party) conducts an appraisal to evaluate:

(1) the status and usefulness of the company’s IP portfolio,

(2) the IP-related pitfalls connected with commercializing the company’s products, and

(3) the IP risk profile that may add to or detract from the value the Buy Side party is seeking

In more detail, the Buy Side’s investigation aims to discover:

What IP the company has access to (the “Company IP”) and who owns it—does the company own it, or does someone else?

How the Company IP relates to the company’s commercial activities: Does it protect the company’s products, block competitors, or serve another function?

What risks exist from third parties whose IP might obstruct the company’s activities, or whose technologies might design around the Company IP?

What other actual or potential IP-related issues could undermine the proposed transaction—such as disputes, inventorship problems, unfavorable license terms, or unexpected complications. Are there any IP risks that could weaken the value the Buy Side party expects?

There is much more to say about IP due diligence, but the message for later-stage companies is simple: if you plan to enter into a transaction you’ll face IP due diligence, and you will need to be ready for it. Period. As you organize for this part of later-stage planning, it’s useful to return to the basic principles that have guided your IP work so far.

The primary guideposts for your due diligence preparation, as for your overall IP management, are the same questions you should be asking whenever your company develops IP: Have we developed this company asset securely, and what does it have to do with our customers, products, or services? As you assemble materials for diligence, be prepared to answer these question for the Buy Side’s reviewers across your entire portfolio.

Key take-away: 

Each stage of your company’s growth brings its own opportunities and challenges for IP development and management. By the time your company reaches the later stages, with Buy Side third parties involved, you should only need to review, solidify, and update the work you’ve already done. Preparing for due diligence can feel overwhelming, but by attending to the development, acquisition, and monitoring of your IP in an organized and business-focused way, your later-stage work with partners, investors, licensees, or acquirers will be positioned to take advantage of the opportunities these relationships can offer.

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