IP Blueprint for Growth

How innovative SMEs can attract and secure funding

In the face of the economic fall-out from the pandemic, innovation is vital. Being able to turn good ideas into a commercial success - at scale - can have a transformational impact on the wider economy. Scientists and engineers have been front and centre in providing solutions to the health crisis, but they will also play an essential role in the economic recovery. 

However, even the most ground breaking of inventions requires investment to become a viable market proposition. That is why we have produced this guide – for ambitious, high growth SMEs like you, with the potential to generate revenue and create jobs. More than ever before, the economy needs businesses like yours to succeed.

The road to securing funding is not always clear, with various hurdles to overcome before winning the trust and backing of investors. Securing funding is fiercely competitive territory, as investors apply a forensic approach to identifying the risks and opportunities with each investment target.

Intellectual property alone will not likely secure funding, but a weak IP position could significantly impact on valuation - by as much as 70% in our experience - or see an investor walk away altogether.

 

Investors are looking for the most lucrative returns and if ever further evidence were required to show how IP rights can underpin investment and support a strong return, a new Europe-wide study shows that SMEs with intellectual property rights generate 68% higher revenues per employee than those who don’t.

This guide explains the five key ingredients that will put your organisation in the strongest IP position to attract and secure funding, distilled from our IP experts who have supported others through the funding process and understand the investor perspective.

We hope you find it useful and would be happy to answer any questions you may have.

This is the number one deal breaker. Any grey areas surrounding who ‘owns’ IP will signal alarm bells for a potential investor.

Innovation, especially in start-ups, can occur before commercial relationships and business processes have been formally defined, which can make determining IP ownership less clear-cut.

This can be prevented by identifying and documenting ownership from the outset. Where appropriate, the necessary assignments should be signed and registered. There should be clear and written agreements in place for any joint ventures or collaboration agreements. Establishing a process to be followed for determining ownership during collaborations is also important and can avoid difficult conversations after the event.

In more established SMEs, commercial partnerships may have evolved over time but without formal agreements in place. This is something that should be remedied immediately.

Understanding what IP your business may have and what you might be able to protect is not always obvious. It is always worth seeking professional advice early on to determine which IP rights you might be able to secure.

Robust procedures also play a big part in creating the right culture for effective innovation capture. Create an IP register and keep it up to date monthly so that opportunities are not overlooked.

  WHAT TO INCLUDE IN AN IP REGISTER:

  • In short, everything. Not just patents, trade marks and registered designs, but all forms of IP such as copyright, trade secrets and know-how.
  • Trade secrets is often overlooked and, in some sectors, biotech for instance, it is often the most important form of IP. It needs to be identified and managed carefully.
  • Basic information such as application numbers and current status is essential – it is always the first piece of information that is asked for in due diligence and will set the tone for your approach to IP.
  • For a comprehensive approach, also upload and save all published applications and granted patents, pending and registered trade marks and designs to your data room. This takes minutes if you do it as you go along – it is like keeping your house tidy so that you are always ready for visitors…or in this case, investors! Ensure you include an overview document, so that investors can see at-a-glance what IP you have and how it fits in with the business plan.

IP is not a tick box static exercise. It should evolve in line with your commercial priorities - and help you to deliver against them.

From the outset, build an IP strategy around your business plan and make sure it’s written down. An investor will expect you to have the answers to the following questions.  

  • What do you need to protect, when and where?
  • How will those rights help you to achieve commercial goals?
  • How will you drive future innovation, and where will you focus?
  • What type of partnerships will be most beneficial?

Put yourself in an investor’s shoes - they are focused on whether you can provide them with a return on their investment. They are looking for clarity in your approach - a strategically sound business plan, where it is easy to see how the IP rights will help to achieve the commercial objectives. These objectives will evolve, and the IP strategy requires regular review to remain fit for purpose.

A growing business can be all-consuming, but a sound IP approach takes into consideration the wider marketplace in which your business is operating and any potential third-party rights.

You need to demonstrate awareness of the need to consider freedom to operate (the freedom to test, market or sell your goods/services) and the availability of proposed trade marks or brand names, and show potential investors that you understand the distinction between obtaining your own IP rights and the impact of third-party rights on your commercial plans.

Investors will ask you what freedom to operate and trade mark availability searching you have done, and the most important thing is to demonstrate that you’ve given this due consideration and have a sound strategy in place. Your approach will be dependent on multiple factors, including:

  • Your market sector
  • Your territories of interest
  • Attitude to risk
  • How close to market you are

Extensive searches and legal opinions are usually not appropriate for early-stage companies. Instead, consider what you can do to mitigate future risk, for example, maintaining a watch for the publication of competitors’ patents, as well as undertaking the necessary clearance searches for any proposed brands and trade marks. For more established businesses, a more sophisticated approach can pay dividends, as Rachel Williams from Albumedix explains below.

 360° VISIBILITY OF THE EXTERNAL LANDSCAPE

Rachel Williams, patent attorney at Albumedix Ltd, a biotech company which specialises in the manufacture of world-leading recombinant human albumin products, believes a proactive and sustained approach to freedom to operate (FTO) brings significant strength to their IP approach and reassurance to potential partners. She explains:

“Regular and systematic monitoring of third-party IP activities allows us to be on the front foot, rather than having to reactively respond under pressure. It significantly reduces the stress that comes with unwelcome surprises, while increasing our commercial knowledge and efficiency.

“This proactive approach has proven especially useful during previous due diligence activities and has enabled us to answer complex questions in time frames as short as 48 hours. While our approach inevitably requires allocation of resources throughout the year, the benefits outweigh the visible time and financial costs.”

Knowing when to act is critical to a sound IP approach.

Disclosing information relating to an invention before a patent application is filed is an all-too-common mistake. Patent applications must be filed before the invention is disclosed to third parties unless effective confidentiality agreements are in place.

In the EU and UK, the assessment of novelty is absolute which means it must not have been previously disclosed. Therefore, it is preferable and safer to have filed applications before disclosing information about your innovation to any third party, including a potential investor.

But you can also file too early and doing so too far in advance, without the supporting data, could weaken your position further down the line.   

The rules for registered designs can differ from country to country and therefore understanding where your markets and competitors are located can influence the timings in your registered design filing strategy.

Your end goal with IP due diligence is to instill confidence and build trust with a potential investor.

While investors are prepared to take on varying degrees of risk, you need to show an IP approach that doesn’t signal alarm bells.

Ensuring you are clear on these five areas will reduce the chances of IP being the reason an investor walks away.