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James & Wells Say IP the Key to Securing Investment

Monday 14 August 2017, 7:32PM

By Beckie Wright

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James & Wells are New Zealand’s premier intellectual property specialists and this month they discuss how to secure investment in your business. Investors consider many aspects of a potential investment but one of the most important factors is your intellectual property (IP). This article explains what aspects of IP investors are interested in, particularly in an early pitch.

IP is a strong deterrent to keep competitors from trespassing on your territory in the first place.  If they do, IP can be used as an offensive weapon, although legal action is usually only used as a last resort and often it is the threat that is more important. Generating IP is expensive, whether that is R&D spend or the cost of obtaining formal legal protection. But the intrinsic value of IP and what you can do with it, for example through licensing, is very important to an investor, especially considering that some estimates put the value of non-tangible assets at over 80% of an average business’ value, possibly 90% for start-ups.

However, what is most critical to an investor, is the connection between the IP and the competitive advantage it provides. For example you have invented a new type of wheel bearing for a car.  The bearing enables the wheels to go around faster, providing significant fuel savings.  That’s exciting on both counts, but what protection do you have to stop others from duplicating the technology and eroding your competitiveness and prosperity? Hopefully the technology is protected by a patent. If it is, an effective way to quickly communicate what IP you have to investors in an initial pitch is to explain the competitive advantage the IP provides. For example, stating that you have a patent that protects wheel bearing technology resulting in 2% fuel savings is more easily digestible than a technical explanation.

One aspect that mustn’t be overlooked - but is neglected surprisingly often - is the ownership of the IP.  Checking that the company being invested in actually owns the IP is a key part of any due diligence process. IP ownership should be formalised in writing, via employment agreements and partnership agreements with co-developers, as early as possible.

You do, however, also need to be prudent about what information you share with potential investors.  Stick to what is solely necessary for their assessment of the investment opportunity, and ensure that information is covered by confidentiality agreements.

For more information on James & Wells and intellectual property lawyersNZ copywright law and e-commerce NZ, please go to http://www.jaws.co.nz .