Innovation Summit: IP mistakes drive down valuations

BROOMFIELD — Mistakes made in protection of intellectual property can drive down business valuations — and even kill some investment or sale deals prior to closing, according to experts speaking at the inaugural Rocky Mountain Innovation Summit in Broomfield. The event took place Thursday at the Omni Interlocken Hotel and was presented by Berg, Hill, Greenleaf & Ruscitti LLP, a Boulder law firm. Speaking on a panel titled “Issues Impacting Innovation,” Adams Price, president of EKS&H Capital Advisors LLC, a Denver-based investment-banking firm, said company leadership should ensure that they can answer some basic questions in order to maximize valuations. “There’s some fundamental things you look for,” Price said. “Do you have relationships with your employees, contractual agreements with your employees who are developing this IP, such that it’s assigned to you? Do you own that IP, or do they have some claim to it that might be a problem when talking to investors or talking to buyers?” Similarly, Price said, business owners should know whether their IP incorporates “artifacts or pieces into your IP to create, for instance, a software product that is owned by someone else, and to what degree does your software rely on that specific IP that might get you in trouble?” Even a company’s business model itself must be carefully examined, he said, including whether the company’s IP relies on product roadmaps of other products in the marketplace. If so — and if that other company changes its product roadmap substantially — risk is increased. “The challenge of that is if the product roadmap changes direction, then there’s significant risk to revenue stream coming from that IP,” he said. “That constitutes risk to the investors, and they’ll ding the value of the business and the IP as a result of that.” Scott Friar, managing partner with Peak 5 Capital, a Denver-based private-equity firm, said investors or buyers must ensure that they’re protected if there is any question about intellectual-property rights. Investors must “make sure the patents are defendable and really protecting the revenue and profit streams associated with it,” Friar said. “But in the private equity world, a lot of times, on a smaller spectrum, people want to move very fast and tend to trip over the legalities that exist. “The reality is, we need to make sure that that intellectual property exists, or, if it doesn’t that proper protections are in place,” he added. “A lot of times, where we’ve seen large revenue streams driving significant profitability for the business…

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