Emerging tech companies and startups entering commercial markets with new products based on breakthrough innovations have the potential to truly benefit from global expansion. These benefits include a much higher valuation for the venture that includes the scalable IP asset value of the business. This is not just a traditional venture valuation and has the benefit of leaving equity ownership and long-term control in the hands of entrepreneurs, not investors.
You can realize these benefits by working with an IP (intellectual property) investor, who provides IP capital instead of traditional venture capital. An IP investor will look beyond the value of the venture itself, including its team business plan, to the additional value that scaling its IP assets globally can create. This value comes through licensing, joint ventures and other forms of partnership.
In this assessment, the venture value will not be limited to venture comparables in the industry or multiples on EBITDA or revenues, but will also include the scalable IP asset value of the business. This is a smarter growth path, but building your own global infrastructure is no small feat. It stunts growth and leaves the business at high risk.
Still, slow and steady won’t win the race when it comes to breakthrough innovations. Wide adoption is the key to success, or else the venture is at risk of copycats or alternatives that disrupt its opportunity. So, out of one venture can be born many new ones worldwide to commercialize your IP assets. Each new venture should have its own team, capital, and business plan for delivering value.
A venture investor would ignore these opportunities for years, preferring a rifle shot across many investments toward an elusive IPO (with few successes and many probable failures in the investment model) rather than a shotgun approach that takes advantage of the venture’s IP assets. Among other reasons, a venture investor lacks the skills to value, scale, and protect a company’s IP assets, encouraging it to hold those assets close to the vest instead.
To aid in global expansion, the ideal path for any young tech company with breakthrough innovations, I will explore three key aspects for successfully capitalizing on your IP assets. First, I will explain how to value your intellectual property advantages, then I will address safely and securely sharing that IP, before finally discussing accessing IP capital sources that truly understand innovation and know how to scale the use of your IP assets.
As a seasoned IP investor, I will draw on my experience to explore some strategies and insights that can empower young tech companies to understand the value of the diamond they hold in their pocket, how sharing that diamond is the only real way to protect it — a paradox, but true — and how to navigate the complexities of global expansion with confidence with an IP investor.
3 Keys to Global Expansion for a Startup
- Understand the value of your IP assets.
- Protect your intellectual property.
- Find IP-focused funding sources.
Understanding the Value of Your IP Assets
It goes without saying that intellectual property assets are the heart of a tech company's competitive advantage. So, you have to value them accurately to make informed decisions during global expansion.
Before scaling, you need to conduct a thorough IP audit first. By assessing the strength, uniqueness, and market potential of your IP assets, you can determine your value in a global marketplace. This should include, for example, new product designs, manufacturing equipment, and process recipes for making your new products.
The bottom line in any such analysis is to determine the financial benefits that your IP assets are expected to deliver to a new venture that you may license or otherwise partner with. These benefits include the potential profits to both the venture and its customers (e.g., lower cost of production or increased market share/prices from asset use).
Next, you should use commercial factors to determine how much to share from the use of your IP assets. These factors include, for example, the nature of your participation. Will you be a mere licensor to the venture or a full joint venture partner contributing additional resources and taking venture risk in building the business with them?
A discounted cash flow analysis is then used based on the revenue streams that you expect from the new ventures over a medium-term, three-to-five-year financial projection. The result is your IP asset valuation, which can added to the traditional venture valuation.
A further benefit to global expansion is that each new venture can expense IP royalties rather than having them taxed as profits. Each business can also build the IP royalties into the customers’ price, just like any other ingredient in the bill of materials.
Qualcomm, once a startup itself, mastered the art of leveraging the value of its IP assets in wireless voice and data. Today, 30 years later, that decision has enabled hundreds of new ventures worldwide that use its IP assets, for which it receives a share of the financial benefits. Today, the company generates more than $40 billion in revenue, with $7 billion in cash flows from IP royalties. Nearly all of that money goes straight to the bottom line, with these royalties having over a 90 percent gross margin.
Protect Your Intellectual Property
Seeking expert advice from an IP investor can help you understand how to strategically protect your IP assets so you do not lose these keys to the kingdom. The IP investor will be able to assist you in designing and executing a plan for securely sharing your IP assets.
Expanding globally involves collaborations, partnerships, and cross-border exchanges with foreign companies. In these interactions, the laws are not the same as in the United States. This situation is fraught with risk for unsophisticated actors when it comes to securely sharing IP assets. Intellectual property rights are not well protected, nor are disputes quickly resolved, in many foreign legal regimes. This disparity requires you to use other mechanisms to protect your valuable assets.
So, young tech companies must tread cautiously to protect their ideas. I always stress the importance of implementing physical, technology, and legal protections and procedures when sharing sensitive information with potential partners to ensure respect for your intellectual property rights.
Physical protections include, for example, procedures for securing the physical locations where your IP assets are held and used (think lock and key/key card access). Also, hold back certain vital materials to use yourself and only share the output with your partner. Otherwise, do not share the entire process or recipe for your products to mitigate any risk of loss.
Technological protections include digital security wherever materials are stored electronically. Further enhance this system with AI integrated into your production lines to keep a watchful electronic eye on anyone who has access to your IP. Monitor whether they are permitted that access and whether they use the materials as permitted. Timely notice of any anomalies is key.
Legal protections involve protecting your assets through patents or trade secrets. You should have procedures for aggressive enforcement against copying, including a strategy for timely injunction against those who take materials with them when they leave the company, or independent developments that adopt your patented ideas. Applying each of these protections, tech companies can protect their property, including patents, trade secrets and other proprietary information, safeguarding the core of their innovative offerings as they explore new horizons around the world in partnerships with others.
Further, as tech companies grow, they must instill a culture of awareness among their employees about the company’s procedures for protecting its IP assets. Regular training and clear guidelines can help create a vigilant workforce that values the importance of keeping IP assets safe and secure. Philips is a great example of a company that has mastered this art.
Accessing IP-Focused Capital Sources
You need to find the right capital sources to fuel global expansion. Traditional funding routes will not comprehend the intricacies in scaling IP assets because they lack the skills to scale, protect, and value IP assets. The venture model focuses solely on the company, its team, and its business plan. This model values the business as a venture and not an IP asset.
By contrast, an IP investor knows how to look at the promise of the underlying idea. At Cote Capital, for instance, we connecting tech companies with capital sources designed to scale their groundbreaking ideas, and that offer the services needed to scale. We look at our companies as IP properties, not simply a venture.
There are almost 8 billion people on the planet, however, so staying at home and keeping the diamond that is your breakthrough innovation in your pocket is foolish. Don’t hold your IP assets close to the vest. The truth is that, paradoxically, by not scaling, you’re at high risk of losing market share to a copycat or the independent development of alternatives.
Your best move is to figure out how to build your venture on top of the infrastructure that already exists in the world by transforming its economics to support widespread adoption in a controlled way that does not put your IP assets at high risk. In the end, the more value you create for others, the more value you will create for your own venture.
Empowering Global Aspirations
As young tech companies set their sights on global expansion, the wisdom and guidance of an experienced IP investor can make all the difference. By understanding how to value your IP, safeguarding your ideas through physical, technology, and legal strategies, and choosing capital sources that truly comprehend your IP assets and what’s possible through global expansion, you can embark on your journey with confidence. As you venture into new territories and collaborate across borders, you can rely on the knowledge and support of IP investors to guide you on your journey to making a difference in the world.