VENTURE INVESTMENT GROUNDED IN INTELLECTUAL PROPERTY PAGES 157-178

1. VENTURE INVESTMENT GROUNDED IN INTELLECTUAL PROPERTY PAGES 157-178 Osama Asif Industrial Engineering 190G-Patent Engineering Tal Lavian

2. Overview • Determining Value of Intellectual Property • Assessment of Patent Value by Formal Institutions • Leading Institutions for Patent and Technology Networking • IP Exchange and Transfer • Developmental Strategies for IP Acquisition • Due- Diligence and Development of IP Contents

3. Venture capital and private equity investors are paying more attention to intellectual property than ever before. • “What was only a summary recognition that a potential investment or target had patents,”say venture capitalists James Malackowski and David Wakefield, “has advanced to a detailed assessment of claim coverage and an involved gaps’ analysis comparing patent coverage to the core business plan.” • Patents and (or) pending patents are valuable assets for venture capitalists to see in a firm business plan. Overview

4. The key of determining value is to know where to look for your IP and how to structure the deal. • Even failed investments may have an IP component that enables private investors to salvage something from dot.com wreckage. • Commercialization of IP is not a short-term thing. There are opportunities for commercializing, selling, and licensing patents on the fringes of your portfolio-in order to get real value from these assets you have to have a long-term vision. Determining Value of Intellectual Property

5. It is very essential that you make sure that your • organization’s intellectual property and research investments are being utilized as efficiently as possible. • When performing these assessments the first place to look to improve your return on investment should be your patent portfolio. • The leading technological firms in the world value their patent portfolios and assess their firm’s value through the value of their patents. Determining Value of Intellectual Property (continued)

6. Are patents appreciated by leading commercial banks? A survey of the largest 25 banks was executed with the following questions: • Do you consider patents in your lending criteria? • Do you seek to take a security interest in patents? • Do you use patents in a way that will increase loan amounts or impact loan covenants? • Have you taken possession and liquidated patent security interests? Assessment of Patent Value by Formal Institutions

7. Results were not encouraging as most respondents did not have a defined policy for patent assets at their institutions. • All were willing to secure significant intellectual property. • Only one lender expressed an appreciation of a patent’s ability to reduce costs or otherwise improve cash flow and therefore enhance lending amounts. • None of the banks surveyed had yet taken possession and liquidated or disposed of any intangible asset. • The trend will continue for inventors relying upon private capital to build and create value to their patent as well as the precursors to formulating it together. Results

8. Networking opportunities with technology transfer and development professionals may be found by participating in select organizations. Three leading associations are the Licensing Executives Society (LES), the Association of University Technology Managers (AUTM), and the Commercial Development and Marketing Association (CDMA). • The Licensing Executives Society (United States and Canada), Inc. is a professional society engaged in the transfer, use, development, manufacture and marketing of intellectual property. Members include business executives, lawyers, licensing consultants, engineers, academicians, scientists, and representatives of government. The LES’s main objectives are to hold meetings, seminars, and training courses for education, exchange, and dissemination of knowledge and information on licensing and intellectual property Leading Institutions for Patent and Technology Networking

9. The Association of University Technology Managers is a non-profit association with membership of more than 2,300 technology managers and business executives who manage intellectual property. The association’s members represent over 300 universities, research institutions, teaching hospitals, and a similar number of companies and government organizations. • The Commercial Development and Marketing Association is the world’s leading professional association dedicated to fostering, promoting, and sharing business processes for long-term growth and value creation in the chemical and allied industries. The CDMA serves and educates its professional members in world-class practices of business development, corporate growth, business strategy, marketing, and related functional areas. Its focus is to conduct workshops, business conferences, networking forums, and local section activities for the purpose of educating members and other non-member professionals. Leading Institutions for Patent and Technology Networking (continued)

10. With the advent of the Internet, several for-profit companies have been formed to act as a business-to-business exchange for patented technology; leading examples include pl-x.com, yet2.com, techex.com, and IPnetwork.com. • These companies function as a financial marketplace for intellectual property rights. They assist in making non-intuitive connections, avoiding costly R&D processes while simultaneously increasing speed-to-market and maximizing R&D profitability. The process is anonymous, confidential, and secure. • These sites also serve as an on-line trading floor where scientists, businessmen, and engineers can exchange technology quickly, easily, and efficiently. IP Exchange and Transfer

11. For IP enthusiasts and those seeking to partner with others, such a portal can help to realize maximum return through the simplification, integration, and multi-disciplinary management of the technology acquisition life cycle. • Options for securing rights on-line, as well as other collateral services such as valuations, research, insurance, documentation, and news. IP Exchange and Transfer (continued)

12. Each investor will develop his or her own effective means of developmental strategies. These include; • Proven technology- Yields credibility and leverage for firms seeking immediate development. • Later stage technologies- Competitive patent attacks have ability to cease operations and demand royalties. • Consolidations- Consolidations should begin ideally with a platform firm rich in intellectual property. • Management- Next to the chief executive, the senior technology officer is often the most important manager for the early-stage venture capitalinvestor. • Low technology- A review of patents related to the supply components of a targeted service provider may result in the identification of numerous investment candidates previously unknown. Developmental Strategies for IP Acquisition

13. Due Diligence for Investment of Intellectual Property

14. Phase I Review Due Diligence for Investment The first or Review Phase is designed to provide a quick indication of potential investment value. The Intellectual Capital column represents a need to determine existing or potential assets by type including: utility patents, process patents, brands, domain names, and a formal employee knowledge base. Commentary should simply address whether these items exist with a quick indication of quality.

15. Phase II • A review of key issued patents noting particular claims of interest. It is important to focus attention to the claims rather than the summary abstract • An understanding of the target’s process for determining which patents to file and the steps taken in the prior art search. Such an analysis should provide guidance as to the breadth and depth of the claims. Due Diligence for Investment (continued)

16. Phase III At this stage that most investors will retain patent counsel or other advisors. This portion of the analysis comes after the venture capitalist has made a preliminary intention to make an investment. Due Diligence for Investment (continued)

17. Large corporate structures have a unique opportunity to increase shareholder value by contributing select technology and related intellectual capital to a new joint venture funded by a venture partner and led by an experienced entrepreneur. Leading corporate business development offices now actively consider such partnerships. The new entity is created either as a subsidiary of the parent company with the venture investment, or as a separate joint-venture entity. Intellectual Capital Lift-Out

18. In general, all private equity firms attempt to minimize the risk associated with investments. • Most venture capitalists have attempted to minimize risk by assessing quality of management, business model risk, market opportunities, and possible returns. • Predicting success in innovative companies can be very challenging. • A better understanding of a target’s intellectual capital and the value creation it represents can only help to manage investment risk. • A prudent investor will carefully consider the advantage a patent or other intellectual capital can have on identifying opportunities, developing strategies, and securing returns. Conclusion