For the next post in our Interview with an Expert series, I sat down with Stratford Intellectual Property Vice President Jordan Pynn to pick his brain about IP due diligence best practices.
I recently had the opportunity to sit down with Jordan Pynn, Vice President at Stratford Intellectual Property, who has been key player in navigating IP strategy and due diligence during numerous high-value mergers, acquisitions, and fundraising efforts. With transactions ranging from $10 million to $500 million under his belt, Jordan’s role at Stratford is crucial in ensuring that IP operations are meticulously aligned with our clients' strategic business objectives and that their portfolios are always due diligence ready.
As Stratford Intellectual Property recently began it's own search for potential M&A opportunities, I thought it would be a timely conversation with Jordan where he could shed light on the pivotal role of IP in these critical business discussions.
The Strategic Importance of IP in M&A and Fundraising
One of the first things Jordan said was a reminder of just how much of an impact IP can have on a company's market value. “IP is more than just a legal asset; it's a core component of a company’s valuation and a magnet for investment," he explained. This perspective is not just theoretical; it comes from his extensive experience and deep understanding of the interplay between IP management and business success.
Case in point, IP's influence on company value continues to increase - at last check it was now representing over 80% of the asset value of top S&P 500 companies, a stark rise from 20% four decades ago.
Comprehensive Preparation of Your IP Portfolio
Jordan approaches IP operations with meticulous care, emphasizing that the proper management of your IP portfolio is crucial for ensuring that its full value is realized during key financial transactions. He offers the following strategic tips to help companies optimize their IP assets effectively:
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- IP Audit and Organization: The best time to start organizing your IP portfolio is well in advance of any discussions around M&A or fundraising, meaning your portfolio should be managed and organized in such a way that it could withstand investor scrutiny at a moment's notice. Assignments and OSS are a great place to start!
During the interview, I asked Jordan, 'For companies that might feel overwhelmed by the prospect of undertaking an audit, what do you recommend?' He responded, emphasizing the importance of seeking expert assistance. 'Navigating an IP audit can indeed seem daunting, especially considering the stakes involved. For companies that may not have the internal resources or expertise, you will want to align yourself with a trusted partner who can help you navigate an audit of your IP assets. This is where Stratford’s IP Strategy & Review services come into play,' Jordan explained.
He further noted that these services are designed to streamline the audit process by providing comprehensive assessments tailored to identify gaps and strengthen a company’s IP portfolio. By leveraging Stratford’s expertise, companies can not only align their IP with their business strategies but also enhance their preparedness for any M&A activities or investor scrutiny, ensuring they present the most compelling and cohesive IP narrative possible.
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- Alignment with Business Goals: Aligning your IP strategy with your business objectives not only increases your attractiveness to investors but also creates a synergistic environment where your IP efforts directly support and enhance your overarching business goals, leading to a more integrated and effective operational framework
Proactive IP Management Strategies
“It's not always just the IP itself that drives the value of a transaction. It is also the quality of the intellectual property's management and organization,” says Jordan. Here are his top tips when it comes to managing your IP in a way that can add value:
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- Ensure you have clear processes and policies documented about how ideas are captured and adjudicated.
- All contracts, including NDAs, should be signed and with clear IP assignment clauses in place.
- Maintain a detailed database of all your intellectual property assets and establish a structured file system to streamline the organization of your IP documents and stay on top of impending deadlines and activities.
- Consider putting together a PowerPoint presentation that provides a comprehensive overview of your IP assets, including status breakdowns by country and other relevant metrics. Highlight key IP management processes, historical trends, and include slides addressing any potential challenges, unique features, or noteworthy aspects of your portfolio.
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Investor and Acquirer Due Diligence Perspectives
During the process of due diligence, it’s common for acquirers to deploy a team of seasoned experts tasked with meticulously analyzing the IP, its operations, and its management. These experts, armed with extensive experience, may pose upwards of a hundred probing questions designed to unearth every detail and potential issue. Jordan underscores the critical importance of maintaining honesty and transparency throughout this process. "Not all questions will have straightforward answers, but it’s crucial to provide rational and clear explanations," he advises. "In the world of due diligence, all is eventually discovered. It’s not just about presenting your IP accurately; it's also about building trust that your company handles its assets responsibly and ethically."
Avoiding Common Pitfalls in IP Preparation
Lack of organization and preparation in due diligence can lead to unpleasant surprises and may tarnish a company's reputation in the eyes of potential acquirers (not to mention running the risk of derailing the transaction entirely). A well-structured portfolio, along with proactive responses and clear explanations, is key to impressing potential investors or buyers and maximizing the value of your assets.
In Jordan's experience, there are 5 areas of IP operations that typically house critical red flags when it comes to IP due diligence that can heavily influence the outcome of the deal:
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Ownership: Ensuring that all IP rights demonstrate a clear chain of assignment from the original inventors to the company is crucial. Ownership must be unencumbered, without any partial rights or entanglements such as being used as security for debt.
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Poor Open-Source Software (OSS) Compliance: Maintaining rigorous compliance with open-source licensing is essential. Companies must keep a comprehensive log of all OSS usage and ensure that the terms of each license are met to avoid legal and operational pitfalls.
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Contracts & Non-Disclosure Agreements (NDAs): It's vital that all employee and contractor agreements include clauses that assign IP rights to the company. Additionally, ensuring that all disclosures are made only to parties covered under NDAs is crucial for protecting sensitive information.
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Prior Art: A company must have robust policies for conducting internal searches for prior art and sharing the results appropriately. It is essential to submit all relevant prior art to patent offices to preempt any challenges to the patent’s validity.
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(Mis)Management: Effective daily management of IP involves having a clear strategy, well-defined processes, and stringent policies in place. This encompasses everything from how ideas are captured and evaluated to how budgets are allocated and how the company prepares for due diligence audits."
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*For a more in-depth look at potential red flags that often pop up during due diligence, we recommend checking out Jordan's detailed blog post on the subject: Expect the Expected.
Conclusion
In our discussion, Jordan underscored the immense value and strategic importance of intellectual property especially in high-stakes/high value transactions like mergers, acquisitions, and fundraising. For companies looking to navigate these complex processes, the insights from our conversation with Jordan provide a clear roadmap for enhancing IP management and due diligence preparedness.You May Be Interested In: Expect the Expected
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