Sreekar Gadde, the Executive Director for BlueTree Allied Angels, often talks with entrepreneurs about intellectual property’s long game. He says what he sees is entrepreneurs think about IP in terms of protection — stopping companies from doing what they’re doing. But what they tend not to consider is that IP lawsuits cost millions of dollars, money most entrepreneurs don't have.
“So ,what I tend to talk to companies about is, let's forget about that piece of it for the moment and let's talk about how this IP builds value for you in the future,” Gadde says.
Gadde spoke on the Smart Business Dealmakers Podcast in more detail about IP strategy, as well as a trend he’s seeing that has investors working together to apply the right array of skillsets to specific investments.
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There are myriad ways to handle the IP a venture generates. For instance, sometimes it’s better to protect something as a trade secret — just not tell anyone — and, other times, a patent is better.
“If it's really valuable, if it's worth spending money on, spend it on it properly understanding that for a patent it's going to live for 20 years,” he says. “So let's make sure it's got 20 years’ worth of meat inside that description so that you can keep it going along different strategies, so that when you come to the M&A portion of the business transaction, especially for our early stage companies, you can tell a whole story of why you spent the money, how it's going to build value for the acquirer, how they can leverage that moving forward, and why they should pay a better price for you because you've got a real comprehensive strategy built.”
Gadde says it's the entrepreneur’s job to know the business value of the IP they have. Then it becomes about devising a specific IP strategy, identifying the tools that are needed to build it and determining what needs to be spent on it. From there, entrepreneurs can take that strategy to a lawyer and say they can implement it, knowing the value that will bring the entrepreneur in the future.
This mindset — one that emphasizes protection rather than overall strategy — comes from the investment community.
“As investors, we are typically not very IP strong or knowledgeable,” Gadde says. “And so we tend to look for how many patents do you have? And so entrepreneurs have adopted that as the metric they need to think about. But if you're looking at your company down the long haul, especially if you're looking at M&A as an exit opportunity, at that point you're talking to a much more sophisticated buyer who knows a lot more about IP and wants a full strategy. While they could develop it themselves, the stronger your strategy and story comes into the story, the more likely they're going to believe in add value to the acquisition price at that point.”
