Safeguarding Success: IP-strategy for a Succesful IPO

The move from a private to a publicly traded company is marked by an Initial Public Offering (IPO). An IPO can provide significant advantages to a company, for example, by raising capital, building brand equity through visibility, and expanding capacity. For investors and shareholders, it may mean that their liquidity increases as the shares of the company are more easily traded. Having a solid intellectual property (IP) strategy is a potentially invaluable but often overlooked component of a successful IPO.

IP-strategy is functional. It is a strategy that is aligned with-, supports, and reflects the companies’ broader business- and corporate strategy and objectives. It aims to set out how and which IP contributes to the business and in what manner different functions in a company must collaborate to meet defined objectives. Often, important elements are: achieving sustainable benefits in the market; protecting the company’s innovations; establishing a competitive edge; and optimizing the value of its IP-portfolio. This involves identifying, protecting, managing, and leveraging the IP in the portfolio.

Even though the same holds for other M&A activities, in this post we will highlight why an appropriate IP-strategy is so important for a company leading up to a potential IPO. It is also relevant to note that after the IPO, the importance of maintaining a solid IP-strategy remains, including the necessity of periodic re-evaluations of the IP-strategy.

Intangible assets (like IP) are often at the core of a company's success, forming the foundation for increasing a company’s overall value. A solid IP-strategy helps companies, to identify (potentially) valuable IP (such as brands, inventions, datasets) and obtain adequate protection for them for example through trade secrets, and IP-rights such as copyrights, trademarks, patents, and (registered) designs. Moreover, IP-strategy helps to assess IP value. The value of IP stems from the ability of its owner to exercise legal control over the protected subject matter; protecting their IP and enabling them to prevent competitors from using their IP or dictating terms and conditions under which use is permitted. Thereby, the value represents the potential economic advantages that the owner or authorized user of the IP can accrue by exploiting their IP. How does IP contribute to the companies’ revenues, competitiveness, place in the market, or customer loyalty?

These advantages can be realized in several ways, including direct utilization (incorporating the IP into a product or service), strategically positioning the IP in the market, or selling or licensing the IP. The latter relates to the monetization of IP. A solid IP-strategy is useful for the monetization of IP, such as licensing parts of the IP-portfolio. This approach can create a valuable income stream, while simultaneously providing additional advantages, such as enhancement of the company’s visibility and reputation, increasing market share, or growing the sales market as a whole.

Additionally, integrating licensing agreements as part of strategic partnership deals can be a powerful approach. Besides a monetary lump sum and/or royalties, companies can access new markets or technologies through a strategic partnership deal. Another way of monetization of IP is cross-licensing. Cross-licensing agreements allow the exchange of IP between two or more entities, granting them access and utilization of each other’s IP. This broadens the company’s technological capabilities and facilitates collaborative innovation. Investors value that IP is not only safeguarded but also actively monetized for (future) economic advantages and strategically used.

A solid IP-strategy also encourages innovation. On the one hand internally, when employees know that their creative efforts will be protected, if possible, they may feel encouraged to share new ideas, take risks, and explore innovative approaches. But also externally, as a solid IP-strategy stimulates partnerships and forms the basis for a sustainable role in innovation- and business ecosystems companies operate in. Innovation, however, also does not stop after a successful IPO. To remain competitive and keep creating value for the company and its investors, companies must also maintain their emphasis on (open) innovation and constant improvement post-IPO. A fit-for-purpose IP-strategy is crucial not only for the IPO itself but also for the company’s long-term success. It helps the company to engage more vigorously in the market, expand into new areas, and adjust to changing conditions.

Before an IPO, a company will usually go through an extensive due diligence process; a comprehensive review conducted to assess the company’s operations and financial condition. This often entails validation of legal ownership of the company’s IP-rights and that they are unencumbered, as well as identifying conflicts or limitations within existing IP agreements. If companies fail to provide transparency or fail to resolve IP-related issues, it can discourage investors and potentially result in a lower valuation.

Conducting a rigorous IP analysis, ensuring legal compliance, and aligning IP licenses and agreements with the company’s IPO plan, is imperative to minimize these risks. Having a solid IP-strategy is crucial for risk mitigation. Since IP risk management (as part of the IP-strategy) entails identifying potential IP-related risks and subsequently prioritizing them to ascertain the necessary risk mitigation steps before an IPO. A weak IP-strategy and lack of supporting operations will make a company susceptible to infringement claims from third parties before and after the IPO, diminish the company's value, and disrupt IPO preparations.

In practice, we encounter companies that are to a certain extent aware of IP they own and license, as well as the associated risks, but in many cases seem to lack the foundation of a solid IP-strategy (or lack an IP-strategy entirely), and lack supporting operations to be able to efficiently identify, protect, and fully leverage their IP, innovative capabilities, and appropriately mitigating associated risks. That, whilst knowing the strategic IP position of the company can be invaluable for shareholders.

In conclusion, a solid and well-executed IP-strategy is crucial for companies preparing for an IPO, and it remains relevant afterwards, and should periodically be re-evaluated. It serves various purposes, including identifying and safeguarding valuable IP, mitigating risk, creating revenue opportunities (e.g., through licensing) or other strategic advantages following the business strategy, elevating the company's reputation, and fostering innovation and growth. Also, investors may attach great value to an IP-strategy. Therefore, a solid IP-strategy can be a decisive factor between a successful high value IPO and a missed opportunity lower value IPO, as well as for the company’s long-term chance of success.

Are you a founder, shareholder, or investor with IPO aspirations and you need assistance assessing or refreshing your company’s IP-strategy or developing a solid new one? Please do not hesitate to contact us.