Kasznik presentation ABA June2018 final
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ABA webinar June 2018
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Kasznik presentation ABA June2018 final
- 1. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 1 Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com American Bar Association Webinar IP Valuation and Portfolio Management: Nuts & Bolts IP and Startup Valuations Efrat Kasznik President, Foresight Valuation Group LLC Lecturer, Stanford Graduate School of Business June 27, 2018
- 2. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 2 Outline 1. How Does IP Bring Value to a Startup? 2. What is the Investor’s View of IP Value? 3. Are IP Positions and Startup Valuations Correlated? ØCase Study: Unicorn Valuations 4. Key Takeaways: Leveraging IP for Funding and Growth
- 3. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 3 How Does IP Bring Value to a Startup?
- 4. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 4 Intellectual Property (IP) Assets in Products Copyrights Trade Secrets Patents Trademarks
- 6. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 6 Patents Trademarks Trade Secrets IP Type Industry Stage Software Med. Device Seed Series A, B Pre-ExitCleantech The Right Asset – For the Right Industry – At the Right Stage Leveraging IP For Startup Value & Funding
- 7. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 7 Leveraging Patents for Funding • Utility Patents are critical for companies in R&D intensive industries like: Pharma, Cleantech, Biotech ØDesign patents may not be as valuable as utility patents • Patents are not as critical for software companies looking for early stage funding ØHowever, patents may become essential for strategic positioning pre-IPO (Unicorn case study)
- 8. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 8 Example: Nautilus Leverages Patent Portfolio to Raise $25 Million Series A Funding (2015)
- 9. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 9 Investor’s View of IP Value
- 10. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 10 IP Value Varies by Investor and Type of Investment
- 11. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 11 Institutional Equity Investors (Venture Capital Funds): Growth (Pivot) Value • Most startups fail, and even those that have succeeded are likely “pivoting” their business model or product design or market focus along the way • For IP to be valuable, it needs to be broader than just the current product, so that it can support future iterations in product and business models ØSoftware is easier to pivot than patents, so patents need to be carefully drafted ØThere’s a fine line between patent claims being too narrow (easier to pass examination) and too broad (longer prosecution process) • Many VC investors fail to see beyond the limited defensive value of the IP portfolio ØThey are in for the long haul, and “pivot” value is critical for them!
- 12. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 12 Strategic Equity Investors (Corp. Venture/M&A Buyers): Synergistic Value • Corporate Venture activity worldwide has grown significantly in recent years: ØThe majority of Fortune 100 firms have venture arms ØIn 2016 corporate venture funds invested $25 billion in over 1,300 deals • The ability to attract strategic investors (and buyers) is enhanced with strong IP positions: ØThe corporate venture groups have ties to the investing corporation, providing for potential synergies (and potential acquisition down the road) ØIn an M&A deal, the buyer will most likely extract synergistic value from the buyer’s IP, which has a positive effect on valuation at exit • This is different from a VC who does not have synergies
- 13. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 13 Debt Funding: Liquidation Value/Monetization Value • As startups have more IP assets and their cash flow improves, the can take on a loan collateralized by the IP portfolio • Institutional Investors (bank loans): Liquidation Value ØIP as a collateral ØWill be liquidated if the company defaults on the loan ØWe see liquidations in bankruptcy: Nortel ($4.5 billion on patents), Toys R Us (auctioning the brand) • Strategic Investors (corporate loans): Monetization Value ØLess common, but possible as part of some strategic collaboration or as an add-on to an equity investment by the venture arm ØThe assets will be combined with the lender’s other IP assets, so the monetization options are broader than just liquidation
- 14. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 14 Are IP Positions and Startup Valuations Correlated? Case Study: Unicorn Valuations
- 16. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 16 CrunchBase Unicorn Leaderboard: Top 10 US Unicorns (As of April 11, 2017) Rank Valuation 1 Uber $62.5B 2 Airbnb $31.0B 3 Palantir $20.3B 4 WeWork $16.9B 5 Space-X $12.0B 6 Pinterest $11.0B 7 Dropbox $10.4B 8 Infor $10.0B 9 Stripe $9.2B 10 Hulu $5.8B Company
- 17. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 17 CrunchBase Unicorn Leaderboard: US Unicorn Distribution by Industry Source: CrunchBase, Foresight Valuation Group LLC
- 18. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 18 US Unicorns: Patent Portfolio Breakdown Source: Foresight Valuation Group LLC
- 19. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 19 US Unicorns: The “IP Valuation Gap” Source: Foresight Valuation Group LLC
- 20. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 20 Unicorns and Patent Portfolio “Backfilling” Source: Foresight Valuation Group LLC 0% 20% 40% 60% 80% 100% Facebook Zynga Twitter Groupon Linkedin Pre-IPO Portfolio Composition Organic vs. Inorganic Pre-IPO Inorganic % Pre-IPO Organic %
- 21. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 21 Uber Buys Patents from AT&T (2017) • This ground-breaking deal represents a major acquisition of 87 issued patents and 5 patent applications by Uber from AT&T. • The AT&T acquisition gives Uber a bevy of patents having priority dates pre- dating Uber’s formation in 2009, as well as most of the ridesharing industry • The IP covers various technologies related to messaging, call handling, routing network traffic, VoIP, and billing. • Five of the AT&T patents are specifically related to ridesharing. • The deal was awarded the “Deal of Distinction” award by LES
- 22. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 22 Key Takeaways: Leveraging IP for Funding and Growth
- 23. Foresight Valuation Group © 2018 Palo Alto, CA (650) 561-3374 ForesightValuation.com 23 Key Takeaways: Leveraging IP for Funding and Growth 1. Leverage IP strategically a. The right assets b. For the right industry c. At the right stage… 2. Understand the investor’s view of IP a. Have a pivot value (for equity funding) b. Have a synergistic value (for M&A opportunities) 3. Think Big: you can become a unicorn one day! a. Be prepared for growth & exit (M&A, IPO) b. Be prepared to enter new markets