23 March 2015

What did all these pitches have in common? Key takeaways for start-ups around intellectual property (IP) value and the importance of having an accurate business evaluation!

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Value your business

The Party People and Megan from FreckleBerry both showed us if you want the sharks to come to your party know your business numbers.

Working out the value of your business is important when selling your business or seeking investment, as it can help you decide on the selling or asking price.

A word of advice form shark Steve Baxter, ‘Don't be scared of your valuation, own it but be prepared to move’. Steve later tweeted to start-ups and entrepreneurs stating ‘as hard as it is, avoid becoming a danger to yourselves! Get your numbers right’.

Why investors value IP

Almost every business has some form of IP that they need to protect. Whether that is a unique idea, creation, service or branding – but what good is that great idea if you can’t protect it? Why would investors want to invest in something that doesn’t offer adequate protection?  

Investors care about IP because it makes your business defensible. IP provides future protection for business assets and in a start-up it’s often the IP that the investor finances.

When David Hill from DHD Skateboard stated that IP wasn’t part of the package available for investment, we heard shark Steve Baxter say ‘the only value is in the IP’. On that notion, DHD Skate became un-investible due to the lack of disclosure around his provisional patent and because his IP wasn’t included in the offer. 

An investor needs to make sure that your business owns the IP for your idea without any interference.

Value your IP assets

Valuing your IP makes your business more attractive to potential investors and buyers. 
Other benefits include:

  • determining a better idea of the overall value of your business 
  • providing a tool to measure and manage your assets 
  • providing security and backing for lenders and investors 
  • providing taxation benefits (tax deductions) 
  • reducing the proportion of business' net worth attributed to goodwill - important when selling a business.

How IP affects start-up valuations

Today, IP is valuable and important in virtually all industries. Part of the value of your start-up is the IP, so you want to know what it is and its value. You also don’t want to lose it, or be infringing on someone else’s IP.

IP protection strengthens a startup’s likelihood of obtaining financing from investors and lenders because of the defensible competitive advantage.