A few years ago, I was having lunch with a friend of mine, a businesswoman with a fast-growing cosmetic brand that had been picked up by major department stores in record time and was creating a lot of buzz in the industry.
It was clear she had created an upstart brand and it was just a matter of time before one of them came knocking to snap it up. When that happened, we both knew she stood to make several million dollars. I felt like I was looking at someone who held a winning lottery ticket.
I suggested that well before a major corporation came sniffing around it would be sensible to conduct an intellectual property audit and do a stocktake of the IP her business had created, but most importantly make sure it was all nailed down.
No sophisticated company, with high priced lawyers and millions to spend on an acquisition, would buy anything if their due diligence revealed IP ownership issues. At that moment, it would be a nasty surprise if it turned out she had IP risks and not a single asset.
My friend asked me to to conduct an IP audit and almost immediately our worst fears were realised: instead of having a business potentially worth millions to the right buyer, she had a cash flow vessel riddled with dangerous IP risks.
Her business was built on what I call Dirty IP – that is IP that, for whatever reason, your business simply does not have full title to.
What sophisticated purchaser wants that headache? It would be like buying a house only to find the party who sold it to you doesn’t even own it themselves.
So my friend was at a turning point. Should she approach every external supplier — the web designer, the packaging designer, the cosmetic chemist, the graphic designer, content creators, photographers, etc? The risks were they might say no or, realising they had her over a barrel, they could ask for a significant sum of money over and above what she had already paid.
But the more significant risk was that she had a business that relied on the IP they had created, but which she did not currently have full title to.
Keeping the house analogy: she was only squatting in a house she thought she owned.
Thankfully we were able to reverse this dangerous situation with a deed of assignment. My friend’s business is now legitimately worth millions and so far she has decided not to sell it, but the day she does and the lawyers are sent in to conduct due diligence, they will find a business bursting with valuable IP assets, and not a hint of Dirty IP in sight.
The more you understand intellectual property, the more valuable your business becomes.
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