Before Taking the Plunge, Consider the Big Three

If I had to impart any words of advice to a company that is seriously looking at licensing as a go-to-market model, it would be the following three things:

1.       Understand all of the implications of a licensing strategy, including its impact on valuation and potential liquidity events for the shareholders;

2.       Develop guiding principles outside of the deal;

3.       Assess every deal through a strategic filter.

The first of these is critically important and requires the full buy-in from the Board and investors. Don’t assume that they automatically appreciate what these are. Licensing has implications for valuation and exit potential, and while the benefits are many (focuses scarce resources on core technology development, time to market, leverages existing channels to market, non-dilutative cash inflow, etc.), the risks are also real. But many of these risks can be partially or wholly mitigated by a rational approach to the deal, and it is incumbent on you to show them how.

Which leads us to the second imperative: Develop guiding principles outside of the deal. Get the Board to sign off on these and empower you to negotiate the deal within the deal framework that’s been discussed. The last thing you want is the Board “helping” you to negotiate a deal in real-time or proffering opinions at the eleventh hour. Given the implications of a bad deal, there are certain things that will not be negotiable. These may be dealbreakers, but it’s far better to know going in where you have the support of the Board and often, this makes for easier negotiations. At worst, you can cut bait.

Lastly, every deal should be looked at in a strategic context. Does it make sense to grant any rights, even non-exclusive, in the Field of Use that is likely going to be the driver for a liquidity event? Granting rights in niche markets is very different than granting rights in a core market.

In future blogs, I’ll discuss some of the issues that are worth losing sleep over.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

This entry was posted on 30. January 2008 at 08:46 and is filed under Strategy, Licensing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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