Exit Strategies that Startup Investors Look Forward To: How Intellectual Property Rights Play a Role

by Jun 13, 2022For Startups

Investors are always looking for new and innovative businesses to invest their money in. When they find a business that has potential, they will often ask the founders what their exit strategy is. Exit strategy means they want to know how the company plans to generate a return on investment. In this blog post, we will discuss some of the most common exit strategies that startup investors look forward to and how intellectual property rights play a role in each.

What is an exit strategy?

An exit strategy is a plan businesses have to generate returns on investments- whether selling the business, taking it public, or selling company intellectual property.
Intellectual property includes anything from patents to copyrights and trademarks. It can often be one of the most valuable assets a company possesses. So if a startup has developed a new and innovative product, they may be able to sell the patent for this product to generate a return on their investment. Similarly, suppose a startup has developed a new technology that is in high demand. In that case, it may be able to sell the IP for this technology to generate a return on its investment.

Thus, startups must first protect their intellectual property rights (IPR). IPR will give them the best chance of achieving a successful exit strategy and generating returns.

The most common exit strategies that startup investors look forward to are:

  1. Selling the company
  2. Going public
  3. Merging with another company
  4. Acquiring another company
  5. Closing down

Selling the business

One of the most common exit strategies startup investors hope for is being able to sell the business down the line. Selling the business is usually done when it has grown too large for the founders to continue running, so they look to pass it off to other individuals or companies. And while this may seem like a relatively straightforward process – contracts, liability, and intellectual property need a thorough review.

Taking the company public

Taking the company public is often done when a startup has achieved a high level of success and is looking to raise additional capital. The investor will sell shares of the company to the public in an Initial Public Offering (IPO).

Selling the company’s intellectual property

Selling the company’s IP is feasible if the company has developed a new technology or product in high demand. The investor will sell the patent or copyright to another company to generate a return on their investment.

The most common exit strategies that startup investors look forward to
The five exit strategies above can be an excellent option for startup businesses. However, investors look forward to the most common ones: selling the company, going public, and merging with another company.

Selling the company is an excellent option for businesses looking to generate a quick return on their investment. When a business sells its assets, it can often receive a lump sum of money that can be used to pay back its investors and employees. Additionally, selling the company can allow the founders to walk away with a lot of money and start their own new business.
Going public is an excellent option for businesses that want to raise more money and attract new investors. When a company goes public, it issues shares of its stock to the public and becomes listed on a stock exchange. Going public allows the company to raise money by selling its stocks and gives it access to a large pool of potential investors.
Merging with another company is a great way for businesses to expand their reach and grow their customer base. When two companies merge, they combine their resources and create a more powerful entity. This can benefit both companies involved, as it can help them compete better in their industry.

Intellectual property rights and exit strategies

Intellectual property rights can play a significant role in each exit strategy listed above. For example, suppose a company plans on selling its assets. In that case, the value of its intellectual property will be considered as an additional asset. Intellectual property can be a crucial asset for businesses and can often be sold for a high price.

Additionally, suppose a company plans on going public. In that case, the value of its intellectual property will be one of the factors that potential investors will look at.

And finally, if two companies plan on merging, the value of their respective intellectual properties will be taken into consideration.

Role of intellectual Property in selling a company

There are several things that a company can do with its IP when it sells its assets. It can sell the patent or copyright to another company, it can license the rights to use the IP to another company, or it can keep the IP and use it in its new business.
The decision of what to do with the company’s IP will often depend on the situation. If the company is in financial trouble and needs to generate a quick return on its investment, then selling the patent or copyright may be the best option. However, if the company is doing well and wants to expand its business, then licensing the rights to use the IP may be a better option.

Role of Intellectual Property in mergers and acquisitions

When two companies merge, the value of their respective intellectual properties will be taken into consideration. This is because IP can be a valuable asset for businesses and can often be sold for a high price.
There are several things that a company can do with its IP when it merges with another company. It can sell the patent or copyright to another company, license the rights to use the IP to another company, or keep the IP and use it in its new business.

Conclusion

The five exit strategies listed above can be an excellent option for startup businesses. However, investors look forward to the most common ones: selling the company, going public, and merging with another company. Each option can provide a significant return on investment for startup businesses and help them grow their business.

What do you think? Do you have any other exit strategies that you would add to this list? Let us know in the comments below!

If you found this blog post helpful, check out our other blog posts on intellectual property rights and exit strategies! We also offer free consultations for businesses looking to protect their intellectual property assets. Contact us today to learn more!

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