64. The Essential Guide to Intellectual Property

Hello and welcome to another episode of The Operations Room, a podcast for CEOs. I am Brandon Bensinger, joined by my lovely co-host, Bethany Harris. How are things going? Bethany Kirk I can't say they're great. Say it's Monday morning. I'm tired. I don't want to go to work. I don't want to go to Manchester tomorrow. I think we hit the ATM mark on Monday morning.

It is a tough go regardless of whatever is happening, especially when it's cold and dreary outside, it makes you feel like you just want to leave the covers of your bed. Yeah. And my room is currently 18.8°C. Why is that? Crank up the heat. What's going on? WOMAN It's just taking a while because I'm at the top of the house. It's a Victorian house. It has no insulation. Are you a nest user, by the way? So I love my nest because I can set it to go off when I want. Yes, I am.

Although I was thinking about getting the doorbell, but I'm having so much problem with technology, I'm not sure I can brave the doorbell. Do you have a video doorbell? No, I don't actually have one. Well, everybody on our street has them, so any time a package goes missing or some sort of event happens, there's a call around the house. There seem to be events on our street. I mean, it makes it sound bad, like a mugging or a car breaking in or an altercation. It is London.

These things happen and then everybody asks for the doorbell footage. And I feel a bit left out that I don't have doorbell footage. It seems to be very popular. And then as Black Friday recently and then they had some really cheap doorbells ring doorbells I think Amazon owns Ring and Google owns Nest and so they're like half price. But then I didn't know what to do because there's motion detector things you have to add and then there's the doorbell and it's removable to charge it.

But then I thought, given it's looking for crime, are people just going to steal my removable doorbell for whatever reason? And then you need to add another chime inside. And suddenly it went from being quite cheap to all of this stuff. And then they have to get somebody in to do it because I don't even know how to attach a motion detector on to my house. It's actually when I installed Nest and there was similar complexities like the the boiler was in a self

enclosed unit. So I literally had to like rip apart the boiler and the unit itself to be able to somehow string nest in there to activate. It was ridiculous. The guy took like five hours to do an install of nest. Yeah, I'm struggling with technology in general. I am definitely starting to feel old or curmudgeonly or, you know, just like none of it works. It's supposed to make our lives easier.

I bought a new phone and my new phone changed all of my settings on my computer and I can't get the notifications to stop on my computer, even though the notifications are not happening on my phone. Now, they pain in the ass. So we have got a lovely topic for today, which is patents and IP strategy for Scaleups. And we have an amazing guest for this. And John Calvert, he is the CEO of Clearview IP and truly an expert in all things IP

related. So I guess what I wanted to start with, Bethany, was he had talks about something I never knew about or realized, but this thing called patent box in patent box is a tax incentive scheme from the UK government where if you have a single patent on a product and that product is profitable, you can take that profitability and the tax rate that is put on that is 10%, not 25%. So if you are truly a scaling company of size where your product is killing, it is highly profitable.

The 10% can make a massive difference, obviously, in terms of your bottom line. And I was just wondering what you made of that. It was news to me as well. I guess this is what happens when you never work for profitable companies or profit making companies. We've never had to think about this. R&D tax credits. I understand it very well. It definitely made getting patents more compelling because in my experience has always felt like a bit of a vanity project.

Patents And that's supposed to help with fundraising. But for the most part, VCs like you have patents and you go, yes, they go, okay, fine. And if you VC says you have any patents you like. No. And they like, well, okay, fine. It never seems to really change things either way. But getting tax benefits from it is great. So I think this strikes at the heart of the matter here, which is what is the value of intellectual property for B-to-B SaaS companies generically.

I struggle with this a little bit, even post our conversation with John, because when I think back to my past, I was in a space that was highly litigious back in the day, which is voice recognition, input technology, handwriting recognition, predictive technology and so on. And there were so many patents that were being filed in the space. It was off the charts. And my former company was sued numerous times because of the IP side of things.

And I remember at some point the companies called Nuance Communications. They were probably the biggest vendor at the time for voice recognition technology. They owned all the intellectual property associated to that.

So any scale a company that would come on the scene with new voice technology or a new kind of input technology, they would basically take their IP portfolio and litigate you to death, which is they recognized that they were the business company, they weren't innovating and they would take their patents, sue the company to the ground, the scale of company, and then based on that and suppressing their valuation, they would buy them

at that point. And so as an example, the company that I used to work for back in Calgary, Canada, we had revenue at some point here of around a million, 10 million US and our litigation bill that year was 8 to 10 million US. So it was ridiculous. You can imagine from an investor standpoint, being sued like that, you start asking yourself the question like, is this even viable? And we ended up in 2009, back when the markets tanked.

The investors wanted to flee effectively based on the market and based on the litigation that we end up selling off that company for the time, which was a terrible price for the company, I think, to be honest, was around 25, 30 million U.S. at that point to Nuance.

So coming off the back of that experience and rolling into SwiftKey, which again was in the same space, we had a very concrete program of intellectual property development where we worked a lot with John Calvert to build out the portfolio, articulate it correctly in terms of for future investors, what that value was, why that was and so on. And it became a key component of our valuation that we sold on to Microsoft at that point. And Microsoft also bought Nuance Communications.

So Microsoft effectively now owns every intellectual property asset you can possibly imagine around the input space. So in that world, it was very, very important. And then post that when I joined the more generic B2B SaaS companies, it was almost like an afterthought, to your point. And I'm just saying when you think about this because it feels like maybe to your point they were making, maybe it doesn't matter. I think it really matters on clearly what space you're in.

At New Voice Media, we were also in this kind of call center comms space and we had a lot of patents and there was also like some level of patent swapping or patent one. I think somebody would come to you and go, you have broken our patents, we have a patent on this. And then we would look at that maybe like you have broken our patent, we have a patent on this, and then you both write threatening letters to each other and then you both are like, okay, fine, and you just carry on.

We had a patent for popups on the agent screen. I'm amazed is patentable, but I guess at one point the ability to pop up on an agent screen was novel. And so anybody who had a pop up on an agent screen, we were able to be like, Wow. Like every call center software application on the planet. Yeah. And then they would back off.

So I think there is something to be said, like we are in a space where there is a lot of litigious patent swapping and like being around your marketing, your a little bit of territory and finding it. But my experience later on is that it hasn't been as big a deal, but maybe it just depends. On. Are you a company that is stitching things together, or are you a company that's inventing within an ecosystem of other companies that are inventing?

Because the other one is if you're completely novel, there's nobody else in the space. I think you're right. I think this is maybe the difference because the last couple of B2B SaaS companies have worked for largely speaking, there were applications that were part of workflows for end users. So the true innovation, if you want to call it that, it really wasn't there.

And I think when we talked to John on the call, he talked about a lot around deep tech companies and octopus venture investment companies where they were truly doing some groundbreaking work and there was intellectual property that was being followed around that. And maybe to your point, maybe that's a bit of the difference, which is if you're stitching together a bunch of stuff to create an application, you know, there's not a lot of utility to creating patents around that.

Or if you're doing end user applications where you're leveraging a bunch of APIs from others. Again, not a lot of value and utility in doing IP in that case. So maybe that's the distinction. I guess, although it's just one where I guess we did a lot of it at news media and then subsequently we haven't done nearly as much. And so it's probably just some sort of recency bias of does it

matter? Although John is saying that there are increasing numbers of patents, like everything is being patented, though. Maybe it's like we're in a weird microcosm or we're not seeing the bigger picture.

Yeah. He also talked about from his point of view that if you're going to do IP, the sensible starting point is when you're at series A, which is you do some initial filing around something that you think is sensible, basically, and you create an IP narrative around that as well as when you go to your series B investor said you can say, Look, we have an IP strategy. We have one initial filing in place. We think there's more to be done here in terms of securing that initial patent.

And by the way, we ask for trade secrets for Arabian Sea, and we have some thoughts around evolving our patent portfolio. And this is what it looks like, that Series B investor that resonating, I guess, with the series B investor them wanted to actually put in money and have allocated resources to actually fund the next step for the IP narrative story in that way. I think it's icing on the cake.

Like you can have loads of patents, but if you're not hitting your go to market metrics, it just doesn't matter because then your patents and things that nobody wants to buy. So I think it's you have good product market fit, you're growing well, investors are interested in you. And then you say, and by the way, part of our competitive moat are all these patents and then they go, okay, cool. That makes you more appealing, but not in and of itself.

And also, if you go we have all of this growth and we're going well and we don't have a single patents and we've never thought about it. But could you help us then they'll also go, Yeah, okay, we can help you there. I guess I'm just a bit cynical on how much the patents itself helps as a fundraiser. And I guess it also depends on your buyer set or your strategic trade sale opportunities set

in that way. Because, you know, in our case, Microsoft clearly had a huge interest in the kind of IP that we were developing, as did Google and some other companies as well. And so from a trade sell standpoint, that was in our mind's eye a little bit. So I'd imagine that has an impact. So if you're strategic buyers that looks like X and they actually have legit interests in IP for whatever reason, then there's probably some utility in value in actually doing

it. And the other thing you mentioned, which was of interest was the initial filing that you do. He pointed out that modifying that filing step by step in the examination office.

And, you know, and also when you go international, very important to do and to ensure that you're optimizing your filing to make it valuable and to ensure they have a good outcome for that filing, because your initial filing may be off base for all sorts of different reasons and also the value of that initial filing in your eyes and in the market size may change over

time. So you saying don't leave it with your patent lawyers, think it through to make sure you're modifying it step by step to ensure that it's the best possible option that you could possibly have. Yeah. And also the reason why you modify along the way is because it takes so long that you're thinking will have changed across the board rather than that it's a three month process and you need to modify along. You know, it's a 18 month to two year process.

And so as a small company, you'll learn a lot. And the reason why that's beneficial is then if it's closer to reality, if your patent reflects closer to reality, then when it comes around to patent box, you're able to explain why your patent is valuable and you should get the 10% corporation tax. And then the last point that I made was the IP asset lending.

And I think the way that it described is, was that if you're looking for a debt facility, this can be an added bonus to get the debt that you want and get the rates that you want based on the fact that you have whatever RR they have in the business with whatever gross levels.

But if you have a bit of a story and a bit of a filing scenario value around intellectual property, that you can actually throw that into that mix to get those better rates and to perhaps get that debt facility and kind of put it over the top, so to speak, for the company. Yeah, just basically is another piece of collateral. It has value in and of itself for all the reasons we just spoke about companies that. To just collect patents and sue people.

So why don't we park it here and get on to our conversation with John Calvert. Maybe a bit of orientation to start with because they're all nowadays quite a few different types of actor in the IP space.

So I guess originally IP was left to, I'll say the lawyers, but the really two flavors you get of maybe actually three flavors, you get solicitors, as we would call them in the UK, which are really lawyers helping with license agreements and contracts and transferring IP rights and that sort of thing. You'd have patent attorneys which in the US are called patent agents and they actually help you get patent protection for your inventions.

And then we have trademark attorneys that actually help get trademarks to protect your brand. So it's probably those three. And then the fourth, a new entrant. But it's not so new now. It's probably 15 years ago, we we started a company called Clearview IP to provide commercial and technical and business advice around IP. So very much not to legal advice, but to sit alongside those skill sets and and help people figure out what the value was and what to do about it.

Does that mean that if you want to file a patent, you still need an attorney? Yes, you do. I mean, in the end, to file really good patents that describe the invention well enough in the right legal language. You do need that skill sets and

expertise. But there are hybrid models now where companies like mine actually will use technical people to help understand what the invention is and to work with engineers or software developers to actually work out really what's special about it. And that includes it needs to be novel and inventive, so it has to have various elements, but we can write that up and then give that to a patent attorney to actually draft the patent claims and the document that gets filed with the patent

office. So we've worked at hybrid models for about 12 years now, but some patents that only firms prefer to do the whole job, but actually often their skill set is really in the complexity and it is difficult to become a patent agent or an attorney. And that's because it's quite difficult to write good claims that will survive examination and become great patents. When should a scale up consider patents, if at all?

I think a little bit as it's a sort of cultural and belief system, because there are also some industries and I'm thinking of the software industry here where there was over probably last 15 years a real push into open source and then sharing code that's been written with the wider community. And that's almost the antithesis of the idea of filing a pattern to get a monopoly right, to be able to exclude others from using your invention. So there's that

cultural piece. And what we saw probably 15 years ago, Silicon Valley was a big tech company. Start really thinking patents for that important. And you can see this going back 20 years. But then look at the portfolios that Google and Microsoft and Facebook have now. So in the end, patents matter. But the question is when do they matter? And they usually matter a big offense in the life of a company. So that could be a funding

round. So even as early as we say, probably not at seed, but at Citrix, a company wants to be able to show or demonstrate. I've got something that's unique when it can have an algorithm, but it doesn't want to share the algorithm with an investor, right? It just want to disclose that what we would call a trade secret. It doesn't want to disclose that because that investor might be looking at other companies that do similar things, right? So you really want to keep something like that secretly.

You also might want to protect to

element top. It's so filing an initial patent actually says to investors, we've got something that's protectable and differentiated so that it communicates with the greater value. If you get later down to series B and C, then various kind of investors that are putting 50 to 75 million, maybe 100 billion into a company and then looking to see, well, is this IP actually protected properly? And nowadays people expect to see patents as part of that, you know, basket of rights that people

have secured. So the final sort of stage of that journey is when you do a trade sale to accept, if it's a sophisticated buyer, will be crawling through the IP position in terms of due diligence. And if you don't have it well protected and you don't have a good story around it, but chip down the valley or they might not even go through with the transaction if the IP rights are all over the place

site. And finally, if you go for an IPO, then again you're open to companies wanting to license their patents to you. And if you've got nothing that gives you a defensive position, then you're going to end up paying royalties of diminished value of the company.

So for me, the thinking about patents needs to start at the beginning so that companies learn about patents, why they might be useful, where they might be useful, and then they probably start to get better in actually 78, but maybe just one patent to then steadily build a portfolio for time. And I think maybe if we take a step back, it would be good to understand what is patentable.

Because I always found this a bit surprising in that sometimes the big things aren't, but little tiny things are as if we could explain what novel which means new and inventive because, like, what's the difference between new and inventive? That would be really helpful. And maybe some examples. If you actually look at the historical rates of patents filing and you see the graph, you can see that in recent years and I think recent last ten years, it's almost exponential.

So that's because many more businesses, but many more industries that may be interested in patents have started to get into patents to protect their inventions. So the rate of filing has increased dramatically. So the chance of inventing something that's fundamentally breakthrough like for me, you will, right? The wheel was invented a while ago, but maybe carbon fiber wheels with a certain spiked island. So that makes it lighter, stronger, faster, but more aerodynamic.

You could probably file something around there. Well, now it's getting a bit narrower and a bit specific about what that invention is, but you've got a chance that it's going to be inventive. The inventive step is really has you got something that's technically clever or small that really, you know, is a technological breakthrough of some sort.

And then obviously the novelty is if it's already been disclosed in the public domain or if someone's filed a patent claiming the same thing in the past when, of course, you can't get a new patent on that, someone's already got it. But patents are getting narrower and narrower. But if you look at maybe in recent

years, quantum computing, the weren't tiny quantum computing patents ten years ago, but now there's thousands of them. So there are many breakthrough technologies that end up getting that say, but not that many that frequently. I think it's fair to say. And then also you can patent AI diers that are not yet proven. From what I understand. What you have to do is you've got an invention. So you have to describe that invention in a way that can be put in a patent document.

And one of the things you do is you broadly in the specification of the patent, you describe what the invention is, why it's different from the prior art, what's special about it, How does it work and how does it work? It's called an embodiment, but it's like an example of how this invention could be implemented.

Typically, companies will put several different embodiments or different ways of implementing into the patent and at the final bit of the patent to some patent claims, which are actually the legal language that defined the invention itself, that by putting those different embodiments said what you do have to really demonstrate is that you may not actually implement it yet, but you're demonstrating that it can be reduced to practice, it could be put in place. So you can't really

just patents. And it's a terrible idea because the idea of a patent is you are actually disclosing enough information to allow someone in the field this knowledgeable of that failed to actually be able to implement that invention. So you are expected to describe it to a degree of detail. But by disclosing it, you're saying or you can use it, you need to probably pay me a royalty

for that. For trade, you're getting a monopoly position by actually educating the world as to what that invention is so they can build on it. You know, we talked about software engineers and kind of complex algorithmic novel, innovative things that are possible that you might want to patent the user interface design. What's your your take on that? The first thing about a user interface is it has got a design, let's call it, in terms of the way it looks.

And some of those aspects can actually be protected by copyright. So website design or otherwise you've implemented something. If someone told me something looks the same and it's obvious the same, then you can rely on me. The copyright law. You can somewhat rely on design rights, but you can't patent a design in that way.

If there's a technical effect of the user interface where there's some sort of embedded workflow that does something special, that makes the user interface work better, I'm thinking of something like an AI flash player or something that's got some capability to produce video in a different way, smoother and more seamlessly. Well, that underlying technology would be patentable, but not the actual user interface itself.

One of the skills here is obviously sometimes where the legal advice is tricky because you actually are looking at assets, software, platform or the user interface and you say, Well, how do I protect that? Or how do I prove differentiation? And you might want several different types of IP rights to be used together to achieve the outcome. So indeed, you might keep the algorithm secret, sort of trade secret. You might patent protect some aspects.

You also my own training data that's used for that algorithm. So now status of intangible or IP asset that you put some controls around try or you might have the rights to license in certain way to the user. In the end, you need companies to learn enough about all of these things. The problem is if they go to a patent attorney, they might get encouraged to use the patents approach more things than

they should. So it's a balance of using the right advisors, the right times. But everyone has to raise that knowledge. In a series, a space where generic B-to-B SaaS company doing interesting things, maybe novel, maybe not. But the CEO is flagged by this for like, okay, this might be something for us to look at. Where would they start and what would they actually do in that

series? A space of investigating what they have, what they don't have or what they may have, and whether or not they should do something. What steps should they walk through?

So if they want, let's say, less expensive forks, they might start with a company like that, where we also very inexpensively with early stage businesses are actually you can do a two hour workshop with a client to actually just understand enough about what they're doing and to give them some pointers for what they should be doing or why they should learn more so that the next meeting is more productive.

But what we tend to find in that series space is what they really need is we call an IP narrative and it is a deliverable. We help produce for the client, but it actually says what it says. It has respect special. What is my IP strategy? Even though it might be embryonic, but that's like a five page document they can use with an investor to say, We know what it is. We've got a plan and we know what we're going to do about it.

By the way, we've deliberately not spent $50,000 building up loads of IP rights, but we are going to post Series A do the following things. And that's usually enough to be able to be comfortable that they thought it through and they've got a plan. And then obviously they then start to execute on that plan as they go

forward. So we think a little bit of an IP strategy or an IP narrative is something that is a good start and that gets the stakeholders in the business to just understand enough about the strategy. What you can also do. But we don't always advise it's necessary and you can actually look at all your competitors or all the kind of companies in the field and see what they actually do. So you can see how they file patents, what if they filed or they protected? Because that's all in the public

domain. You can research that. It's called a pattern landscape. And that full may be what your strategy ought to be. So you're doing a similar thing

to industry cohorts, so you don't look different in that you look like you're behaving in a similar way. But often that can be expensive to do that landscape work. And we tend to note most of these spaces well enough to just help a client with what the right answer is. So the narrative story for the investors for the next round, and once you get to that next round, you're almost setting the table for the investor is going to invest

their money. They want to know how it's allocated with the IP narrative there. That could be part of where you're allocating money in, is your point, I suppose. And then when you get to those Series B and that next step and they wanted to evolve that and actually invest in it in some form, what would that look like on a practical basis?

What that usually will mean is over that period of time that have done some things, some projects, those projects will have resulted in most likely some patent applications being filed, maybe a handful, maybe as many as ten, but probably not 100. It would also mean that. Identified. We call this IP discovery, but they've identified other assets, intangible assets that are of value to that.

So that might be we've got this proprietary data set that we use to do X, Y and Z. We've got this partnership with a university that contributes research into our venture. So there's different things that build special IP value and they might also go, we've actually already established a brand, so we filed a trademark and we've got the domain names that match that brand of trademarks. So we've got a bunch of IP assets now.

And actually when you get to Series B, they can tell a broader story of we've got five different types of IP rights that we're using to protect the platform and the brand and the license agreements we have. And that that is a really strong story because I can actually demonstrate that.

Now if you go further down and I'm thinking back and I think I can say this because in the public domain, but we work for SwiftKey a number of years ago and in that case, and we've done this with many other clients since, you can actually build a dashboard which visualizes those IP rates, which it can use to communicate that everything's really well managed. The positions improving over time.

When someone comes to invest or buy the business, they can get the wow effect of how well managed this thing is. I've just visualizing that data, communicate it with real impact and it drives value in the exit and ultimately so.

So we think the communication piece comes later. But that as well when you exit scenario or maybe a much bigger funding round that's when visualization of data and also educating C-suites about to tell the story is probably quite important to drive value. So I guess if I just take a step back, I'm probably being unfair to some SAS tools out there. There seems to be kind of like two groups.

Tech companies that are doing actually interesting things with tech and tech companies that are making people's lives easier. And it might be inventive and novel or it might just be putting a bunch of opensource together in a way that is easy.

We should both companies be looking at it because actually like how you string that open source in some ways can be interesting, or is it really only companies that are doing inventive technology truly, and therefore their value is around their ideas rather than their product that should be focused on IP and patents. Let's take the company that is glued together lots of open source components to get a product out quickly and that solves a problem.

So they've probably got first mover advantage because they've figured out how to piece these things together. They may be very successful without feeling that they've got anything that inventive or clever. It might be quite hard to find something that is actually patentable anyway because getting a software patent isn't easy. You need good advice and it needs to have some really good technical effect or technical invention. But eventually the barrier to entry is quite low,

right? Because other people could do the same thing and probably catch up quickly just by having more resources. The other thing with your open source situation is if everything you've built is reliant on, say, open source, depending on the open source license, which you have to contribute your new IP and new inventions back to that community. Some buyers have companies that are big tech buyers.

They don't like to buy solutions that are proprietary, so they won't buy the company because it's riddled with open source. So we have to open source audits sometimes to help clean up companies because the value of the enterprise is diminished because anyone could do that, they could learn together and actually commercialize some of the IP as they'd like.

Now, not for the other side where you've got someone that's genuinely innovating well technically in the software side and therefore they could get some patents. And thinking of quite a number of Octopus ventures clients we've worked with over the years, which they wouldn't mind of saying it. You know, there's some really good software businesses that also have been invented, inventive and protected, those with patents and you've got those two flavors.

Now what matters later, this is winding back forward to maybe another five years is when the business is successful and it's actually making a profit. Right? And it's making a lot of profit. And we've got lots of software businesses making a lot of profit.

There are government incentives like the patent box regime in the UK where if you've got patents covering the technology that's making the profit, i.e. the software platform, you can get your effective tax corporation tax rate down from 25% to ten. If you're making millions and billions of profit, all of a sudden your ability to retain cash, but also the genuine profit of that business is massively improved.

So we are seeing lots of software companies that didn't file patents coming to us and saying, have we got anything that we didn't disclose that could be patented just so we can go to patent box? Right? Because now they're very profitable. That's another strategic reason to have patents, which becomes actually a real operational cash flow. Business can be improved with it. Do you have to prove that you're specifically making money from those patents? It's a few different tests.

One is that you have to be doing R&D related to the technology, and there are some nuances I won't go into around that. You know, you have to mandate somebody. The requirement is really that the patents or patents, you only need one. In the case of the UK, you need one to be granted access. That covers an aspect of the technology that's in use and creating the revenues. So if you have a payment platform and all the revenues flowing through it. What should we do to promote?

A while ago, every transaction was using a particular feature and because they could get a patent on that feature, then every bit of revenue of that business could be fall into the patent box calculation. So therefore all the profit generated could be considered. There's lots of different ways of counting. While you have to manipulate things to get the claim together to decide how much you get. But that is generally the

case. You don't need the whole car to be packed into it if you have bits of the engine but averages in every car you sell and it all comes in. The other thing that you mentioned when we chatted beforehand was asset based lending as an alternative to equity finance. So for Lent, we talk about the money stuff. Right now. Probably about 15 years ago we started to see some banks lending money secured against the IP. And actually we saw that was Silicon Valley Bank, right?

So Silicon Valley Bank was probably the leader in this and a number of US banks and and all that meant is a company needed a debt facility to fund it but they would be investing in tech businesses that was probably actually scale up stage not startup stage. So they've had a few rounds of equity investments, therefore a number of theses diligence some several times. So it was a good proposition, but they needed more capital to get to that point of profitability to just go through that phase.

So they then need to secure ten, 20, 30, $40 million. Well, what was the business like that got that you can secure it against? What is the IP? So in the case that the business fails, then the lender gets the IP. And maybe they can monetize it somehow. Right. So that's the concept of asset based lending and what we've actually seen. We've seen Barclays, Clydesdale Bank, HSBC, NatWest, that actually we've seen a number of banks starting to do more of that in recent years.

And so what they're doing is they're looking to because we've worked in this space, they always have a credit committee that will make a decision to lend the money, and they're lending the money based on that likely PNL of the business and how it will get to profitability. But the AP is sort of pushing the risk gap between that so that they'll look to us to understand what the IP is, what might its value be, how might you get the value in extremis if it collapses?

And then they'll use that as an additional bit of collateral to just tip them over the edge, to be confident to make the loan. Or get better rates on the loan. Yeah. And they've been very successful. So the sort of failure rate until recent times has actually been, as Richards put it, helps for the company because they tend to get any further equity dilution.

And in times where money's hard to raise, which at the moment is or has been for 3 or 4 years, then some of those funding solutions are actually on the cusp and they've got a choice of either downsizing and reducing headcount, which delays the gratification of the growth and success, or actually maybe this extra funding can just get them through that 2 or 3 year period

that if they got it with motivation but a roving credit facility they pay for. So when you think about the ultimate end point where you have a strategic buyer, let's assume that they're interested in intellectual property. What is that strategic buyer going to be looking for in your portfolio? Or what's the criteria considerations to ensure that they feel satisfied you've got something that actually matters?

You've actually cataloged it correctly and they can ingest that into their larger corporate portfolio. A little bit depends on the buyer, and we've seen different buyers with different levels of sophistication. So the bare minimum is when there's some form of share purchase agreements, it's got some IP clauses and that say and all the IP comes across and sometimes there's a schedule in the purchase agreement that lists

the IP. So typically that would be a list of registered rights, which might be the domain names, the trademarks and the patents, because they're easy to find but easy to find in the public domain. And they will do what we would call the legal basics of checking that the company owns legal title to those assets and can demonstrate that and that it probably hasn't granted rights to the other parties so that they've got the ability to control and use those rights going forward.

So we call that the legal basics. And actually, many companies tend to use outside counsel to do IP diligence, and that's the kind of thing they do. The extra thing that sophisticated buyers do is they actually want to know is the IP any good? Does it actually protect the valuable bits of the business that we think is going to and make all that much of a profit for us? Or that technology would have to integrate with our office platform or whatever it is.

They want to know that they can do that and that it will. You know, it really is special. Well, that comes down to what's the quality of the IP and do the patents cover the technology properly? Are they well written? Are there any gaps or risks that need to be filled? So there's sort of that or I'll say the boring legal bit because I missed the value and quality balance, which we think is really important.

But it's also important that if you're selling a business to be able to tell that story because then it's convincing and people like to know that they've got a strong position. I think if you've got one, you might as well tell people about it. And on the other side, if we're acting for a buyer, it's very easy to find holes in your IP and you often find companies have got lots of patents, but there are 2 or 3 that cover the valuable bit that people would want

to buy. So there's always a mismatch and that's not always spotted. And then from a buyer standpoint and from a seller standpoint as well, how do they come to a place where the valuation put on that IP actually makes sense because I suspect that's quite a struggle in the sense that it's quite intangible.

Yeah. So I think the way we've we've seen a different flavor, say the simplest flavor is there's no value ascribed to the IP at all because they're buying the business based on its future cash flows and the economics

of the business. That's sort of the accounting view as well. But often that's how businesses support. They might then pay a multiplier or premium or pay more for that business because they think it can accelerate or do something special or different, and then they might pay even more if they can see that the IP story supports that differentiation in the long term. So I would say it's a bit of a kicker to value, but you wouldn't necessarily discretely value the IP separately.

Some companies, though do actually say, Yeah, but what's the IP worth? And that's really they're looking for some sort of financial quantification. We do build valuation models. If you are a tech business that's used to having to cross license patents because you're getting sued left, right and center, when you're buying a business, you will actually look at what licensing potential might those patents have. So I can buy the business and enjoy the revenues of

the business. So it's integration of the technology. But maybe I can also additionally leverage the patents to help me reduce my cross licensing fees. Google bought Motorola mobility back in 2011, so it was a 10.2 billion. Either for the patents or it's hardly a business. Well, that's right. But they didn't have any patterns at the time.

Various patterns have helped them to not pay huge royalties to many, many other businesses across the world because they've got cross-licensing firepower of those assets. So that's where the patents take on a bit more of the front and center of the value. So my question is, when you talked about companies will have loads of patents, but only maybe 1 or 2 of them are valuable, That is 100% my experience. And I feel like companies don't actually know because we're being

inventive. We're trying to figure things out which ones are going to be valuable. So then I guess is is the argument to default for just doing all of them just in case or actually try and figure out do the hard work of this one matters? This one doesn't. I think there are some basic processes you can put in place to treat every invention in a certain way, which means you're absolutely guaranteed to have much better quality patents. So many more of them will end up being good.

The other thing you can do is ask those patents, go through the patent office examination process, which takes years, right? You can adapt the scope of the patents over time to cover where your invention landed. Many companies don't do that. And if you do that well, you end up with many more higher cost patterns that are protecting your business. And that's the problem as people sometimes leave it to outside counsel to sort of manage all that prosecution.

But they lose sight of what the inventions actually become in terms of the patents. So that needs to be coupled more closely. What I would also say, because you're what your audience is, let's close, right. They're really practical people and they're trying to run businesses and make stuff happen. We've talked about some quite complicated concepts, but actually they're all grounded in what's the right economical commercial thing to do.

And there are some very simple guidelines that if you put certain processes in place, well, and maybe the right skill set or either advisors or in-house people, then it's not that difficult to do this well anymore because there's a lot of skills around, there's a lot of knowledge, whereas ten years ago no one did not to do this particularly well. So if you do want to get started, what do our listeners do? What's the first step?

There are quite a lot of public domain resources for people to read white paper documents, read the full education courses that are free. With about ten hours of investment, you can actually become pretty valuable and then you can get free conversations with advisors to actually just orientate and work out what you might want to do before you actually spend money on this stuff.

Out of everything that we've covered today or not, if our listeners can only take one thing away from the conversation, what is it? If it's one thing, it would be education. So learn about IP that this actually drives value and it certainly diminishes value if you get it wrong. So I would get educated. Perfect. All right. Thank you, John Calvin, for joining us on the operations room. If you like what you hear, please leave us a comment or subscribe and we will see you next week.