By Shane Percival

I recently came across an Inc. magazine article published by Basil Peters, CEO of Strategic Exits Corp. In the article, Peters states that if you have a valuable patent, but not $10 million in the bank, the only reasonable business strategy is to sell your company as quickly as possible. According to Peters, the risk-reward ratio related to enforcing your patent on an infringer is too high to make sense for a small company.

Be Wary, Not Fearful, of Litigation

Why is this Peters’ advice? He claims that the probability is too high that your patented idea will be stolen by a larger competitor and the company won’t be able to handle the costs.

Under this logic, it’s tough to see how any start-up reliant on new technology can go public. Although I’m not privy to the financial statements of early-stage companies, I do know that many successful start-ups reliant on patented and patent-pending technology to develop their client base do not have to defend or enforce patents on their competitors before their bank account hits the $10,000.000.00 mark.

Just look at fairly recent IPOs Dropbox and Square, to name a few, and early dot-com era start-up TiVo. I’m sure these companies, their employees, and their investors are happy they did not heed Peters’ advice by selling before they reached the magical $10 million mark. Many future startups shouldn’t either.

You can’t go through life and business being fearful about who you may and may not have to sue. It’s important to be prepared for that potential, but if everyone who doesn’t have $10 million in the bank sells their patents, then you’re left with only established businesses owning patents.

What Exit Strategy is Right for Me?

Determining how best to monetize your intellectual property should take into account the IP owner’s desired goals and future plans.

When the IP is owned by a company, this comes down to maximizing profits for the shareholders. Before deciding to take the exit strategy mandated by Peters, the shareholders should understand the nature of the technology, the patent landscape, and the path towards continued success.

Oftentimes, the shareholders’ understanding of the business fundamentals leads them to choose a path other than a quick exit, even if it may mean greater risk. They know that although difficult, it is possible to sustain increased growth based on a patented technology and reach a much greater return on their investment.

Negotiating a Sale and Licensing Rights

If the shareholders have decided that selling a company that owns valuable patents before hitting the $10 million mark is the proper way to maximize value, ensuring that (a) you’re aware of the details of the IP owned by the company and (b) you own the IP is paramount to obtaining the highest value for your company.

For example, conducting a patent landscape analysis can help determine the potential value of your portfolio. Companies should also ensure that ownership of your IP does not rest in the prior corporate name or any inventor, individual, or employee.

Work with your IP attorney and IP valuation firm to assess the value of the IP in relation to the company itself. This needs to happen before you shop around for a buyer.

Whatever you do, though, don’t feel like you have to sell your business and IP just because you don’t have $10 million in the bank.

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