What do technology majors or other desirable purchasers really seek? What do they value that would not be obvious unless you had been through such a deal? How can past success be replicated? Does IP really matter? And most importantly, how does one build a strong valuation? Using practical case studies, this presentation focuses on aspects of acquisitions that may be new to many entrepreneurs. http://www.marsdd.com/events/details/bought-google-technology-heavyweight/

2. MaRS Best Practices:
Getting Bought by a Heavyweight
Anthony De Fazekas, Miller Thomson
Dan Servos, Locationary

3. Introduction
• Building a valuable startup
• Goal: strategies that can lead to BIGGER
EXITS
• Insights from Dan Servos, Locationary,
previously Social Deck
• Lessons learned, and things observed in
the deal rooms

4. Introduction, cont.
• Interactive Session
• IP Best Practices

5. Dan Servos!
Chief Operating Officer"
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10. IP is HOT!!!
• IP is very hot, especially now
• IP, especially patents, are playing an important in the traction of
new companies, new technologies
• IP of early stage companies is being noticed and a real enabler in
investments, in strategic relationships with large tech partners, and
in acquisitions
• Patent licensing companies e.g. Mosaid, IBM Licensing are making
a lot of money. New patent licensing companies are popping up all
the time, e.g. i4i
• It is NOT TRUE that IP is only noticed if you have a multimillion
dollar war chest – experience proves the contrary
• Nobody wants to be the next NTP
• Contingency patent cases in the U.S. have changed everything
• Established companies are very interested in early mover IP

11. Do what the big companies do, but more
cheaply….
• Develop an IP strategy
• Prioritize, do as much as you can with
internal resources, and scale the IP as the
business scales
• Ensure you are developing IP assets that
map as clearly as possible to your
strategic opportunities

12. What is IP Strategy?
• Mining and Protection of IP in a way that is consistent with a
“business strategy”
• It can be a highly structured document, or more of an “approach” to
IP
• What is not: “knee jerk filings”
• Looking for “platform” filings
• “Omnibus” filings are often ideal, and also the least expensive
• Build IP in areas, and directed specifically at opportunities, where
traction is likely to occur (examples)
• Make difficult IP decisions (e.g. pulling the plug on portfolios for
strategic reasons)
• Companies that develop, update, and follow an IP Strategy, tend to
develop an “IP Culture” which helps build significant value
• Some of the attributes of “IP Culture” are “inclusion” in IP efforts,
integration of IP objectives in various aspects of business, and
generally more “bang for buck” for IP

13. Struggles with disclosure
• Really should not disclose your invention
publicly, before you have developed an IP
strategy
• But you need to know, realistically, what your
“invention” is
• High level marketing may or may not disclose
the invention
• Generally speaking use “selective disclosure”
• Try to have NDAs in place, but have plan for
how to deal with important disclosures without
NDAs
• Remember: not all NDAs are created alike!

14. Forms of IP – “The Social Network”
• October 1, 2005 Facebook completes its
university expansion
• Initially patents are not filed (Mike Z was
somewhat anti-patent initially…)
• But in 2006 Facebook embarks on protection of
various aspects of their innovation for example:
– Technologies for feeding updates for your “wall”
– Technologies for updating your profile, and matching
you to potential friends automatically
– Specific user workflows that embody “user
engagement” innovation
– “Next territories” that Facebook wants to occupy such
as “social gifting”

15. Why is Facebook interesting?
• Fairly typical IP strategy that start-ups can
follow as well, from the outset
• Illustrate different “layers” or protectability
• Really all that matters is the usual
“standards” of patentability
• Although admittedly there are “strong” and
“weaker” patents
• But what is most important is the idea/
business “strong” or “weak”???

16. Starting Point of a Patent
• Important market differentiation
• Business methods are hard to patent, but
implementation of a business method in a practical
system (e.g. Amazon) is much easier
• Provides some useful advantage:
– New platform
– Components may be old, but combination/adaptation/
integration is non-obvious perhaps because of
synergy resulting from the new combination
– Less expensive, easier to transport
– More entertaining
– “Natural” interface, e.g. Autodesk

17. “Normal” Patent Timeline
• File a US provisional, prior to “public disclosure”
• Be caution with beta tests, pilots etc.
• File possibly “follow on” provisional covering
important enhancements in advance of release
• File an international (PCT) application within one
year of first provisional
• Within 4-5 months receive PCT search report
• Must file “national phase” filings within 30
months of first provisional in most countries

18. What are tech majors looking for?
• Big potential market
• A domain that is “heating up” that they
did not have plans for
• A strong team
• Less about technology, and more about
“deep expertise”

19. Legal and Housekeeping Aspects
• Good housekeeping.
– Properly documenting and addressing the business
structure
• Having good advisors
– (e.g. an advisory board, mentors etc.)
• Professional advisors
– (e.g. lawyers and accountant and others)
– Sewing good positive relationships in the eco system
• Avoiding “problem agreements”
• Be ready for “each stage” e.g. technical due
diligence

20. Behind the scenes
• Behind the scene negotiations
– The form of the deal will depend on whether it is an asset/technology
sale versus a share sale versus a licensing arrangement/joint venture
• Real life back and forth regarding valuation (valuation will be a
combination of art and science – unlike in traditional businesses
where you valuate a company based on revenue and goodwill,
startups look at the future potential)
• Value touch points – what seems to interest tech majors, again and
again (personnel, validated evidence of traction and IP if there are
IP objectives at play)
• Due diligence: what matters and what does not? (Keeping the house
in order, documenting agreements and arrangements, keeping
minute books up to date, consideration of a non-disclosure during
due diligence phases)

21. Things to avoid…
• Complex legal structure
• Ownership of technology or IP is not properly
documented
– Contributors may come out of the woodwork (the
skeletons )
– Inadequate consideration for assignments
• IP is oversold – IP is weak
– Narrow claims,
– Overly abstract patent apps
• Patent protection does not cover key markets

22. How much does IP really matter?
• Chilling effect of patents while company gains traction is
generally very important
• When choosing between two companies focusing on the
same technology, the major generally tries to buy the
company with IP before the one without IP
• The IP usually provides a bump in valuation –
sometimes 10%, sometimes 30%, sometimes more – it
depends
• Sometimes the transaction mostly about IP – especially
when there are competitive concerns - Bumptop
• The point is: it is hard to predict, so it is important to
do what you can (reasonably), and whatever IP is
filed, make sure it is as strong as possible

23. Best Practices
• Make sure you are not reinventing wheel: “right” amount of
searching
• Avoid long prior art lists – they can hurt you especially in
prosecution
• Choose patent targets very carefully
– Construct strong scenarios of patentability around key value
propositions
– Grab early as possible priority dates, but drive sufficient detail into
applications
• Start off with omnibus applications (you can divide later, but you
cannot aggregate)
• Focus on platform filings!!!!!
• Focus not only on technology but value delivered by technology
• Describe specifically implications of technology on potential
acquirers e.g. our technology would integrate with….. By….

24. Best Practices, cont.
• File robust provisional patent applications initially, for
flexibility
• PCT applications will provide within 4-5 months a reliable
search report to get your bearings
• Build disclosures that explain the nature of innovation
clearly
• Clear focus on domains that resonate with Examiners –
automation, analytics, architecture, non-obvious user
workflows etc.
• Need a clear plan on what prosecution is likely to yield,
and what this may deliver for the company
• Clear plan to scale IP coverage, if this make sense, and
if necessary recalibrate (IP strategy needs to be reset all
the time)

25. Best Practices
• What is the “right” amount of IP coverage for this company, at this
point?
• Sometimes it is important to wait to file patent later, once the
development pipeline yields further detail that can make claims
more robust (don’t blow the bank on subject matter that realistically
is unlikely to yield strong claims).
• Establish clear goals for prosecution, and reset goals based on
progress of prosecution and market movement
• Be careful not to let international protection consume resources
better spent elsewhere
• Figure out what is the “right” or “realistic” amount of protection, and
make sure that you have a good explanation for your decisions
• A cogent strategy is more important than a patent portfolio

26. Best Practices, cont.
• Availability of a compelling, distilled IP
strategy
• Evidence that company “lives” the IP
strategy
• Protection of IP, using careful agreements
• Organize your documents well: user
engagement, customer feedback,
agreement used at different times e.g.
privacy policy

27. Questions???
Anthony De Fazekas
adefazekas@millerthomson.com

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