Intentional Growth #368: How Does Intellectual Property (IP) Impact Valuations, Funding, and Exits? with Robert Cote
I loved my conversation today because it highlights the interconnected nature of Intellectual Property (IP), entrepreneurial vision, and the evolving dynamics of business valuations.
Today, I sat down with Robert Cote, founder and CEO of Cote Capital, who is an expert in the value of intellectual property (IP). Robert, with his vast experience, highlighted how IP protection is crucial for businesses and introduced the concept of 'IP capital'. We delved into the challenges businesses face, particularly in hardware, and discussed new investment models that prioritize IP. Robert also emphasized the importance of a clear vision in business and the potential of sustainable technologies. Our conversation spanned various topics, but the core takeaway was the transformative role of IP in today's business landscape.
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Key Takeaways:
1. The Significance of Intellectual Property (IP):
IP as a Core Asset: the importance of intellectual property (IP) in driving business value. IP protection has been crucial for companies to prosper and introduces the notion of 'IP capital' which allows businesses to leverage their intellectual assets multiple times.
IP Valuation and Protection: beyond legal tools such as patents, the real essence of IP lies in the technology it embodies. Companies should adopt global protection strategies and focus on sustainable future cash flows from IP. Robert also discusses challenges in the IP space, such as “efficient infringement” where smaller innovators are at a disadvantage against larger corporations.
2. The Shift in Venture Capital and Business Valuation:
Transition from Hardware to Software: the shift in venture capital from hardware-oriented investments to software, and the distinct capital requirements of each. This discussion introduces the concept of 'IP capital' as a growth model.
Novel Investment and Valuation Models: Robert shares his novel investment model, emphasizing the importance of valuing IP, sharing revenues, and avoiding the dilution of entrepreneurs' stakes. Robert discusses the essence of IP in business valuations, drawing comparisons to real estate and emphasizing the creation of diverse revenue streams.
3. Entrepreneurship, Innovation, and Growth:
Visionary Leadership: the power of creative vision in guiding business trajectories is highlighted with figures like Andrew Carnegie and Napoleon Hill,
Embracing Challenges and Growth: Robert sees it as a divine pursuit requiring faith, courage, and understanding life in hindsight. They also delve into the potential of sustainable technologies and the importance of innovation in the context of global competition.
Bio:
Robert Cote, founder and CEO of Cote Capital (www.cotecapital.com), is one of the world’s leading intellectual property (IP) lawyers and investors. He has 25 years of experience in identifying, valuing, and investing in the breakthrough IP of technology companies that built new industries in the United States. He has experienced firsthand the challenges technology companies face in funding the growth of their businesses as they enter commercial markets. He developed the IP Capital model as a better way of investing in and scaling a new generation of these companies.
Interview Quotes:
15:22 - “Venture capital has moved to software where they do those many bets across unique ventures, and they value the venture, not the IP. And they have a valuation model that works for software where capital is light, early revenue,evaluation can be low, but the capital need isn't so high that you're taking away most of the equity.” - Robert Cote
17:57 - “So I try to dispel a misconception. And that if sometimes people can think of the IP rights to protect your tech technology as the IP, in the legal world, it's often used synonymously. [...] It's the technology that we're talking about.” - Robert Cote
34:02 - “In the end, cash is king. Cash flow, as opposed to accrual, tells you the truth.” - Robert Cote
34:56 - “People don't realize the more value I create for others, the more value I create for myself.” - Robert Cote
35:11 - "It's a fool's move to keep that diamond in my pocket." - Robert Cote
41:00 - "People don't realize that. And if you go around the world, you'll find that your IP assets, when licensed, those revenue streams are taxed at half or less of corporate profits." - Robert Cote
42:20 - “In terms of actually separating them legally, it is usually wise to have ownership held by a wholly owned subsidiary that holds the IP." - Robert Cote
47:45 - "What's in the mind is hard to separate, even though there's an agreement that says I shall not use it, right? Challenging to prove it." - Robert Cote
1:27:29 - “ And so we need competition because if we don't have the competition we're just sitting there by ourselves and who cares.” - Ryan Tansom
Links and Resources:
Connect with Robert! (LinkedIn)
Intentional Growth™ Vision Board
Intentional Growth™ Online Training
Reach out to me if you have questions about the Intentional Growth™ Training or Fractional CFO services