IP_Fund_Landscape.pdf

Transcript

1. The Intellectual Property Fund Landscape: An Executive Briefing Thursday, November 5th
2. Raymond Millien is the Founder and Chairman of The PCT® Companies - the nation’s only integrated provider of Intellectual Property-based public policy, strategic management and monetization advisory services. Prior to PCT, Mr. Millien was General Counsel of Ocean Tomo, and VP and Group IP Counsel at American Express Company.
3. David Ruder is Vice President, Business Development for RPX Corporation. Prior to RPX he established Terrier IP Investments, LLC, a private investment firm focused on intellectual property-based investments in firms backed by hedge funds and private equity. He began his career working as an investment banker on Wall Street, has practiced intellectual property law for Kirkland & Ellis, and has significant intellectual property transaction experience as co-founder and CEO of River West Brands LLC as well as positions at Ocean Tomo and Altitude Capital Partners.
4. Abha Divine is the Managing Director of Techquity Capital Management, an intellectual property investment firm devoted to unlocking value from innovation. Prior to Techquity, Ms. Divine launched AT&T Knowledge Ventures (KV), overseeing the worldwide IP portfolio for the AT&T family of companies. As President and CEO, she led the organization to deliver measurable EPS impact annually beginning in year two of operation and established KV as one of the leading producers of IP assets and revenue in its industry. She was recently a contributing author to “Innovate or Perish: Managing the Enduring Technology Company in the Global Markets.”
5. © 2009 by PCT Companies. All rights reserved. The Intellectual Property Fund Landscape: An Executive Briefing Raymond Millien
6. 6  IP is a highly-illiquid asset class with a very inefficient marketplace  Historically, potential sellers of IP rights have been unable to access a large quantity of buyers who are willing to pay a predictable price under an agreed-upon set of conditions  Traditionally, IP transactions are characterized by difficult acquirer identification, long periods of negotiations and endless due diligence activities  Lack of Widely-Accepted Valuations The “Problem” with Transacting IP
7. 7 IP Business Models Model Sample Players 1. Patent Licensing and Enforcement Companies (PLECs) Acacia Research; Fergason Patent Prop.; Lemelson Foundation; LPL; NTP; Patriot Scientific; RAKL; TLC 2. Institutional IP Aggregators/Acquisition Funds Coller IP Capital; Intellectual Ventures; Techquity 3. IP/Technology Development Companies AmberWave; InterDigital; MOSAID; Qualcomm; Rambus; Tessera; Walker Digital; Wi-LAN; TPL Group 4. Licensing Agents Fairfield Resources; Fluid Innovation General Patent; ipCapital Group; IPValue; ThinkFire; TPL 5. Litigation Finance/Investment Firms Altitude Capital; IP Finance; Rembrandt IP Mgmt.; NW Patent Funding’ Oasis Legal Finance 6. IP Brokers Bramson & Pressman; Iceberg; Inflexion Point; IPotential; Ocean Tomo; Ovidian; PCT Capital; Pluritas; Semi. Insights; ThinkFire 7. IP-Based M&A Advisory Analytic Capital ; Blueprint Ventures ; Inflexion Point ; PCT Capital ; Pluritas 8. IP Auction Houses FreePatentAuction.com; IPAuctions.com; IP Auctions GmbH; ICAP Ocean Tomo 9. On-Line IP/Technology Exchanges, Clearinghouses, Bulletin Boards, and Innovation Portals iBridge Network; InnoCentive; NineSigma; Novience; Open-IP.org; SparkIP; The Dean’s List; Tynax; Yet2.com
8. 8 IP Business Models – Cont. Model Sample Players 10. IP-Backed Lending IPEG Consultancy BV; Paradox Capital 11. Royalty Stream Securitization Firms alseT IP; UCC Capital 12. Patent Analytics Software and Services 1790 Analytics; Boliven, Intellectual Assets; IP Checkups; GreyB; Next Steps Research; Patent Café; PatentRatings.com; TAEUS; The Patent Board; TOPCAP 13. University Technology Transfer Intermediaries Texelerate; UTEK 14. IP Transaction Exchanges & Trading Platforms/IP Transaction Best Practices Development Communities Gathering2.0; IP Exchange Chicago 15. Defensive Patent Pools, Funds and Alliances Constellation Capital; Open Invention Network; Pelorus Advisors; Allied Security Trust; RPX 16. Technology/IP Spinout Financing Altitude Capital; Analytic Capital; Blueprint Ventures Inflexion Point; IgniteIP; New Venture Partners; Royalty Pharma 17. Patent-Based Public Stock Indexes Ocean Tomo Indexes; Patent Board WSJ Scorecard
9. 9 Structure of a Private Equity Fund Limited Partners (Investors) Alternative: Affiliated Entity Provides Mgt. Services Private Equity Fund (a Limited Partnership) Portfolio Company 2 Portfolio Company 1 Portfolio Company n … General Partner of Private Equity Fund Services Funds Profits Capital Interests Services Mgt. Fees Mgt. Fees
10. David Ruder, RPX Corporation PCT Capital Webinar November 2009 RPX Corporation (c) 2009 10 David Ruder, RPX Corporation
11. NPE Patent Assertion • Unique, proactive Defensive Patent Aggregation service – Buying significant volume of patent rights that could be used against our members – We will not assert or litigate • Effective and affordable solution – Annual membership fee – License to entire portfolio – Not a patent pool or litigation co-op – Complete alignment of interest • 16 members including – Cisco, HP, IBM, Nokia, LG Electronics, Panasonic, Philips, Samsung, Seiko Epson, and Sony • Investors: Kleiner Perkins, Charles River Ventures, Index • Proven team with deep IP experience RPX Corporation (c) 2009 11 Reducing the Risk and Cost
12. IP Investing Increasingly Common • Pharmaceutical royalty securitizations • Other IP securitizations • Asset based investments – Brands – Patents – Films • Other types of funds with IP Characteristics – Broadcast rights – Government rights • Litigation Investments – Patents – Other types of litigations Variety of Approaches RPX Corporation (c) 2009 12
13. Litigation Finance Continues to Grow I.P.O./Offerings Litigation Fund Raises Just $130 Million in I.P.O. October 16, 2009, 5:59 am Burford Capital, the litigation fund headed up by former Barclays chairman and chief executive, Peter Middleton, raised £80 million ($130 million) in its initial public offering, less than half of its maximum goal. Invesco gobbled up about 45 percent of offering, while Fidelity International bought about 10 percent, Bloomberg News reported. Still, the news service noted that despite the less-than stellar showing, the I.P.O. is still the second-biggest offering in London this year. Burford, which was aiming to raise as much as £200 million in the offering, ended up selling 80 million shares priced at 100 pence each. Often but not always directed to patents RPX Corporation (c) 2009 13 Example from www.nyt.com
14. RPX a Response to Patent Litigation Offense vs Defense 14 NPE Offense NPEs Settlement Limited Buying Litigation Operating Companies Defense $6-8 Billion Funding 2000-2008 Patents Kleiner, Perkins Charles River Ventures RPX Corporation (c) 2009
15. Today’s Patent Marketplace RPX Corporation (c) 2009 15 Offensive Buyers Defensive Buyers Patent Sellers Inventors Law Firms Corporations, Individuals, Universities
16. Variety of Investors Participating • Traditional private equity • Venture capital • Hedge funds • Specialty funds • Distressed investors • HNW individuals • Issues – Types of risk and rewards sought – Types of LPs investing into funds – Degree of flexibility in investment documents RPX Corporation (c) 2009
17. Investors Can Change the Dynamic • Investors usually have strict requirements – Investment must return capital before manager gets paid – Timing of investment is important • Investors may have different objectives – Traditional patent litigation may involve strategic or early settlements – Investors with portfolios of patent litigations may drive all to verdict on portfolio theory RPX Corporation (c) 2009 17
18. Current Status of Fund Activity • Billions of dollars have been allocated • Definite LP interest in “uncorrelated” asset classes – Jury verdict in EDTX unrelated to Wall Street gyrations? • Many investors waiting to see if returns materialize; success means more funds will emerge more quickly – Delays from tactics such as re-exams can dampen returns • Investors still trying to understand the liquidity of IP assets; many LPs hurting for cash because of difficulties in non-IP sectors • Current trend to acquire and “mine” large patent portfolios acquired from distressed corporate sellers • NPE lawsuits continue to rise as investors look to “monetize” investments RPX Corporation (c) 2009
19. 19 RPX Corporation (c) 2009 David Ruder RPX Corporation 3 Embarcadero Ctr. Suite 2310 San Francisco, CA 94111 druder@rpxcorp.com
20. Copyright Techquity Capital Management LLC 2009 Techquity Capital Management : IP Fund Landscape Abha Divine November 5, 2009
21. Copyright Techquity Capital Management LLC 2009 21 TECHQUITY CAPITAL MANAGEMENT Private Equity Investor Objectives • Investor goals influence fund approach & strategies • Inflationary protection and capital preservation benefits drive interest in “real” assets • Continued adoption of traditional PE strategies drives demands for new investment categories • Active management and specialized expertise based approaches increase hurdles to entry • Reduced reliance on leverage affords greater flexibility for new asset categories in current markets Long Term Investment Horizon Inflation Tracking Returns Stable, Predictable Returns Outsized Returns Inversely or Uncorrelated to Public Equities Diversification for Risk Mitigation
22. Copyright Techquity Capital Management LLC 2009 22 TECHQUITY CAPITAL MANAGEMENT Traditional Private Equity Landscape Venture Capital - Investment in private firms with growth potential • Investor returns are traditionally generated from growth in value of the illiquid securities through private sale or IPO • Portfolio yield rates may be low due to compounded risk factors Buyout - Privatizing mature public firms with potential for improved operational efficiency, market value, or debt profile • Active management opportunity for improved operational performance • Market factors such as manager and target firm capacity limits, diminishing access to credit may significantly impact returns Real Estate – Investments in developed and undeveloped property across multiple geographies • Active management strategies aim to increase value by transforming under-performing assets into stable, cash flow investments • Divisible assets that can be subdivided, combined, and restructured in a variety of ways to meet market demand • Recent large scale market fluctuations and related credit risk open the asset class to near term volatility Infrastructure – Investments in public works, typically as part of a government privatization initiative • Inelastic demand and unique asset profile contribute to stable, long term cash flow profiles • Uncorrelated / inverse-correlated investment provides risk hedge against public equities holdings • Reduced returns due to capacity limitations and excess demand Private Equity investments across the spectrum share several key attributes including reliance on value-added management, higher return profiles, and market inefficiency based opportunities
23. Copyright Techquity Capital Management LLC 2009 23 TECHQUITY CAPITAL MANAGEMENT IP as an Emerging Asset Class US Patent Growth (000’s) US Licensing Revenue Potential Market Conditions • Well supplied market of under-utilized assets • Inefficient market due to context driven returns • Increasing demand for non-organic innovation • Increased corporate pressure to manage IP assets • Owners’ demand for alternative sources of capital Asset Characteristics • “Infinite” capacity • Uncorrelated investment assets • Free options • Higher returns potential • Require active management to unlock value Strategy-Specific Benefits • Improved market reach & specialization efficiency • Higher yield rates for investments • Reduced capital risk (asset based investment) • Predictable returns and timing
24. Copyright Techquity Capital Management LLC 2009 24 TECHQUITY CAPITAL MANAGEMENT Types of IP Investments Defensive Expanded Market Adoption Market & Commercialize Key Objectives Range of Desired IP Attributes • Expansion and acceleration of new or emerging product area adoption • Product or cost position improvement • Time to market improvement • Market reach expansion (macro view) • Predictable cash flow generation • Diversity in sector exposure 1 2 3 • Proactive acquisition of core product related IP • Focus on risk avoidance & mitigation • Responsive IP • “Early” inventions • Jurisdictional alignment with product and operational footprint • Incremental IP • Proven IP • Evolutionary IP • Focused, separately sourced IP assets • Invention and implementation IP • Standards related • Emergent technology • Market accepted IP • Multiple subjects, separately sourced IP assets • Performing IP assets Fund or Investment Types • Buyer’s broker or Opportunistic Investments • Defensive Pool Funds • Unit License / Options purchase • Patent Pool Licensing • IP Spin out / VC Fund • IP Commercialization Fund • IP driven Acquisition • Securitization / Royalty Funds • Sale / Lease back • Asset backed Lending • IP Commercialization Fund • IP funded M&A/ buyout
25. Copyright Techquity Capital Management LLC 2009 25 TECHQUITY CAPITAL MANAGEMENT IP Investment Considerations Technical Market & Financial Legal IP Success
26. Copyright Techquity Capital Management LLC 2009 26 TECHQUITY CAPITAL MANAGEMENT Underwriting Criteria Desired Asset Characteristics  Complementary assets aligned to existing portfolio holdings or interest areas  Underutilized by current owner  Relevant to multiple product or market segments • Strong, high quality asset families • Central to existing or developing industry standard • Promising emergent technology and innovation • Diversity in maturity and technology sector resulting in diversified commercialization approaches Diligence Focus  Scope and history of the asset  Market application / uses  Market sizing and value proposition  Valuation (risk adjusted)  Execution risk  Follow-on investment required  Timing Title Search Encumbrance review
27. Thank You! Questions? Raymond Millien rmillien@PCTCompanies.com www.PCTCompanies.com David Ruder druder@rpxcorp.com www.rpxcorp.com Abha Divine adivine@techquitycap.com www.techquitycap.com