Circle-report-tealBusy CFOs, CEOs, and in-house counsel cringe at the thought of preparing for due diligence. Creating and maintaining a deal or data room is of course now a virtual exercise. Gone are the days of inviting auditors and attorneys to your office to review files. However, the initial set-up can be daunting!

The files required in your data room to share with outside professional for a financial audit, fundraising, or crowdfunding have significant overlap.  We recommend coordinating the efforts to create one multi-use data room that is company knowledge management rather than just task specific.

Innovation and Due Diligence

Like anything else in business, being prepared is half the battle. If you start from day one with a process for standardizing and securing written contracts for all aspects of your business, you will be on the right track.

Due diligence is not the time for surprises. Creating and maintaining an electronic file cabinet for your documents will not only reflect well on your business but also save you time and money.

IP is much more than just patents

Investors want to know about your valuation and a large part of that is comprised of intangible assets. Here Andrew Sherman of Jones Day discuss this in a TED talk.

Business valuation firms need to understand both registered or protected IP and the company’s strategy to capture and retain new innovation that create IP. Filing patents is not enough; a monetization strategy is critical to securing a solid valuation.

Chain of Ownership

However, a common early-stage mistake can now come back to haunt growing companies. Do you have proper ownership of the IP?

A medical device company was well into pitching for a Series A round. During due diligence the ownership of the patents underlying the technology was questioned. The Company and CEO were not the patent holders. Instead, a physician held the patents and he refused to assign them to the company. No IP, no funding.

A rush to market can sometimes mean that a company has skipped one of the following important steps:

  • Securing confidentiality or non-disclosure and non-compete (in appropriate states) from employees;
  • Ensuring that contractors’ work becomes the property of the company;
  • Filing provisional patents and not filing patents within the time frame;
  • Identifying trade secrets and communicating the protection process to employees and contractors; and
  • Assigning valuable innovations and IP to the company.

Process Rules

Creating a routine or process for innovation capture and providing guiderails for growth in terms of processes for knowledge management will pay off.  Those who feel that systems and procedures will slow you down are partially correct. They will force you to consider the very steps that too many companies skip and that later cause a crisis. 

Listen to Marc Chesley from Infusionsoft discuss why “a car with brakes goes faster downhill.” 

If you could benefit from help preparing for due diligence or are in need of an innovation program or review, please contact us or learn more here.


Enterprise Risk Management