Tuesday, 16 February 2016

Unannounced investments and IP protection: two types of secret

It now seems that investment
may be unannounced too
Readers of this weblog will by now be fully aware that the Aistemos blogteam has taken a keen interest of the role played by trade secrecy in the protection of intellectual property, in the management of trade secrets and in the problems which they pose for IP analytics -- a methodology that depends the availability of information as a precondition for being able to analyse and draw conclusions from it.

A sponsored feature in today's Telegraph, "IP protection: secret deals and investments", reports that a large number of 'secret' equity deals are being made by tech companies keen to keep their ideas and intellectual property under wraps. This article, by Rebecca Burn-Callander continues in relevant part:
"In its latest analysis of the UK’s equity , the data company Beauhurst [which describes itself as "the leading source of deep data on fast-growth companies in the UK"] found that unannounced investments worth £757m were made in 2015. “Unannounced” means that no press releases were issued and the deals were unearthed only through reviewing official company filings. This represents 1,640 individual deals, which is actually more than the 1,292 publicised fundraisings across the whole of last year.

Why are so many companies deciding not to make any noise about the fact that they have raised capital?

One answer may lie in the kinds of companies that are keeping quiet – overwhelmingly these are technology companies rich in intellectual property (IP). These businesses raised £307m last year, across 538 deals.

Within this category, software was a big sector, representing the lion’s share of secret deals. When you are developing a new product or service, especially in the technology sphere, it should make sense to shout about it, to raise the company’s profile and win more customers.

This is not true for every company – some require just one customer to care, or are so early-stage that there is no point in drawing public attention – but in the main, more awareness means more business. ...

The fact that so many companies choose not to make the most of these chances to expound on their virtues is interesting. Are they worried that by shining a light on what they are doing, they are more open to copycats or could give rivals too much insight into their operations?

Anecdotally, I have noticed that IP-rich firms that do talk about their fundraising are often incredibly cagey about the details – not necessarily the amount invested but certainly how it is to be spent, and specifics about the science behind an invention.

According to Beauhurst, many of the secret deals it uncovered may involve software businesses that are in “stealth mode” – a phase of growth where products are in development.

The majority of unannounced deals do seem to involve earlier-stage companies but these are not small amounts of money. The average unannounced investment was worth around £460,000. A handful were even in excess of £10m – including £19.2m invested in one single transaction, according to Beauhurst’s data.

This may prove that the mechanisms for protecting an idea are not fit for purpose. It is incredibly difficult for a young business with limited resources to make sure that its intellectual property – or even its basic concept – is safe, and the situation seems to get more difficult as the world becomes an ever-smaller place, connected 24/7 through the internet and every kind of communication tool. ..."
Before anyone gets carried away, £757m sounds a lot more than it actually is.  That sum, spent on unannounced investments last year, would only buy you around a quarter of Real Madrid, Barcelona or Manchester United, according to Forbes' 2015 valuations.  It will be good to watch for year-on-year comparables before looking for explanations and drawing too many conclusions.

It is also important to distinguish secrecy concerning fundraising deals and secrecy as an adjunct to or substitute for other means of protecting a business's core intangible assets through patents, copyright and other rights.  Each type of secrecy has its function and, in the case of potentially patentable inventions for which protection has yet to be sought, secrecy is essential if patentability is not to be lost through premature disclosure.  Disclosure of what a technology is predicted to do may have a significant market function: it is quite a different matter from disclosing the technical means by which that prediction is fulfilled -- and the strategic decision whether to disclose the first of these things is of a quite a different order from any decision to disclose the latter.

For a selection of Aistemos blogposts on aspects of trade secrecy, click here.  We have also started trade secrecy-related discussions on our LinkedIn IP Discussion Group here].

2 comments:

  1. There's so much information about businesses that's freely available right now that the added value in knowing about the technological direction of recipients of unannounced cash surely can't be that great. Just look at tweets, blog posts, job ads etc etc and join up the dots.

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  2. The way things are going, it won't be long before £757m will be the cost of a ManU season ticket. And that's no secret!!

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