Thinking About the Exit from Day One
When you first join a company — whether as a founder, executive, or investor — you're already thinking about the exit. That means evaluating not just the company's vision or revenue potential, but the fundamentals: equity structure, 409A valuation, option terms, and tax implications.
An executive's checklist at this stage should include memorializing the equity agreement, fully understanding option exercise mechanics, and reviewing even the most granular details like stock legends and transfer restrictions. But in addition to those foundational equity terms, it's critical to understand how your company's intellectual property will be reflected in the equity — whether through increased valuation, strategic licensing potential, or the ability to drive future liquidity events.
IP Is a Core Driver of Securities Value
Here's what often gets missed: your securities' value isn't driven solely by operations, sales, or even revenue milestones — it's also anchored in the company's intellectual property (IP). Equity structure is critical, but it's not the only lever. One of the most underutilized — yet most powerful — strategic assets in boosting valuation and enabling liquidity is IP. When properly identified, protected, and commercialized, IP enhances exit value, improves investor confidence, and can materially impact how securities are underwritten and priced.
According to a study by Ocean Tomo, intangible assets now account for over 90% of the total market value of S&P 500 companies.1 For startups, the data is even more telling. Research from the National Bureau of Economic Research shows that startups that secure patent approval more than double their chances of going public. The study also found that a startup's first patent is associated with significant gains in employment, revenue, and access to financing — all key drivers of higher valuation and successful exits.2
Capital Markets Reward IP-Backed Businesses
The capital markets increasingly reward companies not just for their growth, but for the defensibility and uniqueness of that growth. IP — in the form of patents, proprietary software, algorithms, trade secrets, or data rights — provides the differentiation investors seek. IP-backed companies in sectors like tech, biotech, SaaS, and fintech consistently command stronger EBITDA and revenue multiples.
In IPOs or private placements, a well-documented and strategically aligned IP portfolio reduces perceived risk and can elevate valuation. Strong IP also unlocks alternative liquidity paths beyond traditional fundraising or exits — including licensing, strategic acquisitions, and IP-backed financing structures.3
What Investors and Underwriters Actually Look For
Still, IP isn't valuable by default. Investors and underwriters evaluate IP based on specific, actionable criteria: enforceability (ensuring exclusivity and legal protection), commercial application (connections to licensing, recurring revenue, or embedded product value), and barriers to entry (strategic moats that deepen over time as the company scales).4
IP that meets these standards isn't just an operational advantage — it becomes a core input in securities valuation and liquidity planning.
Treating IP Like a Capital Asset
To fully leverage IP as a driver of securities value, companies must treat it like a capital asset — not just a legal formality. That starts with a thorough, early-stage audit of proprietary assets, including patents, software codebases, internal methodologies, and customer data. IP must be mapped to the business model, supporting how the company generates and protects its revenue.
Ownership must be clean, documented, and unencumbered — particularly before any financing or exit transaction. IP valuations should be conducted by experts and used to inform 409A assessments, cap table modeling, and strategic deal prep. And crucially, the focus must expand beyond just patents. In many businesses, trade secrets, proprietary data structures, and process knowledge may represent even greater long-term value.5
The Closing Argument
IP is not just a legal function or an R&D output — it's a capital strategy. If you're serious about maximizing liquidity outcomes, securities value, and investor confidence, your IP must be managed with the same discipline as your financials. The companies that scale fastest — and exit strongest — are the ones that treat intellectual property as a first-class asset, right alongside equity.
Footnotes
1 Ocean Tomo, Intangible Asset Market Value Study (2020), https://oceantomo.com/intangible-asset-market-value-study/.
2 Joan Farre-Mensa, Deepak Hegde & Alexander Ljungqvist, The Bright Side of Patents, NAT'L BUREAU OF ECON. RESEARCH, Working Paper No. 21959 (Jan. 2016), https://www.nber.org/papers/w21959.
3 See The Bright Side of Patents, supra note 2 (finding that approval of a startup's first patent more than doubles the probability of a public offering and significantly increases sales, employment, innovation, and access to financing).
4 PatentPC Blog, Why IP Is the Most Undervalued Asset in Your Business Strategy, (June 9, 2025) https://patentpc.com/blog/why-ip-is-the-most-undervalued-asset-in-your-business-strategy (emphasizing that investors assess IP quality based on enforceability, commercial applicability such as licensing or recurring revenue, and barriers to entry),
5 Investopedia, Is Intellectual Property Considered a Form of Capital Asset? (Mar. 20, 2025), https://www.investopedia.com/ask/answers/061715/intellectual-property-considered-form-capital-asset-within-company.asp (last visited July 13, 2025).
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