Engineering the Most Rewarding Exit: A Strategic Guide for Selling Your Invention
Daniel J. O'Connor
I work with Inventors and R&D teams to secure their first or next significant cash-generating transaction, such as capital, licensing, distribution, or a trade sale.
When it comes to selling your invention and planning a successful exit, timing and strategy are paramount. To maximize your returns and ensure a smooth transition, it’s essential to start planning your exit strategy early—ideally before you even begin developing your invention. If that ship has sailed, the next best time to start is today. Here’s some of the key considerations you need to address if you want to engineer the most rewarding exit.
Start Planning Early
The best time to plan your exit is before you even start. This might sound counterintuitive, but by having an end goal in sight, you can make more strategic decisions along the way. If you’re already well into the development process, start planning your exit now. Early planning allows you to align your business strategies with your long-term goals, ensuring every step you take brings you closer to a successful sale.
Avoid Selling It All at Once
Don’t plan to sell your invention in one go. Breaking the sale into stages can yield better returns and reduce risks. Potential buyers are more likely to invest in a phased approach, and you retain leverage and involvement in the project's ongoing success. This multi-step approach can help in building trust and proving the potential of your invention incrementally.
Focus on Profits and Cash Flow
Your valuation will largely depend on your profits and cash flow. Buyers are interested in the financial health and profitability of your invention. However, be prepared that the initial offers might be lower than expected.
The Three-Step Sale Plan
To streamline the process, consider selling your invention in three stages:
Identifying the Optimum Buyer
Your ideal buyer is often your early-stage investor. They are already familiar with your invention and its potential. If they are unwilling to buy, they should at least agree to sell their stake. This continuity ensures that the buyer is committed to the success of your invention.
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Negotiation and Compromise
Negotiation is a balancing act. Aim to get what you can justify as real value, but be prepared for compromises. If you try to get everything your way, you risk being perceived as a bully, which can derail negotiations. Present a well-justified valuation method, and acknowledge that initial valuations might differ between you and the buyer.
Presenting the Valuation Method
Accountants may use a multiple of six times the annual profit to value mature firms. However, for your invention, the valuation should reflect its potential. The first valuation is based on the investor’s potential, not yours. The second valuation, at the VRP, should be discounted for risk. The third sale point involves clawing back the discount if your invention performs as projected.
Justifying the Discount
Buyers may insist on a discount if they perceive high risk. While you might disagree, this compromise is necessary. Frame the negotiation with a starting statement such as:
“If we absolutely knew we could hit the cash projections, you wouldn’t object to paying me the real value. The issue is that I can’t prove that we can – today. So, let’s work out a way that both of us can get what we want from this.” This approach sets a collaborative tone and encourages finding a mutually beneficial solution.
This process is far more intricate than what I have described here, but the concept of engineering a rewarding exit for your invention can increase your reward exponentially. The outcome requires careful planning, strategic sales stages, and adept negotiation. Start planning your exit as early as possible, focus on profits and cash flow, and be prepared for a phased sale process. By presenting a justified valuation and remaining flexible, you can achieve a successful and rewarding exit.
Would you like to know more about how we include a trade-sale as one of our four significant cash-generating events we offer as part of our Inventors Academy? Would you like to know how you can work with one of our experienced coaches to achieve this in months instead of years? Book a free strategy call at www.academy30mins.com, and discover how we bring inventors together in groups of six, to make the commercialization process affordable.
P.S. If you can see how this information can help you get better traction in your current project, here are four ways we can help you get your plan finalized, have your project adequately funded, and plan your first/next cash-generating transaction:
Ham Clean Energy
5 个月Great advice!
Making the intangible tangible! - IPM Consultant and Patent Attorney -Tangible IP
5 个月Totally agree about assessing early....even before you start. The vast majority of "inventions" are not inventions and so nothing to sell. Of those that are "new" the vast majority have no discernable economic value or use. Of those that do have some discernable economic value the often low value often makes the view not worth the climb. If you're in the invention selling game you don't start with an invention you start with a market opportunity that requires invention/innovation and you create IP around that opportunity. So the first step in successfully selling an invention is to work really hard to figure out what to invent.