KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Category: Intellectual Property

Posted on Friday, November 10 2017 at 9:00 am by
Becoming a Unicorn Fintech by Shoring Up Intellectual Property

Written by Jason Gardner and Michelle Tyde

Investment in fintech companies is at an all-time high. “Unicorns” are start-ups that have valuations of more than 1 billion dollars. The majority of the unicorns are in the fintech industry. Fintech companies are often agile and innovative, which can lead to initial success, but certain issues cannot be ignored if fintech companies want to leverage their valuations for an investment or acquisition.

Intellectual property is one of the most valuable assets of a fintech company and is often the driver of company valuations for acquisition and investment. IP assets, such as patents, technical know-how (including software and other technology), trade secrets, copyrights, licenses, trademarks, and data, are assessed by sophisticated purchasers and investors during a due diligence phase prior to closing of a deal. Accordingly, in preparation for an investment or acquisition, a fintech company needs to ensure it has:

  • taken appropriate steps to register and protect its IP;
  • implemented and complied with its data privacy and security practices and policies; and
  • addressed any issues arising from the use of (1) third-party IP, (2) open source software, and (3) development by third parties (e.g., independent contractors or third party vendors) of any IP used by the fintech company.

Many fintech companies operate outside of the financial services regulation. But a buyer might bring the business under such regulation. Thus, the fintech company should consider whether its technologies or processes will comply with regulatory requirements as such can affect valuation and raise liability issues in an M&A transaction.

A buyer’s assessments during a due diligence phase of an investment or acquisition often involve the following:

  • Conducting a comprehensive review of all of the IP (and related documentation) utilized in the fintech company’s business, and any issues impacting the IP (e.g., liens, third party rights or claims, or litigation affecting such IP);
  • Confirming that the value it places on the fintech company is supported by the IP that the fintech company owns or has the rights to use and transfer its IP as any issues preventing the use or transfer of the IP can impact the transaction or the price the buyer is will to pay; and
  • Ensuring that the fintech company has implemented and maintains appropriate policies and practices regarding data privacy and security.

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