Are Software Patents Dead? NUTANIX: from invention to IPO
using intellectual property data to predict company exits
Nutanix set a 2016 record when it went public in the US last month, raising $238 million at a share price of $16, which then soared to over $39 USD on opening day.
The Initial Public Offering (a different kind of IPO from the one we usually discuss), valued the cloud data storage company at $2.18 billion, giving the underwriters (including Goldman Sachs, J.P Morgan, Morgan Stanley and Credit Suisse), plenty to smile about.
We decided to take a look at the role intellectual property played in the Nutanix IPO, to see whether tracking IP data could help investors predict investment and exit events.
The Nutanix Patent Portfolio
The company was founded in 2009 by three founders, Dheeraj Pandey, Ajeet Singh, and Mohit Aron. All are named within the top ten inventors on Nutanix’s patents. With 22 patents, Mohit Aron is named on exactly double the number of patents as the second and third most prolific inventors at the company. It’s perhaps not surprising that the ex-Googler went on to found another successful data storage startup, Cohesity.
Nutanix, like many software companies, has a fairly modest number of patents - a search revealed a total of 47 applications and granted patents. But what is compelling - from both an intellectual property and an investor viewpoint, is how concentrated the company's patent and trademark activity is in the lead up to IPO. If spectators argue that software patents are dead, it seems that Nutanix and its advisors don't share that opinion.
Intellectual Property Protection Ramps Up
The company’s first application was made in 2011, and the most recent in March 2016. As the graph below shows, the company’s patent activity forms the kind of hockey stick shape that most startup founders and investors hope for elsewhere in their business.
In retrospect, it seems extremely likely that this sudden ramp-up in IP protection activity was an early indication that the company was getting its assets in order ahead of its planned IPO.
Software patents are (still) valuable
Patents represent a significant source of company value – indeed, for many companies, intellectual property can prove to be their most valuable asset. Intangible assets and patents are therefore often used as asset security against loans and other financial transactions.
IP-savvy investors might have noticed another strong clue of pre-IPO preparations when on the 15th April 2016 (more than 5 months pre-IPO), a large number of Nutanix patent were reassigned to Goldman Sachs Specialty Lending Group as Asset Security, including the top 5 patents in terms of most cited, largest family size, and longest years’ pendency (all potential indicators of more valuable patents).
This took place as part of the terms of a $75 million loan it received from Goldman Sachs, on the basis that repayment would be made when the company staged its IPO. This information was only made public through the company’s amended S-1 filing nearly two weeks later on 27th May 2016.
The fact that a global financial services firm such as Goldman Sachs was willing, even in this post-Alice era, to accept software patents as part of the security collateral on such a large loan surely makes a very positive statement about the future of software patents?
The Trademarks Tell a Tale
Some observers might have noticed the transfer of patents as assets to Goldman Sachs and taken this as a sign that the company was struggling, and perhaps even arrived at the conclusion that an IPO was unlikely, but IP has one more clue for the eagle-eyed observer.
Nutanix filed for 22 trademarks on 20th May 2015 – the company’s first trademarking activity since registering the Nutanix trademark and logo in some additional classes back in December 2014. The company has only filed for 27 trademarks in the last 5 years, so this represents an enormous uptick in activity, and a move which demonstrates a clear investment in the future of the brand and its assets.
What do you think? Can intellectual property help investors to predict company exits? Are software patents dead? Let me know your thoughts in the comments below.