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Pressing need to protect IP

April 18, 2007

Now that India’s semicon policy is in place, it is necessary for India to focus on protecting IP.

Speaking at the CEO Conclave during the VLSI Conference on the topic: Making your IP viable–attracting Investments, Anil Hirani, managing partner, Majumdar & Co. and Ravindra, chief risk officer, ICICI Ventures, said most technology companies did not stress much on important documents like term sheet before, while raising venture capital or going in for private equity. A lot of them do not involve professionals in the key stage, which could easily avoid complications or issues later.

While preference shares were the norm in the United States, in the Indian scenario, most preferred equity shares, as it gave them additional protection and rights as a shareholder under the Indian companies Law. Also, debentures as an instrument, was not used that often, but was likely to be used more in the future. Voting rights was a key area of challenge as most funds and private equity firms came in as minority stakeholders.

Pricing or valuation had also become the biggest challenge. Many deals were falling apart over the differences on valuation. The price dynamics was primarily due to a resurgent stock market and a buoyant economy.

The AIM market of London had become the preferred route for medium and smaller companies trying to access the market, as entry barriers were low and regulations were not as stringent as the US where the Sarbanes-Oxley Act (SOX) had made listing an onerous and expensive process. Further, companies did not place adequate emphasis on proper record keeping and compliance, which later led to issues when a due diligence was conducted.

According to them, IP was the biggest challenge today and companies must take steps to protect it with every employee. There had been a growing interest in the sector what with global investors and arms of global venture funds being present in India.

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