What IP Can Tell Us About 2019's Unicorn IPOs
The highest expected revenue multiples for 2019 Unicorn IPOs belong to IP-intensive companies.
Uber, Palantir, and Cloudflare all hold nearly one patent for every million dollars in revenue Average IP-intensity for NYSE companies is less than a tenth of that.
While too many factors go into valuation to argue there is a direct relationship between valuation and IP-intensity, the strength of a company's IP portfolio undoubtedly impacts multiple factors that are directly relevant to investors:
Differentiation: Companies that effectively patent technology are better equipped to defend market share from similar solutions.
Growth Potential: Large IP portfolios enable multiple growth paths. Uber's IP investments enabled expansion from ride-sharing to food deliver and autonomy.
Risk Mitigation: Companies that patent effectively face less infringement risk. Bumble experienced this first hand when rival dating service Match sued for infringement after a rejected takeover bid.
What does this mean for Slack? As a market leader with impressive YoY revenue growth, they will likely command a similarly high multiple despite much lower IP-intensity than other highly valued Unicorns. Without many barriers to entry though, expect Slack to face intense competition from entrenched players like Microsoft and emerging offerings, which will put downward pressure on share price in the future.