How do investors evaluate intangible assets during due diligence?

Full Explanation

Due diligence on intangible assets has become increasingly rigorous as these assets represent a larger share of deal value. Investors typically examine five areas. IP verification: confirm that all intellectual property is legally owned by the company (not founders or contractors), that registrations are current, that there are no pending infringement claims, and that freedom-to-operate opinions have been obtained for key technologies. Customer analysis: review customer contracts, assess concentration risk (a single customer representing more than 20% of revenue is a red flag), analyse historical retention and churn rates, and evaluate the quality and transferability of customer relationships. Technology assessment: engage technical advisors to review code quality, architecture scalability, security posture, technical debt levels, and the technology roadmap. Some investors conduct independent code audits. Brand and market position: analyse brand awareness metrics, organic search rankings, social media engagement, and competitive positioning. Assess whether brand value is tied to specific individuals (founder-dependent brands carry higher risk). Team and organisation: evaluate management team depth, key person dependencies, employee retention rates, and the quality of documented processes. Investors use various frameworks — some proprietary, some standard like Opagio's CHS-based questionnaire — to score intangible asset quality and compare across portfolio companies. The quality of intangible asset documentation often correlates with management quality in investors' minds.

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