Joff Wild

Fortress Investment Group has made a major move in to the IP market with the hire of Eran Zur to head up its IP Finance Group. Zur, who co-founded RPX and was its president until he left last year, joined the investment management firm in February and will run a team that focuses on IP lending. Prior to establishing the defensive patent aggregator, Zur was in charge of the licensing programme of the Lemelson Medical, Education & Research Foundation.

When he left RPX last August, Zur set up Koru Venture Partners with fellow Israeli Joseph Kessler. Koru ran an asset based lending fund and provided capital in the form of patent backed loans. Kessler has joined Zur at Fortress, along with others including former senior RPX employees Steven Waterhouse and Yoni Shtein. I understand the primary focus of the new group, which will be based in San Francisco and Israel, will remain on IP lending, with it looking to do deals that could go as high as $30 million.

We have an article on IP debt in the next issue of IAM (which comes out at the beginning of April) written by Joe Jennings of Drakes Bay Company. He explains what it is thus:

IP debt is a short-term (between two and three years) loan that is secured primarily or only by a company’s IP assets. During the period of the loan, the IP assets are encumbered by a lien that prevents them from being enforced, reassigned or sold without the lender approving and releasing the lien.

In a traditional corporate debt deal, IP assets are often pledged along with accounts receivable, inventory and cash. Traditionally, intellectual property is just one of the several types of asset that a lender seeks to secure to reduce the risk if a borrower should default on a loan. In most cases the actual value of the IP assets is perceived as minimal, and very risky, and therefore such assets are heavily discounted.

Fundamentally, what differentiates an IP debt deal from other forms of corporate debt is that the IP portfolio is the main asset being secured against the debt. The amount of the debt is calculated on the value of the IP portfolio, and the primary remedy for the lender if the debt is not repaid is ownership of the IP portfolio being used as collateral.

Obviously, to get involved in this kind of lending an organisation needs to have top quality IP expertise. With Zur, Kessler at al, that is exactly what Fortress has recruited. It is also pretty clear that bringing them in would not have come cheap – after all, we are not talking about a single hire; this is the creation of a team managed by highly-experienced, pretty wealthy people, who are unlikely to be in it solely for the love of the game!

Rather, Fortress, with a market capitalisation of over $3 billion, and funds under management that exceeded $50 billion in 2012, is making a serious statement of intent here. If what I have been told about Zur reporting directly to the co-chair of the firm’s board of directors, Peter Briger, is true, this only underlines that point. And where Fortress goes, other investment management firms may well want to follow. For those involved in the IP marketplace that is a very exciting proposition on many levels.