Don't sit on assets
1 Feb 10
It’s time to give intangibles the attention their true value deserves
by Martin Brassell
Lord Mandelson described innovation as being “at the heart of the knowledge economy”. The fact is, innovation is everywhere in business.
Unfortunately, our existing ways of recognising innovation do companies an injustice. Too often, when we analyse the knowledge economy, we fall back on narrow inputs (qualifications and skills) or even narrower outputs (patent applications).
Most knowledge-based businesses have a wide range of intellectual assets – for retailers, it’s intangibles such as their brand reputation. And when these businesses are sold, intangibles usually make up the majority of their value.
If innovation is the key to our future success, then the assets that underpin it need to be better recognised. New ways must be found to recognise the value in intangibles, and leverage this value to help companies prosper.
From an accounting standpoint, this poses some challenges. To bring intellectual assets on to the balance sheet, you have to capitalise them at what they cost to create, then depreciate them over time.
Where building long-term value is the objective, this approach is counter-intuitive. In reality, assets will appreciate if the business is successful – and any company expects its cost of creation to be much less than the ultimate value.
The task boils down to proper definition of the intellectual assets, so that their importance and value can be better understood by customers, funders, partners and potential licensees. This is why we have created Inngot.com – to describe, promote and value intellectual assets, while protecting their confidential nature.
The descriptive challenge took about two years to overcome and create in software. Companies and their intangibles (simply referred to as “IP”) are registered separately, so that businesses can set out their claim to several related sets of assets. The system helps build a profile of IP by picking elements to describe its stage of development, market applications, knowledge components and benefits.
The focus is on what the assets are, not how they work, so trade secrets (and 30 other types of intangibles) are flagged up, but not disclosed. The assets can be loaded on to Inngot.com’s secure website. Normally, users need to be registered to search, but companies can also share their IP registration with any other contact by providing them with an access code.
To unlock these assets fully, a notion of their value is needed. We addressed this by creating an IP value indicator with input from Grant Thornton UK. This proved its worth in improving the negotiating position of companies seeking new equity investment, but our longer-term aim is to see IP used as security for asset-based lending.
Intangible assets are already the most important ones most businesses possess. We need to find new ways to capitalise on it.
MARTIN BRASSELL is co-founder and chief executive of www.inngot.com