Realising the value of intellectual assets
1 Feb 10
Stephen Robertson argues that smart use of intangibles can help a business to raise finance or create new sources of cash flow
by Stephen Robertson
Intellectual assets (IA), including IP, can be critical to company success. In addition to formal IP rights such as patents and trademarks, other intangibles such as critical business processes, know-how, brand value and innovation practices can be considered as valuable assets that play a vital role in business performance.
Identifying, reviewing and managing IA in alignment with company strategy can create new opportunities and support innovation, while enhancing value and competitiveness by creating barriers to entry.
Through reviewing its IA, a company can identify IA or IP capable of being “monetised”, either through the existing business, or through licensing and other forms of commercialisation. Non-core IP, for example a brand a manufacturing company has discontinued along with its associated trademarks and domain names, could be sold for a one-off payment, the payment of royalties or a combination. In addition to creating a new revenue stream, this can help companies streamline operations and focus on the more profitable aspects of the business.
Another option, where IP has other applications outside of the company’s core business, is to sell the IP to a third party who can take the product to market, and potentially license it back to the seller in a particular field of use.
One example would be software generated internally which is capable of being utilised in other markets. Licensing is another means of monetising either non-core IP or IP capable of multiple applications, creating new or exploiting previously unrealised revenue streams through royalty payments.
This is often the case when software companies “shrink-wrap” services – i.e package software developed for internal use or a specific client so it can be sold or licensed more widely.
Additional revenue could be obtained by linking the sale or licence to a technology transfer (know-how, for example) and/or the provision of ongoing technical support.
When cash needs to be raised, IP asset value is often overlooked as a means of providing leverage. The use of IP rights, particularly patents, to provide access to funding is applicable not only to established companies approaching institutional lenders, but also to start-up companies seeking funding from venture capitalists.
A less well-known but potentially effective restructuring solution is to use IA/IP as collateral for a loan. The assets and debt are transferred from a trading company into a separate company (over which the lender has security) and licensed back to the trading company.
This is attractive to the lender as it provides a clear line of sight as to how debt is to be repaid, with licence income from sales secured by the trading company. The lender has the added comfort that they will acquire the valuable IP rights in the event of default by the borrower. For the borrower, the structure can ease working capital constraints and support growth plans.
STEPHEN ROBERTSON LLB CA is a director and founder of Metis Partners.