Banks and Financial Institutions have long ago established processes and protocols for financing tangible assets, which can be held as collateral, like land, buildings, commercial properties, plant, and machinery etcetera. Intangible Assets (“IA”) and Intellectual Property Assets (“IPA”) have no physical form to give the same level of comfort to financiers as tangible assets. In order to get any financier interested, one must start from the familiar and ages old proven fundamentals of financing.
Establish Five Facts for IPAs Similar to Tangible Assets (“TA”) – USERS
- Uniqueness: Identify specialized and unique characteristics of the subject IPA which will generate or contribute to enhancing income streams sustainable beyond the financing term period.
- Security: Can be assigned to the financier like a mortgage, without any hinderance from the legal owner of the IPA and all corresponding legally enforceable and potential IPRs. There should be a ready market for sale in case of default or liquidation of the entity and or owner of the IP Asset.
- Economics: There must be a robust market for commercial exploitation of the subject IPA and associated IPRs with positive economic gains for the target horizon, in context of technological advancement of competitive products and future inventions.
- Royalties: The capacity to payback monthly instalments should be verifiable through royalty agreements, license fees and franchises payments, depending on the type of an IPA. The typical financial ratios like ROI, ROCE, NAT, PAT, and Debtor Days should be verifiable and realistic in context.
- Sustainability: Robust analysis to show that despite competition or advent of new inventions, the value of the IPA will not diminish or depleted within the remaining term period.
Having crossed the threshold of fundamentals check, what makes one Class of IPA more attractive than the other Class of IPA?
Seven Attractions of an IP Asset for Investors and Financing Institutions
- Ability to be a Unicorn: Innovation is such a breakthrough in technology which can transform the global market and existing systems in a relevant sector.
- Approved Solution to a Public Need: Innovation is such that it contributes the humanity and well-being of the public at large.
- Accepted as a Standard Essential Patent: Technology is essential for Information and Telecommunication industry networks.
- Amortization and Tax Benefits: Tax incentives under Inland Revenue Taxation Policies.
- Accounting Standards Recognition: Meets the recognition criteria as an IA under IFRS-38 and for protection of IP Rights under national IP Legislation.
- Analysis and Valuation Report: Robust and verifiable with well substantiated assumptions.
- Access to Markets: Registration in regional and international IPOs for access to global markets.
There are significant differences between various IPAs and valuation approaches. An innovation which cannot be exploited to its fullest potential, will decay without even entering the market. Banks and Venture Capital Investors use different approaches in lending to SMEs and start-ups compared with larger corporates that have a strong IP foundation with history.
TiberiasMC Consultants work with inventors and entities to identify the gaps and develop strategies to make IPAs not only viable revenue streams but attractive enough for securing financing.
For any assistance contact firstname.lastname@example.org