A valuation of intellectual property (IP) may be important when raising capital because it helps to determine the value of a company's most valuable assets – its intangibles. Historically, capital providers would look to the value of a company’s hard assets (such as property, plant, and equipment) to gain comfort before investing in or lending money to a firm. Today, IP, including patents, technology, brands, software, data, and trade secrets, and goodwill, make up the lion’s share of corporate value, as demonstrated by the Ocean Tomo Intangible Asset Market Value study, shown below.
An IP valuation offers a credible, transparent assurance of collateral value for investors and lenders. A thorough IP valuation can also help both investees and investors identify infringement and encumbrances affecting a company’s IP and inform the need for proactive risk reduction and protective measures.
An independent IP valuation is also beneficial to the company. With IP contributing more than 90% of S&P 500 company value, understanding IP value is no longer optional; it is a necessary management tool, facilitating informed strategic, financial, and operational decision-making. With an understanding of IP value, a company is in a better position to negotiate terms and secure favorable financing.
When performing an IP valuation, technical and subject matter experts enhance the credibility of the analysis. Technical and subject matter experts can thoroughly analyze the technical aspects of the IP and position in the overall competitive landscape. This analysis includes analyzing the novelty, utility, and non-obviousness of the IP, as well as the advantages and disadvantages of the IP relative to existing alternatives. An expert can also identify potential infringement issues and provide recommendations for protecting the IP. The insights and analysis a technical expert provides, can support the factual basis for the IP valuation, making it more informed for potential investors, lenders, and licensees.
In a recent engagement for a cutting-edge battery design and manufacturing company looking to raise capital using its IP portfolio as collateral to support the company’s borrowing activities, management required an independent technical analysis and valuation of its patents and trade secrets related to lithium metal battery technology. The Company’s battery technology demonstrated ultra-high energy density and a long-life cycle, making it ideally suited for electric vehicles (EVs), unmanned aerial vehicles, and numerous other markets. Ocean Tomo team collaborated with technical experts in EV battery technology. The subject matter expert provided an additional layer of insight into both the technical elements of the technology as well as its commercial viability and place within the ecosystem. This engagement demonstrates the benefit of a multi-disciplinary approach to intellectual property client engagements, combining financial, scientific, and technical expertise to provide clients with a holistic analysis of their IP. Ocean Tomo’s holistic analysis was instrumental in the Company’s successful capital-raising efforts, allowing it to continue its ongoing research, development, and manufacturing activities.
The above is one of many examples of how companies, investors, and lenders today require a robust understanding of IP assets before making key business decisions, such as raising capital. As the economy continues to revolve more, not less, around IP, such as technology, data, and brands, stakeholders will demand a holistic technical, financing, and market understanding of intangible value.
To explore this topic and how it could impact your business, please contact: Noor Al-Banna, CFA at Noor.AlBanna@jsheld.com or +1 312 327 4434.
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