Last month, a small
mobility company based in Texas popped up on my regular online monitoring of
the IP world. This company had written a clever press release about the value
of its patent portfolio. While I can’t vouch for the veracity of its claims, I
do think more entrepreneurs can learn from its tactics.
As an IP specialist, I
am frequently surprised by how little start-up founders and entrepreneurs think
about harnessing the value of their IP. Several years ago, I did some work for
a start-up working with high-temperature superconductors. Its founders were
having trouble determining the value of their IP and decided to seek some
professional help. Armed with this IP valuation, they began meeting potential
investors. The offers quickly started rolling in. IP valuations can be helpful
to companies in multiple ways. Savvy entrepreneurs leverage their patent
portfolios for cash, license them out, or use valuation data to ensure they
adequately protect their products. And, for a start-up that is pivoting, IP can
even be sold to private equity investors, patent aggregators or other market
players.
Undertaking an IP
valuation on one’s own can be difficult, however. And tech companies get into
IP battles all the time on who should pay whom, and how much is at stake.
Nevertheless, there are a few simple principles that you can apply to put your
company and its IP in a better position.
Determine
your goals
Valuing your IP portfolio
can help you decide how much to invest in R&D, build a pitch deck, or
engage in licensing negotiations. It can also help when you are optimizing your
tax structure, entering into a joint venture or collaboration, or seeking to insure
your business. Your goals will depend on what stage your business is in. And
depending on what exactly those goals are, simpler methods for rough estimates can
be used to serve your purposes. Before you seek any professional help in IP
valuation, it’s best to decide what you hope to accomplish with any number you
receive.
Research several
methods to decide which works best for you
The most common IP
valuation methods assess either the incremental value of the IP, potential income
generated from it, or the broader market for the IP. It is also possible to use
a combination of these methods. The right method will depend on various
circumstances. The UK Intellectual Property Office, for instance, believes it
can be helpful to assess the revenues that IP rights may generate in the
future. This method focuses on the potential size of the total market and
competition, as well as actual cash flow. A discount rate can be applied to future
cash flows in order to reflect risks, which need to be determined
appropriately. Using a market method, meanwhile, may produce additional
insights when compared to an income method. Often, it can be a good idea to use
several methods so as to understand value in different ways.
Find a
simple way to convey what you uncover
This is perhaps the
most neglected element of IP valuation among companies, particularly those in
the high technology industry. Media conglomerates and sports franchises have no
trouble demonstrating the value of cartoon characters or football players. But
because so much of IP valuation comes from complex economic models, it can
become difficult to demonstrate when IP value that is not as visible or easily
understandable. This is why the Texan mobility company stood out so much for
me. They had made their patent portfolio a central feature of their
communication strategy. This tactic isn’t going to work for everyone.
Nevertheless, you should try where possible to show how your IP is making a
difference to the market. Keep that information prominent – on your website, in
your investor presentation pack, even in the short description on your press
release. Rather than telling people how many patents you have, for instance,
emphasize your licensing potential or what economic advantages your patented
technology offers.
Among founders and
entrepreneurs, understanding of the importance of IP valuations is growing.
Even so, the market is not yet mature. Companies that are early movers within
their industry, in communicating the value of their portfolio, stand to gain a
great deal in the minds of potential investors, customers, and even employees.
Roya Ghafele is the Executive Director of IP management consultancy OxFirst. She previously worked for the
World Intellectual Property Organization, and now specializes in providing
advice on IP valuation and strategy. You can follow her on LinkedIn.
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