Wednesday 18 November 2009

Maximising IP and Intangible Assets: new report

IP Finance has recently received information concerning the new paper from Athena Alliance, Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance. This report may be accessed from Athena's website here, in html and pdf versions) and on Ken Jarboe's weblog The Intangible Economy. According to Ken,
"The paper looks at how, as innovative companies struggle to raise funds, intellectual property and intangible assets are providing alternative ways of financing innovation. The report outlines increasing, but still nascent, means of financing innovation based on these assets in public, private and venture capital markets. As industry has invested capital in research and development to develop new technology and advance other creative activities, intellectual capital has become a valuable asset class, according to the paper. In response, firms specializing in intangible-based financing are springing up, using them to raise capital for the next round of innovation.

The report details equity, equity-debt, debt, and sale-leaseback transactions, both private and public, that have helped companies raise capital, based on careful, rigorous analysis and conservative underwriting standards. For example, the author notes that in 2000, there were two public deals using royalty securitization, raising $145 million. In 2007-08, $3.3 billion was raised in 19 deals.

Unlike some of the exotic financial vehicles, however, the financial products discussed in this paper are some of the most basic financing mechanisms in business. The innovation is in recognizing the value of intangible assets for corporate finance. These new financial firms are using traditional financial techniques in new ways to help innovative companies.

As a case study paper, the report does not get heavily into policy recommendations but builds on earlier Athena Alliance papers, notably Intangible Asset Monetization: The Promise and the Reality. The report does discuss that the important step would be developing sound, industry-wide, underwriting standards .... For example, Small Business Administration (SBA) rules permit its loans to be used for acquisition of intangible assets when buying on-going businesses. However, it appears that the rules are unclear on whether those assets can be used as collateral. The paper recommends that SBA work with commercial lenders to develop standards for using intangible assets as collateral".
Ken asks that this paper be given some airing, so that he can receive the benefit of readers' comments. You can email him here.

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