Thursday, 5 December 2019

How to use your company’s IP to shed light on your firm’s value

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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