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| Intellectual Property

Practical tips for leveraging IP to boost your financing position

A lot has changed in business finance. The emergence of new technologies changing our daily lives, such as fintech, edtech and healthtech, mean that intellectual property (IP) is attracting a flow of investment.

You see, alternative lenders see the commercial value in intellectual property assets. In particular, the potential for strong IP assets to increase in value over time, whereas tangible assets decrease in value.

Consequently, they’ve found innovative ways to assess credit risk and use intellectual property as collateral to fund tech sector loans.

 

Leveraging IP

For companies operating in the tech sector, with intellectual property accounting for an average of 80% of their assets, the benefits are clear:

First off, revenue-generating IP assets make you more attractive to investors.

Then, an IP collateralised loan helps shareholders avoid putting their family’s financial future at risk by submitting personal guarantees.

Beyond that, IP collateralised loans reduce dilution.

And most important of all, IP lending reduces the cost of borrowing.

So how do you extract the value from your intellectual property assets?

Here are four practical tips.

 

Get your IP valued

Seek an up to date, independent valuation of your IP. In particular:

  • Hard IP assets including trademarks, patents, copyright, designs and data.
  • Soft IP including goodwill, confidential information, know-how and trade secrets.

 

Use your IP as collateral for obtaining loans

Where conventional bank lenders still ignore IP as collateral to secure a loan, specialist lenders, including private debt funds, have stepped in to fill the gap.

With an IP backed debt finance loan, you can generate cash without diluting equity or tying up future revenue streams.

Moreover,  because alternative financiers look for evidence that tech companies can repay loans from future equity and enterprise value (customer base, and IP), they can structure flexible and covenant-light terms.

 

Use IP to raise capital against royalties

IP royalty lending is a form of securitisation that allows tech companies to unlock capital tied up in royalty assets.

It works by giving tech companies direct access to capital in exchange for an agreed percentage of future revenues.

The benefits are clear:

  • You retain 100% control of your IP
  • No restrictions are placed on how you use the funds
  • IP royalty lending is flexible and typically cheaper than equity

 

IP Sale and License-back arrangements

For mid-market PE/Venture-backed companies who need to secure non-dilutive short term funding for event-driven activities such as expansion, an MBO or an acquisition, IP Sale and License-back arrangements are ideal.

Here you sell the payment flow deriving from your IP rights, e.g.royalties or licences to a specialist lender, for a lump sum.

In turn, your specialist lender places your IP into a holding company or special purpose vehicle (SPV). At the same time, you license back the use of your IP assets, as in a traditional sale and leaseback arrangement.

As a result, not only do you reduce the overall cost of capital, but also you:

  • Retain complete control over your IP, as if you were the owner
  • Get immediate capital to fund growth plans
  • Avoid restrictive covenants associated with conventional lending
  • Benefit from tax savings
  • Have the option to repurchase your IP at the end of the contract

 

Who can access IP lending?

If you’re a tech company with few assets apart from your IP, then seek an independent valuation to see how much value you can extract from your IP.  

 

Do you need to be profitable to access IP backed finance?

If you’re a pre-profit company that:

  • Lacks a credit rating
  • Lacks a track record of generating cash flows
  • Has previously been denied finance by a traditional lender

But can demonstrate growing revenues, then you can access IP backed finance.

Typical uses include scaling operations, supplementing funding rounds and raising capital for event-driven needs such as an acquisition.

 

How do I find alternative lenders?

You can approach private debt funds directly. Alternatively, you can save time and money by talking to a specialist debt advisory and brokerage firm.

 

Let’s recap

When you unlock the value tied up in your IP you:

  • Avoid dilution of equity
  • Reduce the cost of borrowing
  • Mitigate the risk associated with giving personal guarantees
  • Make your company attractive to investors

To leverage IP to boost your financial position, seek advice about setting up:

  • An IP backed collateralised loan
  • Royalty lending
  • An IP sale and leaseback arrangement

It’s easier than you think.

 

And finally

If you’d like to help with unlocking the value tied up in your IP, drop me a line about debt advisory and brokerage services, and we’ll set up a time to chat.

Spring clean your IP for growth finance opportunities

With spring in the air and the end of the tax year looming, now is an excellent time to evaluate and clean your IP portfolio. Because when you have strong IP then doors to financing opportunities open for you.

Getting your IP portfolio into shape is especially important if you’re a CEO or a CFO of a high growth tech business with negative cash flow.

More importantly, if you need capital but you’ve found pursuing traditional financing options too restrictive or expensive.

Your IP is one of your business’s most valuable assets. Did you know that it’s estimated to represent more than 75% of your business value?

Therefore, freshen up your IP valuation, and you’ll be surprised by how much non-bank/alternative finance capital you can access.

Spring clean your IP

What does dusting off my IP mean for my business?

With an up to date valuation of your IP, you can convince alternative lenders, in particular, private debt funds, of the value of your product/service in the marketplace in which you operate.

You see, IP is compelling for private debt funds who understand and take a special interest in the tech sector. Especially if your IP is revenue generating.

Compared to traditional assets, your IP assets indicate your company’s capacity to generate value in the future.

For this reason, private debt funds are willing to use IP as collateral for debt finance loans.

 

What IP assets can you finance?

You should know that with a specialist valuation, as collateral for private debt finance loans, private debt funds will consider:

  •    Hard IP assets including trademarks, patents, copyright, designs and data.
  •    Soft IP including goodwill, confidential information, know-how and trade secrets.

 

What are the advantages of IP financing?

First off, IP secured loans bring funds to a company without diluting equity.

Then, IP financing is less expensive than other options.

Beyond that, IP provides an attractive alternative to personal guarantees.

 

How did IP financing come about?

IP financing is not new. In fact, Thomas Edison was one of the first people to secure funding with IP when he offered the patent on his incandescent light bulb as collateral.

After the 2008 financial crisis, IP financing became more prevalent. When banks restricted the number of loans to businesses, alternative financiers stepped in to fill the gap.

And then, of course, there’s been the growth in the knowledge economy. For the companies that operate and thrive in it, 80 per cent of their company value is made up of intangible assets. 

 

How does IP financing work?

Private debt funds structure creative finance facilities based on a tech company’s specific capital needs. Such as raising finance to:

  • Give you a cash runway to get you to the next equity round
  • Expand operations
  • Fund an acquisition

IP financing allows a tech company to borrow a percentage against the value of IP assets.

 

What do you need to do to get IP finance?

For lending purposes, to understand the commercial value of your IP assets, It is recommended you seek an independent valuation by someone with a deep understanding of IP assets and your market.

Then make sure you include your IP assets in your business plan when presenting it to lenders or investors.

 

Why you need to talk to a private debt fund broker

To thrive and grow, it’s essential that you have a healthy inflow of cash.

Different debt funds use different methods to value IP assets. So talk to a broker to get advice about IP valuation and then about getting the best finance deal.

Trust me. You’ll be glad you did.

 

And finally

If you’d like help getting finance to scale up and expand your tech business, drop me a line about private debt fund finance brokerage services, and we’ll set up a time to chat.

 

About: Ifti Akbar

Ifti Akbar

Ifti is a co founder of Fuse Three and a former tech business owner. Having successfully bootstrapped and grown a tech startup to a multi million pound company. And then sold that company to a  PE backed business. Ifti is now using his experience to help UK and European tech businesses to take full advantage of alternative finance.

Using IP to Boost your Financial Position

Not all companies realise that intellectual property can be used to boost their financial position. We’ve helped many of our clients utilise their IP to add to their companies value, allowing them to secure additional funds to facilitate their growth.

Using IP to Boost Financial Position

Patents Bring Financial Benefits

By actualising patents your company can grow up to 36% over 5 years, boosting revenue growth. Having a portfolio of patents helps to secure your place in the market and protects you against any possible future technology infringements. By defining your rights with patents, it shows investors and lenders that you have secured adequate protection to your business.

 

IP Acquisitions

If you want to boost your commercial strength and financial value of your company, IP acquisitions are a great way to do it. More patents are being sold now than in recent history which explains why half of all high-value unicorn startups have bought IP to complement their own IP development. So if you’ve been stalking a fellow tech company’s IP, maybe it’s time to make that acquisition?

 

IP Backed Lending

IP lending takes up a whopping 15% of corporate financing – why? Because companies who take on IP loans can secure financing at a lower cost of capital without diluting any further equity or tampering with revenue streams. And in terms of the lenders, patents provide them with assets that they can value at a collateral level.   

 

License your IP to generate new revenue

Believe it or not, unlocking the true value of your used and unused patents can be achieved via licensing. How? There are hundreds of companies out there that would love to use your patented technology in their own products. Licensing deals can bring in a very lucrative revenue stream – all of it pure profit!

 

Invest your IP

Another way to unlock the hidden value of your underutilized IP is to invest in another company. Why? These can be sold or invested in another company or spun out as a separate operating business entity. The value of spun-out technology increases dramatically when it’s commercialised and has significant upside potential in owning equity shares in new ventures.

 

Don’t Ignore IP Value

IP is often ignored and under appreciated compared to more tangible elements of your business such as sales and marketing, but it doesn’t take a rocket scientist to unearth its hidden value. It’s worth reviewing your IP and understanding how you can get it to work for you.

 

If you are looking to see what you IP may be worth or how you can release its value to drive growth get in touch. Fuse3 will give you a fair assessment of the value of your intellectual property and how you can use it to secure funding to expand your business.

You may also be interested in:

Understanding the Value of your IP

When it comes to valuing your company’s intellectual property, it’s easy to get caught up in complicated analysis which can confuse the best of us. Evaluating your IP is vital in understanding your technology company’s path to growth and will help you find the funds essential for realising your ambitions.

“Definition of IP: The ownership of ideas. Unlike tangible assets in your business such as computers, machinery or your office, intellectual property is a collection of ideas and concepts.”

Understanding the Value of your IP (2)

Why value your IP?

Without a doubt, intellectual property is the most important asset in the most powerful companies, (Facebook, Google, Apple, Samsung etc) and dominates the markets the world over with sky high share prices bought and sold daily.

 

What happens when you are an early stage Tech Company?

When your company is early stage, you need to get to grips with your revenue and profit models, so you can apply realistic projection scenarios. For companies that are pre-profit, valuing your intellectual property can return valuations in the millions, even if profits won’t be realised until 2020.

 

Leveraging your IP

IP is the key ingredient in mergers and acquisitions, and companies in the know use it to their advantage. Forbes writer Steve Andriole, urges Entrepreneurs to stand their ground:

“Entrepreneurs should never forget how to monetise their strategic importance: even when revenue and profits are exploding, they should never underinvest in, or undersell, their strategic value”

 

You’ve been undervalued and you know it is not a fair assessment

VC’s (aka valuation crushers), will apply operational valuation methodologies no matter what the company does. They do this to protect their investment partners and for the simple fact that by turning up at their office, it’s clear you need their money.

To get a realistic valuation, corporate M&A teams look at both operational and strategic valuation models. They understand strategic vision and operational effectiveness and why one audience might value one more than the other. They’ll know which valuation model to apply to your company.

 

How to turn your IP into gold

Your odds of raising venture funding will be significantly higher if you have a portfolio of intellectual property that defines your rights in the market and allows you to deal with potential infringement situations. If you have patents covering your inventions, copyright in software you’ve developed in-house, and/or trade marks in your branding, these assets can all be leveraged using debt finance – once you know what they’re worth.

 

Watch this short video:

Lead investment broker, Russell Lerman, talks to valuation firm, Inngot, about companies he has raised funding for using their valuation tool.

 

Curious to know what the value of your IP can do for your company?

Talk to us.

 


 

You may also be interested in:

Will Valuing your IP give you a better chance to raise funding?

Will Valuing your IP Give your a better chance to raise funding?For most companies, valuing your IP often falls to the bottom of the ‘to-do’ list, because quite frankly, you’re busy trying to get your company off the ground and turn it into something ‘tangible’. But that’s where the debate on IP kicks in, will valuing your IP give you a better chance to raise funding?

 

IP in itself is intangible until it’s valued, so this is where we have the chicken and egg scenario – you need to develop your IP to demonstrate it’s worth, but you don’t want to value it too low, so how can you convince the valuation experts that it’s worth more?

The first puzzle in the game is to figure out if you need a trademark? Or a copyright? Or a patent? For this, seek a trusted lawyer, who will steer you in the right direction. And after that you ask: Will valuing your IP give you a better chance to raise funding? The short answer is: YES!

IP matters. Patents are valuable. In 2013, Motorola Mobility sold 17,000 patents for $12.5 billion USD, AOL sold 800 patents to Microsoft for over $1m USD, only to flip them and sell 70% to Facebook for a staggering $500 million in CASH..!

Entrepreneur and investor, Mark Suster, offers ‘young’ companies this advice in his blog ‘Both Sides of the Table’:

Many founders make mistakes in the first 12 months of business that cost them dearly as they build their companies. These mistakes revolve around intellectual property, founding team members, initial product that is built and market validation.

 

Don’t wait for valuation

In the book Venture Deals, they tell business owners ‘do not wait until you are trying to raise money or sell your company to nail down IP ownership’. Do it at the same time as raising your human capital, it’s part of the “getting the company funding ready“.

Raising funding for your company follows a process, you have to have things in place before you can seek funds. And believe it or not, talking to your broker now, will reveal lots of useful information on getting your company ‘funding ready’.

Fuse3 looks for these 4 things that makes your company attractive to lenders:

  1. Seek money when you don’t need it
  2. Develop a compelling Value Proposition
  3. Demonstrate Market Traction
  4. Assemble the perfect team

 

Valuing IP Protects The Company

When you have valued your IP, you don’t have to worry about lawsuits, property infringements, lawsuits from former employers or worse, what if you fall out with the co-founder and he takes the IP with him. Guy Kawasaki says in his Book “How to keep your startup simple”,

A startup should unequivocally own or unequivocally have licensed its intellectual property.

 

Valuing IP makes sense

We recently published a blog on 6 reasons to know the value of your IP, because it amazes us at how many conversations we have with fantastic tech companies, who are developing amazing products and services who haven’t yet valued their IP. It’s a huge risk to you, especially if your staff leave and take their knowledge with them.

We’re here to make sense of it

When it comes to protecting your business, it needs to take top priority. With so much information available on the internet it can become confusing, so ideally, your best course of action is to talk to your broker. They are the independent advisor, who can look at your company and tell you what steps you need to make now, to get your company funding ready.

Investment Director, Russell Lerman has guided hundreds of tech companies and successfully raised millions of £££’s. He will give you an honest and fair assessment on where your company stands.

Talk to us

6 Reasons Why You Need To Know The Value Of Your IP

 Know the Value of your IP

6 Reasons Why You Need To Know The Value Of Your IP

When it comes to valuing your company’s intellectual property, it’s easy to get caught up in complicated mathematical equations which can confuse the best of us. We’ve pulled together 6 reasons why you should know the value of your IP and why it will help you find the funds you’re looking to raise.

“Definition of IP: The ownership of ideas. Unlike tangible assets in your business such as computers, machinery or your office, intellectual property is a collection of ideas and concepts.”

 

1. Why value your IP?

Without a doubt, intellectual property is the most important asset in the most powerful companies, (Facebook, Google, Apple, Samsung etc) and dominates the markets the world over with sky high share prices bought and sold daily.

2. What happens when you are an early stage Tech Co?

When your company is early stage, you need to get to grips with your revenue and profit models, so you can apply realistic projection scenarios. For loss-making companies, valuing your IP can return valuations in the millions, even if those profits won’t be realised until 2020.

3. Leveraging your IP

IP is the key ingredient in mergers and acquisitions, and companies in the know use it to their advantage. Forbes writer Steve Andriole, urges Entrepreneurs to stand their ground:

“Entrepreneurs should never forget how to monetise their strategic importance:  even when revenue and profits are exploding, they should never underinvest in, or undersell, their strategic value”

4. You’ve been undervalued and you know it is not a fair assessment

VC’s (aka valuation crushers), will apply operational valuation methodologies no matter what the company does. They do this to protect their investment partners and for the simple fact that by turning up at their office, it’s clear you need their money.

To get a realistic valuation, corporate M&A teams look at both operational and strategic valuation models. They understand strategic vision and operational effectiveness and why one audience might value one more than the other. They’ll know which valuation model to apply to your company.

5. How to turn your IP into gold

Your odds of raising venture funding will be significantly higher if you have a portfolio of intellectual property that defines your rights in the market and allows you to deal with potential infringement situations. If you have patents covering your inventions, copyright in software you’ve developed in-house, and/or trade marks in your branding, these assets can all be leveraged using debt finance – once you know what they’re worth.

6. Watch this short video:

Lead investment broker, Russell Lerman, talks to valuation firm, Inngot, about companies he has raised funding for using their valuation tool.

 

Curious to know what the value of your IP can do for your company?

Talk to us.