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.
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.
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 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.