Every company or business individual needs capital to scale up, but very few registered entities allow their intellectual property assets to double up as a revenue stream. Today we will discuss how, with a recent rise in the significance of intellectual properties, IP owners can use certain IP financing categories to raise capital and fund their businesses.
According to the World Intellectual Property Organization (WIPO), the global value of IP assets in 2021 will reach USD 74 trillion and have risen tenfold over the last 25 years. Besides, IP-based assets make up more than 90% of the value of companies in the S&P 500. Hence, IP-based financing has proven to be an excellent way to raise funding for your company.
Formal and Informal IP financing:
In intellectual property financing, a blend of formal and informal IPs is essential to keeping your IP valuations in check. Take a look at the finer differences between the two:
- Formal IPs: These are always reserved for real financing as per your requirements. The formal IPs are legal components such as trademarks, patents, copyrights, design rights, etc. that are recognized by the global banking and insurance industries.
- Informal IPs: Informal IPs are essentially a company’s USPs (unique selling points) or “know-hows.” These include assets such as branding, supplier relationships, and business processes. These assets assure the market that you have the potential to thrive.
Both formal and informal IPs are required to demonstrate bankability and scalability to seek capitalization and earn themselves and their investors long-term economic success.
Structures of IP Monetisation:
While many accounting firms would assign financial structuring to intangibles based on IP portfolio valuations, seasoned IP lawyers can point you towards the right IP-monetisation arrangements behind closed doors.
At Nicomedia IP Legal Associates, our monetisation strategists recommend 4 basic monetisation structures that are stable, secure, and essential to monetizing the value of your intellectual property assets. These are;
- IP Asset-Backed Loans
- IP Leaseback
- Commercial Legal Finance and
- Royalty securitization
IP Asset-Backed Loans
If you are a business entity with a lack of funds or tangible assets, then this monetisation route is highly recommended. IP asset-backed loans are structured very much like conventional loans on collateral. Here, the lenders secure interest on your IP assets in exchange for payments.
A key example of this kind was when Kodak, facing bankruptcy, used its facial recognition patent and other IPs as collateral to secure a $2 billion USD loan in 2012.
While many European business banks offer IP-asset-backed financing, India allows its lenders and banks freedom so that they can offer loans as per their discretion.
In IP valuation, the lender determines your IP liquidation values and allots the loans as per their risk capacity. Hence, Nicomedia recommends that you develop risk-return frameworks for each of your IP assets before seeking these loans.
Looking for IP-Monetisation Assistance? Book your first appointment Here.
IP Leaseback
A leaseback is a financial agreement where there is only a change of ownership and no change in access. Here, the IP owner sells their IP asset but can lease or license it back from the purchaser.
This route provides IP owners with immediate access to liquidity in situations of dire need while continuing the use of vital assets as before. At Nicomedia, we recommend deciding the terms and having your IP assets evaluated so you can include a repurchase option within a predetermined period.
Looking to register a new trademark? Get a free quotation HERE.
Commercial Legal Finance
Commercial legal finance is for you if you are a new market entrant, struggling with threats of litigation, or facing an infringement dispute. As small enterprises are at higher risks against innovation by big players in the market, commercial legal financing assists IP owners in not just managing the struggle to raise capital but also combating incidences of such malicious litigation.
With commercial legal finance, IP owners can raise funds from the market against the future value of their dispute while covering the costs of existing litigation and/or business operating expenses. This route is highly recommended for infringement cases on patents and trade secrets.
IP Royalty Securitization
IP royalty securitizations are becoming more popular worldwide for the benefit of time-bound exchange. An IP owner can sell their IP-related income for a fixed duration to an investor in exchange for an upfront cash payment.
The primary difference between securitization and an IP asset-backed loan is that you sell your IP revenue stream for a fixed duration against a future cash value, whereas in an asset-backed loan, you borrow money.
Are you looking to raise funds against your IP assets? Or are you facing litigation and short on funds?
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