How to use your company’s Intellectual Property to improve your valuation

ip valuation

By Roya Ghafele, OxFirst.

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. But with an IP valuation under their belt, offers began rolling in. IP valuations aren’t just simple PR! Savvy entrepreneurs leverage their patent portfolios for cash, license them or assure 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 can help you use your IP to put your company in a better position.

  1. 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, enter a joint venture or collaboration, or seek to insure your business success. Your goals may depend on what stage your business is in. And depending on what exactly those goals are, simpler methods for rough estimates can be undertaken to serve your purposes.

  1. Research several methods to decide which works best for you

In general, the industry recognizes a handful of IP valuation methods. The most common ones focus either on the incremental value, the income, the market approach or a combination of thereof. The UK Intellectual Property Office, for example, emphasizes that 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. The discount rate is assumed to reflect risks, which needs to be determined appropriately. A market method may produce additional insights than the ones the income method offers. Often it can be a good idea to use several methods so to understand value through different ways.  

  1. Find a simple way to convey what you find

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 the IP 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 technologies your patents are essential to.

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 founder of IP 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.