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Leveraging IP in the Capital Markets

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In analyzing intangible assets in strategic decisions, the capital markets provide an avenue to consider extracting value from IP.

In analyzing intangible assets in strategic decisions, the capital markets provide an avenue to consider extracting value from IP.

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  • 1. Leveraging IP via the Capital Markets © IPmetrics LLC
  • 2. Types of Intangible Assets
      • Obvious Intangibles :
        • Trademarks, Patents, Copyrights
    • Less Obvious Intangibles :
        • Slogans: “Just Do It”, Characters, Package Design
    • Obscure Intangibles :
        • Non-Compete Clauses, Proprietary Sales Methods, Engineering Designs and Drawings
  • 3. Leveraging via Capital Markets
    • Relatively unexplored method of leveraging IP
    • Focus of IP leveraging has been on expansion of opportunities
    • Focus of Capital Markets is risk management and efficient use of cash flow
    • As licensing increases, cash flows catch the eye of Wall Street
  • 4. Risk Management
    • Infringement, obsolescence and cash flow risks can be transferred to lender / bondholder.
    • Financing has to be non-recourse – specific cash flow and assets utilized for debt payments.
    • E.g., General obligation bond vs. revenue bond.
  • 5. Cash Flow Management
    • Trade an ongoing revenue stream for a lump sum cash payment.
    • Fund new operations: investment return s/b higher than cost of funding.
  • 6. Typical Advantages of Borrowing
    • Non-dilutive for current equity holders.
    • Interest payments are tax deductible.
    • Cost of financing can be favorable when compared to venture capital discounts of 25% to 50%.
  • 7. Two Types of Assets
    • Cash Flow Assets: specific cash flow .
      • Licensed, royalty payments
    • Implied Value Assets: internal use, obscure .
      • Customer lists, trade dress, complementary to front line assets
      • Typically used to provide a cushion on specific lending
  • 8. Focus: Lender’s Security
    • Sufficient Value as Collateral .
      • From Lender’s view as potential owner
    • Sufficient Cash Flow to service the loan .
      • If recourse, from general operations
      • If non-recourse, from specific cash flow
    • Cash Flow: History, consistency, growth, potential risks – credit rating of LICENSEE.
  • 9. Lender’s Requirements
    • Safeguard Against Bankruptcy – Special Purpose Entity .
      • Wholly owned subsidiary of IP owner
    • Escrow Account to handle payments .
      • All Royalty payments flow into Escrow Account
      • Loan or asset backed security is serviced – excess to SPE
  • 10. Due Diligence
    • Some features similar to typical loan:
      • Title Search
      • Credit History
      • Cash Flow Verification
      • Valuation of Collateral
    • Some new:
      • Patent Validity
      • Specific asset aspects such as obsolescence, competition, product life cycle
  • 11. For Additional Information
    • eMail: David Drews [email_address]
    • Online: www.ipmetrics.net/monetization
    • Phone: (858) 538-1533