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.

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Leveraging IP in the Capital Markets

  1. 1. Leveraging IP via the Capital Markets © IPmetrics LLC
  2. 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 2
  3. 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 3
  4. 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. 4
  5. 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. 5
  6. 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%. 6
  7. 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 7
  8. 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. 8
  9. 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 9
  10. 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 10
  11. 11. For Additional Information • eMail: David Drews ddrews@ipmetrics.net • Online: www.ipmetrics.net/monetization • Phone: (858) 538-1533