Presentación de valoración Elena Canetti- taller CORFO 2012

1. Technology Valuation
2012
4 innovation
ecanetti@4innovation.com

2. Introducción
VALORACIÓN DE TECNOLOGÍA

3. Proceso de Transferencia Tecnológica
Riesgo
Solución Prototipo Empaquetamiento
IDEA
tecnológica tecnológico y Transferencia
Valoración (IP & Market Assessment)
Valorización (Valuation)
 La valoración y valorización son esenciales en el proceso de transferencia
 Valoración-Assessment y Valorización-Valuation
 Valoración y valorización son etapas consecutivas en el proceso de transferencia

4. Criterios de Valoración
Tecnología
Fortaleza Propiedad
Intelectual
Competidores y Tecnologías
de la Competencia
Potencial Mercado Comercial

5. Tecnología
 Descripción
 Beneficios
 Aplicaciones de la tecnología
 Costos de la tecnología
 Estado de desarrollo
 Regulaciones nacionales y extranjeras

6. Propiedad Intelectual
 Titularidad de la PI
 Acuerdos previos
 Viabilidad de protección
 Patentes relacionadas
 Estrategia de Protección

7. Competidores
 Problemas que resuelve la
tecnología, soluciones existentes
 Tecnologías de la competencia
 Competidores

8. Potencial de Mercado
 Mercado potencial
 Tamaño de mercado actual y proyectado
 Mercado de interés
 Requisitos del mercado

9. 5 Factores de interés

10. Beneficios de la Valoración
Permite
identificar
nuevas
aplicaciones Delinear
INSUMO
RELEVANTE estrategia de
VALORIZACIÓN protección
de PI
Razones
Definir la Fundamentales
Reducir
estrategia de
riesgos
comercialización
legales
Decidir el Definir el
modelo de modelo de
transferencia negocio

11. VALORIZACIÓN DE TECNOLOGÍA

12. 1. What is the right price: Value Vs. Price
2. Basic Methods of Valuation
1. Back Perspective
2. Around Perspective
Index
3. Pieces Perspective
4. Down Perspective
5. Forward Perspective
6. Dice Perspective:
7. 7, 8 and 9. Auction, Common Sense and Equity
Perspective
3. Conclusions
Technology Valuation 11

13. What is the right price: Value vs. Price
Value Price
An amount considered The sum of money or
a suitable equivalent goods asked or given for
for something else. something.
Technology Valuation 12

14. Price vs. Value
Licensee’s Ceiling
Range of Negotiation
Licensor’s Floor
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15. Valuation: a rational process
With a valuation basis You negotiate the basis
Without a valuation basis You negotiate from emotion
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16. When is Technology Valued?
Prospectively By deal makers, Value extracted over time.
Retrospectively By litigators, value established at a point in time.
Adversarial: the outcome is imposed judicially.
Technology Valuation 15

17. Prospective Valuation: Financial Forecast
The calculation of royalty, depends on:
 Technology Scope
 Number and scope of patents
 Know how
 Patent age
 Number of potential applications
 Stage of technical development
 Barriers to market entry
 Exclusive or non exclusive rights
Technology Valuation 16

18. Basic Methods of Valuation
The licensing perspective:
1. Back perspective Costs
2. Around perspective Industry standards, comparables
3. Pieces perspective Ranking/rating
4. Down perspective Rules of thumb
5. Forward perspective Discounted cash flow
6. Dice Perspective Monte Carlo
7. Others Perspective Auction
8. No farther Perspective Common sense
9. Market Perspective Equity
Technology Valuation 17

19. 1. Back Perspective Methods
Is cost to develop relevant? Development costs, patent costs?
NO! it is a poor method for pricing.
However it can be useful for:
 Development costs as a factor in determining value
 Modified replacement cost to calculate upfront
Technology Valuation 18

20. Also named the Cost Approach
Theoretical Background:
 Value is determined by the cost to replace or the cost to recreate the IP.
Costs include:
 R&D, Materials, Equipment, Marketing, Advertising, Delayed Market
Entry.
Value of the IP:
 Fair market value of total investment to replace or recreate the IP.
NOTE: A licensee will not pay more for the IP than the amount for which the IP
could be recreated.
However, by licensing IP from others the licensee avoids development
costs and minimizes risk.
Technology Valuation 19

21. 2. Around Perspective
Constitutes of looking at sources of comparable transaction data:
 Internal Database
 Published Surveys
 Public Announcements
 Word Of Mouth
 Litigation
 Required Disclosure
Technology Valuation 20

22. Royalty Rate Standards
Product Royalty Comments
Materials Processes 1–4% 1 % commodities, 2% processes
Medical Device 3–5%
Software 5 – 15 %
Semiconductors 1–2% Chip design
Pharmaceuticals 8 – 10 % Composition of materials
12 – 20 % With clinical testing
Diagnostics 4–5% New entity
2–4% New methods
Biotechnology 1 - 1.5 % Processes non exclusive
1–2% Processes exclusive
Adapted from Lita Nelsen, Director TLO of MIT
Technology Valuation 21

23. Licensing Executives Society – AU NZ Royalty chart
No. of
Median Avg. Max Min Industry
Licenses
4% 4.70% 15.00% 1.00% 35 Automotive
3.60% 4.70% 25.00% 0.50% 72 Chemicals
4% 5.20% 15.00% 0.20% 68 Computers
5% 5.50% 17.00% 0.00% 90 Consumer Goods
4% 4.30% 15.00% 0.50% 132 Electronics
5% 5.00% 20.00% 0.50% 86 Energy & Environment
2.80% 2.90% 7.00% 0.30% 32 Food
4.80% 5.80% 77.00% 0.10% 280 Healthcare Products
7.50% 11.70% 40.00% 0.30% 47 Internet
4.50% 5.20% 25.00% 0.50% 84 Machines/Tools
8% 10.60% 50.00% 2.00% 19 Media & Entertainment
5.10% 7.00% 40.00% 0.10% 328 Pharma & Biotech
3.20% 4.60% 30.00% 0.00% 78 Semiconductors
6.80% 10.50% 70.00% 0.00% 119 Software
4.70% 5.30% 25.00% 0.40% 63 Telecom
Technology Valuation 22

24. Around Perspective Sources
Most valuable tool for determining industry standards is the use of
published agreements.
Published Data Litigation SEC filing Databases
• www.knowledgeexpress.c • Lexis/Nexis • SEC EDGAR system • www.recap.com (Deloitte)
om www.lexisnexis.com www.sec.gov/edgar/ • www.rDNA.com
• http://pharmalicensing.co • EDGAR online: • http://www.recapip.com
m/public/ pro.edgar-online.com or • http://www.recaprx.com
• http://www.innovaro.com/ www.tenkwizard
• www.royaltysource.com
• http://www.yet2.com • www.
techagreements.com
• Disclosure Information,
Inc.
www.thomson.com/financi
al/fi_partners.jsp
Technology Valuation 23

25. 3. Pieces Perspective
The ranking method:
 Uses data from similar agreements
 Uses a rating table to score the deal compared to known prices from
comparable deals
Technology Valuation 24

26. The Georgia Pacific Factors:
IMPORTANCE OF FACTOR LICENSING OUT SCORE
Nature of Protection 4.2
Utility over old methods 4.2
Scope of exclusivity 4.1
Licensee’s anticipated profits 3.4
Commercial Success 3.4
Territory Restrictions 3.5
Comparable License Rates 3.7
Duration of Protection 3.1
Licensor’s anticipated Profits 3.1
Commercial Relationship 3.6
Tag Along Sales 2.1
5 = MOST IMPORTANT, 1 = LESS IMPORATN Stephen Degnan and Corwing Horton, “A Survey
of Licensed Royalties”
Technology Valuation 25

27. Common 5 factor approach
FACTORS SCORE OF 1 WEIGHTING WEIGHTED
TO 5 FACTOR SCORE
STAGE OF DEVELOPMENT 2 0.2 0.4
SCOPE OF IP PROTECTION 4 0.2 0.8
MARKET ATTRACTIVENESS 5 0.2 1
(SIZE)
SUSTAINABILITY VS. 3 0.2 0.6
COMPETITIVE TECHNOLOGIES
INDUSTRY PROFIT MARGINS 3 0.2 0.6
TOTAL WEIGHTED SCORE 3.4
Technology Valuation 26

28. 4. Down Perspective
Rules of Thumb
 The 25% Rule: the Goldscheider Principle: the Licensor should receive 25%
and the Licensee 75% of the pre-tax profits from a licensed product.
 The second rule of thumb, converts roughly the 25% pre tax profit to 5%
royalties
Technology Valuation 27

29. 25% Rule
Meaning of the Rule
 The royalty in dollars should be 25% of the savings in dollars to the licensee
by the use of the licensed technology
 The royalty in percentages of net sale price should be 25% of the profit
before taxes, enjoyed by the licensee by selling products based on the
licensed technology
Technology Valuation 28

30. Example of the 25% Rule
Annual Report of Company Y Thousand of US Percentages
Dollars
Gross Sales 1,249,512 100
Cost of Goods Sold 643,357 52
Gross Margin 606,155 48
Sales and Administration 447,607 36
Research and Development 140,196 11
EBIT (Profit before Tax) 18,352 1
Interest 8,090
restructuring 3,697
Other 9,674
EBT (profits after tax) (3,109)
Should the royalty be 0.25 % from net sales?
Technology Valuation 29

31. 5. Forward Perspective
Discounted Cash Flow/Net Present Value:
The method consists of determining future cash flows, then discounting the
cash flows for the time over which those amounts are to be received and by the
associated risk of receive such cash flows.
 When all such cash flows have been discounted they can be added to
determine the net present value (NPV)
Technology Valuation 30

32. Also Named the Income Approach
Theoretical Background:
 Value is determined by the economic benefit expected from use of the IP.
Value of IP:
 Present value of the expected future income stream.
Key parameters:
 Amount of income stream
 Duration of the income stream
 Risk associated with the realization of the income
Note: Two well known methodologies: Excess Earnings and Relief from
Royalties.
Technology Valuation 31

33. Value: Risk plus timing and amount of future cash flows
METHOD OF CALCULATION OF NPV
Sales xxx
Expenses yyy
Depreciation zzz
Royalties rrr
EARNINGS BEFORE TAX EBT
Taxes ttt
EARNING AFTER TAX EAT
Depreciation ddd
Investments iii
Working Capital www
NET CASH FLOW NCF
Discount Cash by NPV NPV = Rn/(1+k)n
Choose k. Embody risk in k
Technology Valuation 32

34. Calculation of NPV
Each year cash flow (R in year n) is discounted by dividing each cash flow (R)
by the term (1+k)n, where:
k - is the hurdle or discount rate
n – the year from the date in which the projected cash flow occurs
NPV = Rn/(1+k)n
Technology Valuation 33

35. Discount/Hurdle Rates for Start-Ups
Stage of Development Hurdle Risk
Research and Development 100 % Pre-seed funding
Start Up 50 – 70 % New business, seed funding, R&D stage
1st Stage 40– 50% New business product ready for sale, no
R&D required
2nd stage 30– 40% New product and technology in existing
business
Mezzanine/IPO 25 – 30% New product, existing capabilities, known
technology
Low Risk 15% New product for existing manufacturing line
and market
Technology Valuation 34

36. Example of NPV calculations
Total Cash Flows 136,000,000 Investment 10,000,000
Hurdle Rate = k Net Present Value Investment or
Licensee’s
decision
0% 126,000,000 No Risk yes
7% 49,000,000 Near Risk free, alternative yes
investment is 7%
15 % 17,000,000 Low but real risk yes
30 % - 40 % 1,600,000 Significant, technical, Barely yes
market and other risk
40 – 50 % - 800,000 Start up risk No, only if you
paid me
Technology Valuation 35

37. 6. Dice Perspective Montecarlo
 Complex Mathematical modeling tools
 A basic popular tool is the probabilistic model or Monte Carlo analysis
 The tool works by replacing certain numbers in the calculation with a
probabilistic value. The model is run hundreds of time to develop a
distribution of outcomes
Technology Valuation 36

38. Monte Carlo Simulation Software
The popularity of Monte Carlo methods have led to a number of commercial
tools.
Programs which work directly with Excel as add-ins:
 Crystal Ball
 Risk Solver
 @Risk
 DFSS Master
 Risk Analyzer
 MC Add In for Excel
Technology Valuation 37

39. Plus and Minus of Monte Carlo
• The model can be run over and over again with
changing assumptions
PLUS
• You get better understanding of the assumptions
and their economic impact
• High risk technologies are not punished with high
hurdle rates.
MINUS
• There is never a right answer
• Requires appropriate software and user experience
Technology Valuation 38

40. About the other perspectives
6. Others Perspective: Auction
 Technology auctions are rare, however patent auctions are not so rare
 They are used for example in cases of bankruptcy or shut down
7. No farther Perspective:
 Common sense
8. Market Perspective:
 Equity – what is the value of a similar size, similar technology company
in the stock exchange?
Technology Valuation 39

41. The Market Perspective or Approach
Theoretical background: value is based on the transactions of other
purchasers and sellers in the market place.
Value of IP: Arm’s length price paid in equally desirable and comparable
transactions.
Note: The Licensee is not willing to pay more than others have paid for similar
IP
Comparables: type of IP, industry, market size, terms and profitability.
Technology Valuation 40

42. IP Value in the Market
Technology Valuation 41

43. NASA wants to move beyond Technology Auctions
AviationWeek.com
NASA Wants To Move Beyond Technology
Auctions
Sep 21, 2010
By Frank Morring, Jr.
Washington
NASA managers are looking for new ways to get the technology its engineers develop for
space exploration out into the broader U.S. economy, where businesses can adapt it for
commercial products.
A new request for information published on the FedBizOps website seeks suggestions on
how the space agency can work with intellectual property management services to match
advanced technologies at its field centers with private firms willing to pay for licenses to use
the publicly funded technology for private profit.
Technology Valuation 42

44. Patent Transaction
The Sale and/or License of Intellectual Property – Patents
Basic Process
 Review and estimate valuation of the assets
 Diligence and preparation of the assets to market
 Preparation of marketing materials
 Identification and contact of potential acquirers
 Fielding, negotiation of and advisement on received offers
 Advisement on all aspects of documentation and transfer
 Escrow Services (as necessary)
Technology Valuation 43

45. Conclusions
The Valuation of the technology is an essential part of the technology transfer process
With a valuation you negotiate with a sound economic basis and not from an emotional
basis
Valuation of the technology is a way of determining the licensed technology value for the
customer (licensee) and not only for the inventors (licensor)
Using more than one valuation method gives you a broader perspective, and accounts
for a range of different factors
Valuating your technology is an excellent way to prepare for the negotiation of a
successful deal (win win)
Technology Valuation 44

46. 4 innovation
info@4innovation.com
Elena Canetti - Israel Partner
ecanetti@4-innovation.com