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Valuing Product Workshop
The document outlines a valuation workshop led by Clyde Hanson, focusing on valuing intangible assets, particularly a patented drug product. It discusses methodologies for valuing intellectual property, including licensing, revenue potential, and discount rates, alongside detailed valuation examples for various business models. The document emphasizes the importance of understanding product markets, expected revenues, and potential risks in evaluating a start-up's intangible assets.
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Valuing Product Workshop
- 1. Valuing Intangible Assets Product Camp MSP 2014 Clyde Hanson, CPVA Venture Isles, LLC clyde.hanson@ventureisles.com Valuation Workshop
- 2. Workshop Overview Participate in valuing a patented new product Learn basic concepts & terminology Gain a context for evaluating valuations
- 3. Example RayIslesEthical Drug Patent Indigestion treatment Multi-member LLC
- 4. My start-up’s firstvaluation Percent of inventor ownership by milestone Table 6 Nominal Investor Licensing After US Patent Issuance Total IP Risk & Share of Royalty & NPV Adjust. 100% Developing IP Value Value Value Factor Investor Current status 0% $0 15 100.0% Less licensing commission 65.0% Phase I work completed 0.75% $95,625 14 18.1% Phase II work completed 2% $255,000 12 13.9% Phase III work completed 6% $765,000 8 7.0% Post-patent valuation (Sold/Licenced Here) 25% $3,187,500 5 7.0% Post international patent issuance 35% $4,462,500 4 7.0% Post-proof-of-concept valuation 50% $6,375,000 3 7.0% Post-commercialization valuation 85% $12,750,000 2 7.0% Litigation tested patent 100% $15,000,000 0.9 7.0% Revenue to inventor at IP sale $222,192
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- 7. Valuation Opinion Afterconducting the level of analysis specified in the scope of work, it is our opinion that the ABC Company portfolio has a market value of about $217,000 for a business model A buyer, $998,000 for a business model B and $423,000 for a business model C as a lump-sum payment at this stage of the business cycle, for the sales volumes forecasted, for a “full-line” firm doing all categories of projects modeled, for a national territory and with only one bidder.
- 8. Instant Valuation Volunteer One product company Patented or patent-pending Public information Revenue or non-revenue
- 9. Relief From RoyaltyMethod If you had to license the IP from another inventor, what would avoiding this cost be worth to your firm if paid in a lump-sum? Income approach with market inputs Data needed: Sales forecast Forecasting period Royalty rates for comparable IP Discount rate for net present value
- 10. Product/Market What’sthe product? What’s the value proposition? What is the price? What is industry’s typical gross margin? What are the customer segments? What is the expected economic life? What is the expected adoption curve? What is the expected market share?
- 11. Discount Rate Risk free, long-term US Gov. Bonds interest = 2.9% Equity risk premium = ………………………………7.2% Micro Cap premium = 15.5% Tech Industry adjustment = 18% - 9.9% = 8.1% Company specific risk = Technology risk ________ Market risk ________ Intellectual property risk ________ Execution risk (management) ________ Less long-term sustainable growth rate = - _________ PRE-TAX DISCOUNT RATE: ________ %
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- 13. Forecast Period Useful economic life? Patent term? ____ years
- 14. Revenue Forecast Constant rate of growth? Exponential rate of growth? Pace of channels? Build up from customer segments?
- 15. Net Present Value Discount rate Royalties per year Number of years Paid at end of each year
- 16. Post-Calculation Adjustments Business cycle outlook from valuation date Minority control discount / Majority premium Lack of marketability Regulatory changes foreseen Synergistic value Capital structure Litigation, agreements
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- 18. Final Valuation NPV= _______________ Less adj. ______________ = $ ____________________
- 19. Valuing Intangible Assets Product Camp MSP 2014 Clyde Hanson, CPVA Venture Isles, LLC clyde.hanson@ventureisles.com Innovators & Entrepreneurs of MSP Meetup.com Valuation Workshop