IP Valuation

IP Valuation

I repeatedly wax lyrical about not underestimating the value of intellectual property to your business. IP protects your key differentiators, the elements of your business offerings that set them apart from your competitors. To you (and your business), IP is hugely valuable: it often represents a significant investment and may be the most valuable asset your company owns, especially if it is still at the pre-revenue stages. But do you know its real financial worth?

I am frequently asked about IP valuation. It is a specialist field, and not one in which we, as a firm, claim to have any expertise. Nevertheless, one of the first steps in an IP valuation is to perform an IP audit, and we have plenty of experience of those!

Why value your IP?

There are numerous reasons why you might need to understand the financial value of your IP. For example:

  • when seeking funding (e.g. investment, loans or grants)
  • for a joint venture;
  • when setting licensing terms;
  • for mergers and acquisitions.

Where do you start?

Valuing IP is not an easy task, and you may need to seek advice from an accountant or IP valuation specialist. However, you can find some useful guidance from the UK Intellectual Property Office here.

You could (and should) start with an IP audit. An IP audit provides an ‘snapshot’ of your business. It should identify the IP it currently has, mapped to your commercial activities and goals. This means that you can see and address any ‘gaps’ or risks.  If you have never had a formal IP audit performed before, try completing the UK Intellectual Property Office Health check (https://www.ipo.gov.uk/iphealthcheck). However, it may be wise to use an IP attorney to perform a full IP audit, which is better designed to pick up less widely-known rights, like know-how, trade secrets and database rights, that can be as valuable as any registered rights your company owns.

Finding a Balance

An entrepreneur may value their IP very highly, based on projected sales over the full term of any associated IP. On the other hand, and especially at the pre-revenue stages, a potential investor (say) may assign a value to the IP based on the cost of acquiring it (or less), because the market has yet to be proved. These are, of course, the two extreme ends of the scale, and an IP valuation process seeks to find a balance between these two extremes, that takes into account questions like:

  • is the commercial offering or technology really needed? Does it meet a significant and growing unmet customer need?
  • is it a significant advance over what is currently available?
  • can it feasibly be delivered in a cost effective manner at a price point that the customer base will accept?
  • is it adequately protected? Are the patents sufficiently broad? How easy would it be to design or produce something hat meets the same customer need but doesn’t fall within the scope of the patent claims (e.g. does the same thing using a different mechanism, say)?
  • how vulnerable is it to future (superior) development by others, leaving your commercial offering effectively redundant?

IP Valuation is an “art” rather than a science

This list is by no means exhaustive, but you can see why IP valuation is such a complex and subjective issue. Indeed, it has been described as an “art”, rather than a science. It is worth keeping in mind though that, irrespective of both your own views on the value of your IP and the value an IP valuation process returns, it is ultimately worth what someone is (or would be) prepared to pay for it at that point in time, and that is a very tough one to call! The value of your IP will change with your business and, hopefully, increase, but the IP valuation is based on the here and now, and over-valuing your business at the early stages can have its own drawbacks further down the line.

So, whilst I can’t stress enough how valuable IP is (and will be) to your business, beware of assigning too high a financial value to it, especially during the pre-revenue stages.

Need Help?

If you need help to create an IP audit for your business, or any other advice on how best to protect your key differentiators, please book a free initial consultation by emailing vicki.strachan@strachanip.co.uk

or visit our website at https://strachanip.co.uk/contact/

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