Just how valuable is your company?
It is often said that up to 80% of the value of a modern company resides in its intangible assets. Admittedly, this may well be an overestimation for companies owning a large number of physical assets, for example stock, lab equipment and maybe vehicles. However, other companies, like those providing services on the basis of a software platform, can be operated without large scale investment in physical goods. Valuing the tangible assets of a company can be straightforward, but valuing intangible assets can be much more difficult. There are few valuation experts out there with significant experience of considering intangible assets.
Companies can own many forms of intangible assets. How these influence the value of the business needs to be determined on a case-by-case basis. One intangible asset owned by many companies (even if they don’t realise it) is the company’s intellectual property. Patents, registered trademarks, and registered designs are amongst the more well-known IP rights. Besides these rights companies are also likely to own other – often under-appreciated – rights, including the know-how that is associated with the finer details of products, services and the business operation in general, copyright in computer software code, the rights in information accumulated in databases and the goodwill accumulated in the company, to name but a few. All of these rights can be used to further a business’s interests. This can be done by, for example:
- Protecting a company’s competitive edge by enforcing the secrecy of those parts of the business that do not need to be communicated in the course of business to third parties
- Keeping competitors off the market by enforcing monopoly rights (e.g. patent and design rights)
- Creating a separate income stream by licencing some of the rights to others, for example in non-competing fields of commerce
- Protecting the goodwill of the company using trade marks
Correctly structured and, if needs be enforced, IP rights can form a barrier to market entry for your competitors or at least decrease their competitiveness. For example, the rights may mean they have to compete using inferior products or you manage to retain a competitive edge by keeping sensitive information secret. It is these advantages that define the value of the company’s IP. Investors will see these advantages as enablers of, making the company not only a more attractive investment proposition but also a higher value asset.
A sound IP strategy is critical to leveraging the advantages provided by IP. Although devising a strategy and executing it may require time, but it does not necessarily have to be costly. Questions like: “How do you ensure that your secret information remains secret?” may sound innocuous enough and a convincing answer can be provided easily once the relevant steps have been taken. However, determining what they are may require some effort even if they do not prove to be costly. . Being able to demonstrate that this effort has been expended and the relevant policy is in place will help ease concerns of investors and avoid a situation where they start to worry over an issue that, if addressed at the right time, could have been easily resolved.
It almost goes without saying that, any strategic plan for the business ought to cover all aspects of protecting the company’s intellectual property rights. This includes the question of whether or not trademarks and/or patents should be applied for and whether or not the business is free to trade with regard to third party’s patent and trade mark rights. Patent and trade mark protection by no means needs to be pursued in all instances – after all many businesses manage without. However, it is better to make an active decision not to pursue some such protection (and can communicate to investors the basis upon which this decision was made) than to lose protection by accident and have to admit so during a pitch. Many patent attorneys offer free 30-minute consultation to businesses to help them achieve clarity on what they should do to tailor their IP protection to business needs and budgets. Making use of this free resource is an excellent way of resolving uncertainty surrounding IP related questions and a good first step in generating answers to those awkward questions that may arise during a pitch for investment.