According to recent studies, intangible assets, such as software, brands and artificial intelligence systems may represent in excess of 90% of a company’s total enterprise value. How does one ensure that these investments are well allocated and that returns from these investments are maximised?
(1) Identifying intangible assets
The first step is to identify all of the intangible assets (IA) that drive a business, including its proprietary systems, intellectual property (IP), brands, trademarks, patents, copyright, databases, etc. Company need to continually understand what their most valuable intangible assets are, in terms of underpinning revenues, profits and growth, ownership, as well as the best way to protect, safeguard and monetise them to drive companies forward.
(2) Valuing intangible assets
The second step involves making an assessment of their value. This will determine a baseline to monitor their increase in value over time and respective return on investments, such as in marketing activities, protection (such as in registering a brand), and development of the assets themselves. The valuation of the intangible assets may be used by company to inform business decisions, such as making an investment, devising a suitable company structure and transferring assets within the group, or as a negotiation tool for licensing activities or utilising intangible assets as security when raising funding. Sophisticated investors, including venture capital and private equity firms, are increasingly assessing the value of a company’s intangible assets and IP to make their management decisions on which company to fund. At Valuation Consulting, we are Royal Institute of Chartered Surveyor (RICS) business and IA valuation regulated and our valuations follow international standards and best practices for the purposes noted above.
(3) Prioritising and protecting a company’s most valuable intangible assets
The determination of value allows companies to prioritise the efforts in the most valuable intangible assets that they possess or that they plan to develop and protect. This allows businesses to start accruing value from the very beginning and as they continue to invest in developing these assets.
(4) Routinely monitoring IA value & return on investment
Companies need to routinely value their IA and IP assets so that they can track the value of these assets and determined return on investment metrics to ensure time, resources and funds are well placed and ultimately provide a return for the business.
It is critically important for a business to track the value of their IA for transaction-led purposes, to support equity funding, licensing deals or the transfer of IA assets from an operating company into an IP holding company, for instance, which may offer several potential advantages.
(5) Setting up group structure with an IA holding company may bring several advantages
IA and IP are the most valuable assets companies hold. These assets can create new revenue streams, from licensing activities for example, and they can also assist companies in securing financing and funding when held in well organised company structures.
Creating an IA holding company (i.e. a special purpose vehicle (SPV)) for a business’s intangible assets and IP assets is one of the best ways of protecting, safeguarding, managing, and monetising them. All types of IA and IP, such as brands, trademarks, patents, copyright, trade secrets, can be placed in an IA holding company.
(6) Safeguarding intangible assets from day-to-day business operations
This may also be achieved through an IA holding company, that will protect the intangible assets and IP from potential litigation or if the operating company faces financial difficulties or ceases to operate and becomes insolvent. If a business is sued or becomes insolvent, the business’s IA / IP assets should be protected from any creditor claims. This effectively allows the business to retain full ownership rights of their IA / IP assets and restart a new business venture.
(7) Using IA and IP to tell the story behind the numbers in funding raising & investments
In striving to achieve excess returns on investments in intangible assets, one needs to be able to effectively communicate and describe the value of intangible assets and IP, and in using them in representing the story behind the numbers and financial figures for a business, in determining value within a company, in negotiating investments and equity stakes in funding rounds, or in planning an exits, such as an IPO.
At Valuation Consulting, a Stobbs’ Strategic Partner, their valuations are based on International Valuation Standards and on a combination of well-accepted, tried and tested methods using the following evidence-based approaches.
Talk to Fernando (firstname.lastname@example.org) about valuing our business or IP assets valuations to support your business to continue to generate excess returns for stakeholders and investors.