Fund your Business using your Intellectual Property

by | Feb 21, 2019 | Insights | 0 comments

Money is like a sixth sense without which you cannot make a complete use of the other five.”         

                                                                                                                                             -W. Somerset Maugham

  • Over 6000 Patents of Nortel Networks were bought by a consortium led by Apple, Microsoft, Sony and RIM for a whopping $4.5 Billion!!!!!!!!!!!!
  • Kodak Agrees To Sell Digital Imaging Patent Portfolio For $525M To Consortium Of 12 Licensees, Including Apple, Google, Facebook!!!!!!!!!

What is common between the above two headlines.

  1. The sellers were in Financial Distress or nearly bankrupt.
  2. They had immensely valuable and industry popular Intellectual Property.

What if Kodak and Nortel tried to monetize their IP Assets at an earlier stage and pumped that money into their Business??? They might have sailed over the treacherous storm and blossomed further.

Money is like a sixth sense without which you cannot make a complete use of the other five.”
 W. Somerset Maugham

Financial resources are the foremost requirement to form and operate an enterprise. Therefore, funding of the enterprise for sustainable development of its business is one of the central questions in enterprise research. Businesses play a very significant role in competition, employment growth, innovation etc. and their decisions have high significance on the global economy. The decisions related to financing profoundly depend on the entrepreneur strategies and his/her options. There are a number of options in front of the entrepreneur. Whether or not he makes the best out of his options would depend solely on how he perceives the options in front of him.

Typical Sources of Funding

There are a number of irons in the fire for financing a venture. The typical modes of funding for start-ups and other established entities are as follows:

  • Venture Capital
  • Angel Investors
  • Equity Financing
  • Family and Friends
  • Crowd-Funding
  • Banking Institutions
  • Government Financing
  • Self-Financing

Usually, calling in investors would also mean giving up stakes in your enterprise. Are you willing to give up stakes to someone who had nothing to do with bringing it to the stage it is today. What other options are left then?  How can one be benefited from the resources he/she already has?

While everyone is aware of the modes mentioned above, very few entities try to make the most of the Intellectual Property they have. Yes, you heard it right… Intellectual Property. Infact, for numerous entities, the sole source of their bread and butter is the Intellectual Property they have. Let us see how.

Patents Fueling your Business

Before you decide to go for funding, it is very essential to understand the value of Intellectual Property you have. Is it worth hundreds, thousands or hundreds of thousands? Is your valuation exaggerating or underestimating value of your IP Assets? The answer to this is the understand the value through a reliable and comprehensive Intellectual Property ValuationWe at Sagacious Research have developed a robust and time tested methodology of IP valuation which has been acclaimed by numerous clients across the world. Once you know the true value of your IP, the next step is to understand how one can generate monetary value from it.

1. Licensing and Sales

Your business can also get funding without selling the equity. For this purpose, licensing is the best and easiest approach to turn Intellectual Property like, trademarks and copyrights, patents into revenues. Financial markets now recognize these royalty revenues as financial resources. Although, Royalty financing or licensing is in its early stages, still it is a multi-billion dollar market. In biotech and pharmaceutical verticals, most of the businesses make use of their IP assets to get funding in the form for Royalty financing. This mode of funding is getting more and more attention, more specifically in the startups and small size business, as another fish in the sea for funding source, where IP usually sum up the majority of their assets.

2. Mortgage your IP

Business loans are another way to get funding for your business. A snack food company based in Pennsylvania used their IP assets to get $9 million loan. A Los Angeles based company in furniture vertical used their intellectual property to secure $6 million loan. The lender or the bank gets your IP as security interest and if you default on the loan, the lender or the bank get the ownership over your IP.  You have to take care of some of the aspect related to quality of your IP asset in order to secure a load.

3. Direct Funding

A survey conducted by European patent office in 2005 shows that about 40% of businesses in the category of small and medium size utilize their patents specifically to protect their technology because this is one of the most substantial aspect for drawing attention of the investors. Another report in 2010 by Organisation for Economic Co-operation and Development shows high quality Intellectual Property results in dot funding by the investors and that to huge amount.

4. Patent Pooling

The idea of pooling is to bring together all the relevant IP at a common platform so that it is a one stop place for seeker looking for IP. This is a win-win situation for both the buyer and seller. The sellers are able to make monetary benefits of the idle IP and the buyer is able to get the complete protection without lingering here and there.

Different Organizations, Different Monetization Approaches

The perception of Intellectual property certainly varies from one organization to other. A company might perceive patents as a safeguard against copying their technology while for others might be completely dependent on their Intellectual Property for their business operations. Let’s see how different organizations make the best use of the intellectual property they have.

1. A Corporate Entity

It is a common belief that big corporates do not rely on IP related revenue for their operations and their sole purpose is to protect their innovation. However, this is not the case with every billion dollar corporate

Take the case of Qualcomm, it has a very strong patent portfolio with over 16000+ patents. Qualcomm is having 6000+ active US patents in wireless technology domain. Qualcomm has its separate business division for their IP business that are focused on generating money out of their IP assets. Qualcomm gets royalty revenues from all the smartphone manufacturers using its chipset in their smartphones. How big this business is can be estimated from the fact that Apple used to pay over $500 Million per quarter as Royalty fees to Qualcomm. Thus, if one can prove to be a pioneer in technology, there are no barriers to the monetization potential.

Apart from licensing, corporates tend to actively sell the patents which do not fall into their current technology domains or their future plans. When a technology is in infancy and is generating interest from the public, then these entities tend to file patents in that domain even if it is not their core domain. However, with the passing time, such patents might become useless to them and can be offloaded.

2. An Academic Institute

Universities and research institutes are also in the IP ecosystem and holds large number of innovative inventions that backs research and education.

The typical approaches that an academic institute can follow to commercialize their IP are:

  • Technology Transfer
    • Professional cooperative education Cross-Disciplinary Programmes
    • Access to venture capitalists
    • Fiscal incentives
    • Setting up Technology Transfer office
  • Licensing
  • Transferring proprietary rights
  • Joint ventures between various companies and universities.
  • University start-ups and incubation

And if these approaches fail, the last they can do is enforce legal rights of their Intellectual Property. In 2017, University of Wisconsin was awarded $4.35 apiece for millions of iPads and iPhones sold by Apple. The total amount comes around $506 million. Indeed, worth every penny and minute spent in the research labs.

3. An Individual Inventor

While most of the inventors are ace in their technological brilliance, it is also a sad truth most of them are not acquainted with how the IP marketplace functions. They rarely understand what the value of IP is for a business and the result to all this is either no monetization attempts or monetization at a meagre value. Once again, the importance of reliable Patent Valuation comes into picture. For such analysis, the inventor can rely on the trustworthy services being provided by masters in this Intellectual Property Monetization.

The past teaches us that patents were always measured as a tool to offer protection to the Intellectual Property. However, as we described it above, with right approach and innovative strategies, these tools also have the capacity to power the business and run the race of innovation.

Read more by downloading our exclusive report.  

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