Intellectual property valuation and lending: a guide
Elizabeth Ward (Virtuouso Legal)
What is my IP worth?
How do I obtain bank lending against the IP in my business?
How is lending secured against my intellectual property?
What is my IP worth in litigation?
These are questions that we are regularly asked by our clients and especially those in the tech, software and pharma industries. Those questions arise as companies grow and expand. Sometimes they arise as equity and capital is put in by investors or when a business wishes to dispose of certain key intangible assets. They also arise when companies try and settle their disputes over who owns what and in ‘what is it worth’ type discussions.
In brief, IP valuations are often difficult to ascertain and unlike tangible assets there are few benchmarks to use. However, we’ve helped many clients with both disputes and investment and the key to doing that is understanding the underlying values for a company’s IP.
Lending against IP in a business has traditionally been difficult to obtain and limited to companies which had a reliable and repeatable income stream. Prior to May 2024, the only UK based bank that would consider IP as an asset was Silicon Valley bank which sadly went under in March 2023. However, the lack of mainstream funding in the UK is holding back one of our greatest opportunities. Luckily, times are changing.
Whilst lending against royalty streams has worked well for established companies with mainstream products, it’s meant that tech companies and tech-led start-up companies found it difficult if not impossible to obtain bank lending. The reason for this was that - with a few exceptions - for many businesses, IP wasn’t visible on the balance sheet. Many banks simply didn’t understand IP. In simple terms, lenders understood bricks but not clicks. After all, tangible assets can often be recovered and their values realised in a fire sale; less so with IP.
The Sollomon valuation software offered by Inngot offers help with sourcing loan funds for early-stage tech businesses and those with significant IP assets. The tool has been developed and enhanced over the last 10 years and is now used by both NatWest and HSBC as a backbone to lending against IP assets.
The Sollomon tool takes in all the IP in a business and looks at things such as market size, overseas opportunities and many other large data sets to value the existing and potential market value of the IP. It also takes a business’s cash flow forecast and works out the direction and speed of travel of that business.
We at Virtuoso Legal spend time with clients ensuring they have all their bases covered to get a maximum valuation before we the submit the data to the software. We review key IP documents and global IP portfolios and make strategic, costed and commercial suggestions which will enhance the future of the business and its IP. We then input all the data and help companies formulate an IP strategy and a position which can be used for specialist bank lenders and business planning for the future.
This is a truly exciting new era of bank lending and NatWest and HSBC have been trailblazers in adopting both Sollomon and IP-rich businesses as their next commercial opportunities. There is no doubt about it, tech-rich businesses are often very investable targets, so if you want to know more about how we can help, then please get in touch: