Relief from Royalty Valuation Key to IP Asset Financing

Martin Brassell is CEO of Inngot, a UK firm deeply involved in IP valuation and management. His pointed article in Intellectual Property Magazine contributes to the mounting literature designed to drag key financial stakeholders along for the IP value awareness ride.  His premise is a simple one:  innovation must be financed, and lenders need to understand and monetize the intellectual properties that will be the value drivers of tomorrow.

Brassell addresses what should be the motivation for both lender and IP holder.  “Banks [need] to find more effective forms of security,” and should “make this a particularly opportune [time] to explore and test the merits of obtaining security over [IP] assets.”  IP assets are core to the means by which a knowledge-based business generates value, and having those used as security vastly decreases a loan’s inherent risk, as the incentive to repay is fueled by the very essence of the company.

Brassell uses The Athena Alliance’s Intangible Asset Monetization paper, of 2008, to support the premise.  “Now more than ever companies need to be able to tap into the value of their intangible assets as a source of business capital for critical innovation advancement and long term business development.”

At the forefront, of course, is valuation of an organization’s IP, for without it there can be no monetization.  Brassell asserts those assets are tacitly recognized in the market value of public companies (though, as we know, not on the balance sheets). To get lenders to buy in to IP asset financing, there has to be a mechanism (other than IFRS3 and ASC 805 for acquired assets) to value these assets.

Interestingly, approaching this problem in collaboration with Grant Thornton UK LLP, Brassell concludes “when looking to leverage the security value of IP, the ‘relief from royalty’ approach is at least as appropriate as any other IP valuation method in relatively common use.”