IP VALUATION

Securing Financing & Validating Investment

For start-ups, pre-revenue businesses and SMEs, securing access to funding is a significant activity. We work with clients to advance IP acquisition strategies that can be leveraged to entice investment. In understanding that there is no single ‘one size fits all’ solution, we appropriately apply or blend a variety of economic analysis methods to provide each asset valuation. These include:

1) Cost Approach to Valuation

This approach states that a patent’s value is the replacement cost or the amount that would be necessary to replace the protection afforded to the invention by the patent(s). The replacement cost of an item refers to the amount of money that would be paid, at the present time, to replace the item. If an inventor has an item that they have patented, the patent’s value would be the amount of money required to replace that invention and to acquire similar protection across the market(s). A prospective acquirer would, under this approach, not be willing to pay more for a patent/IP than the amount they would have to pay to obtain an equivalent protected right. 

2) Market Approach to Valuation

This methodology involves determining what a willing buyer would pay for similar property rights. In other words, the patent’s value is approximately equal to the value of similar patents or patented products that have been sold and purchased before. Two things must be in place for this approach to be objective and suitable for use in patent/IP valuation, namely: (i) existence of an active market for the patent, or a similar one, and (ii) past transactions of comparable property rights. 

3) Income Approach to Valuation

This method looks to cash flows in determining valuation. It operates on the premise that a patent/IP value is the present value of the incremental cash flows or cost savings those will help provide. This approach indicates that the IP/patent’s value is the current cash value of these future benefits, including values associated with licensing or existing investment.