There was a time in the 1970’s when the UK’s economy was on the floor. In 1976 the UK’s Government sent Labour Prime Minister James Callahan to ask the IMF for a bailout to support the UK’s sterling which had tanked and showed no signs of recovery – much like the economy at the time. The loan was not without its conditions – namely that the incumbent Labour Government were compelled to slash public spending and raise interest rates. (Reminds me of Greece and the European Bank in 2011!)
However, a few years later in the early 1980s, the UK economy was in part saved by the emergence of revenue streams from North Sea Oil. This combined with tight fiscal policies brought the UK back from the brink of economic collapse. Oil became the saviour of the UK’s wealth. Radical economic shifts like this can and do happen – but only when attitudes shift, and markets grow around an asset.
Intellectual Property – The New Oil
Famously in the late 1980s, Mark Getty coined the phrase that intellectual property was the oil of the 21st century. That is certainly true today as IP generates huge wealth and sets some developed economies way ahead of others.
The billionaires of the 21st century such as Bill Gates and Steve Wozniak have made their money from their IP. You only have to look at the Forbes list of top brands to see what that IP is worth and contributes to the economy. So why is IP so often overlooked in the UK?
I believe that IP is like the glue in something. You can see it and don’t appreciate it until it isn’t there (and things start to fall apart). What people fail to see and measure, they fail to value.
So it is in business. Indeed, in the UK, IP rarely appears on a companies balance sheet and ask most banks about lending against this asset class in the UK and your request is likely to fall on deaf ears. Unlike the USA (where accounting standards and attitudes toward intangible assets are quite different). Here, there is a lack of appetite for lending against intangible assets, although a few lenders are now taking a different view. This is really a shame, and ultimately something that will hold us back in the long run.
“I believe that IP is like the glue in something. You can’t see it and don’t appreciate it until it isn’t there (and things start to fall apart).”
Signs of Progress: USA, Leads the Way
The easiest IP to fund is that which is already monetised – especially if that includes income streams from licensing such as software or brand licensing. Here valuations can be readily calculated using royalty streams as a baseline for overall portfolio value.
It is also possible to obtain finance on some patent and trade mark portfolios especially where the assets contribute significantly to the overall value of the company and its unique niche. The most difficult lending is against pre-revenue IP which is yet to find its space in the market. However, with the right investment, this is precisely where the biggest gains are to be made.
Silicon Valley has seen dozens of these types of businesses grow and flourish. These include Google, HP, Oracle and Apple to name but a few. It is also a myth that 90% of them fail. In fact, the failure rate of 50% reflects business start-up failures generally in the USA.
“The most difficult lending is against pre-revenue IP… However, with the right investment, this is precisely where the biggest gains are to be made”
So why has the USA created so many World class IP leading tech companies? I believe it is because they had the mindset of “fail fast” rather than “don’t fail at all”.
What we in the UK believe is that companies should start turning a profit early on. Whereas in the US many companies take a longer-term view. (Or perhaps it is only me that remembers that Amazon took 6 years to make a profit!) The stock went public in May 1997 and I recall everyone saying in 2002/3 that it would fail as it hadn’t yet made any money.
How wrong can you be?
It became profitable in December 2003 and never looked back.
IP-led companies such as Tesla would never get off the ground in the UK – we’re far too short term to back technology that is clearly a disruptive driver but doesn’t (yet) make money.
If there is one thing holding back the development of technology companies in the UK, it is the lack of opportunity to obtain investment in market disrupters. Intellectual property is the key to this.
On World IP Day we should make every effort to lobby the “powers that be” to change that – and change it rapidly before we’re left behind in the race to create money from the new North Sea Oil.