Investigating how IP assets can be used to facilitate business finance

There is increasing recognition amongst both Government and industry that the trend for businesses to invest more in intangible assets, in particular intellectual property (IP), rather than fixed or physical assets has led to difficulty for some growing businesses to raise finance. Although IP represents millions of pounds of business assets there are real barriers for SMEs trying to leverage this value to secure the finance they need for growth. 

Earlier this year the UK Government promised (in its response to the study ‘Banking on IP’) to:

  1. Promote a greater understanding of IP within businesses seeking finance and the financial sector; and 
  2. Create systems to give lenders confidence in assessing the value of IP and the risks involved in lending against it. 

These commitments represent a significant challenge that will require the support of industry and it seems that this is starting. Last month Aistemos published its report “The Trillion Dollar Tipping Point: Exploiting the untapped value in patents” with the backing of (amongst others) Deutsche Bank, Allied Security Trust and E&Y. The report sees this moment as an “opportunity to create a new financial marketplace for intellectual property – a marketplace for asset trade valued at many trillions of dollars”. 

Although the value of IP is recognised by financial markets, the key to unlocking lending secured on innovation is information and understanding of what is perceived to be a complex class of assets. In particular some of the key issues that need to be addressed are: 

  • Valuation: Both identifying the value of investment in intangible rights and creating reliable valuation techniques;
  • Litigation risk: Understanding the impact of litigation on IP value, including the risks from non-practising entities as well as variations across different jurisdictions; and 
  • Systemic risk: Legislative changes (e.g. the new European unified patent system), lack of transparency in IP registration systems and lack of engagement from the insurance industry.