Intellectual property valuation

What is the value of your intellectual property?

For the valuation of intellectual property it is important to get an understanding of the added value of the intellectual property and the corresponding earnings potential. This requires an integrated analysis of the technology, the commercial context and financial implications.

The importance of a sound valuation

The value of intellectual property does not depend on investments from the past, but on potential cash flows generated in the future. It is the earnings potential that matters to potential buyers or strategic partners. A sound valuation offers clarity in the earnings potential with the possibility to increase the value of the intellectual property in the future.

Situations for which an intellectual property (IP) valuation is important

A valuation of intellectual property is important in the following situations:

  • Recording intellectual property on the balance sheet
  • Mergers & acquisitions
  • Determining the (IP) strategy
  • Calculating licensing fees in a concern structure
  • Corporate restructuring
  • Adding IP to a (new) company with other shareholders
  • IP as collateral for financing purposes
  • Intellectual property licenses
  • Investments in an innovative company
  • Purchase or sale of intellectual property
  • Strategic partnership
  • Selling intellectual property in a situation of financial distress or bankruptcy

Deal constructions

Innovations often go together with some serious risks. In most deals these risks are shared by the buyer and seller by using constructions such as an earn-out, financial participation with an equity share or licensing deals with royalties, price per unit sold, yearly payments, sub-licensing or milestone payments

To work-out a construction with the right financial terms is a tailor-made exercise.

Industry experience

WeValue Innovations has experience with small to internationally operating companies (+150 employees) in industries such as machine & devices building, services, medical technology, biotech, bio-based, high-tech, tech and ICT. There is particular experience with valuing patents and copyright protected IP such as software.

Our approach

The real world is to complicated to base such decisions solely on ‘comparable’ deals (also called market approach). There can be substantial differences in market potential, strength of the underlying intellectual property, growth expectations and bargaining power.

Another perspective, the historical cost approach, is particularly useful for make-or-buy kind of situations in which the respective IP is hardly distinctive or able to offer protection against competitive threats.

The best way to value IP is with the income approach, in which an analysis of future cash flows due to the exploitation of the IP is based on economic foundations and corrected with the underlying risks. Particularly important with this approach is taking into account the specific market conditions, technological aspects, earnings potential and the strengths and weaknesses of the IP.

WeValue Innovations uses a method with which IP can be systematically analysed. Due to our extensive experience with IP and our in-depth knowledge of various valuation methods (Real Options, r-NPV, Decision trees, Certainty equivalents en Monte Carlo simulations) we are able to perform the most complex valuations for which a sound underpinning is essential. Apart from the technical aspects of valuations, we have ample experience with deal making with various parties, from knowledge institutions to multinationals.

You can contact us today if you have more questions.