Metis Partners Inc. has launched a new IP-lending product, which has attracted significant interest from notable private equity firms, family offices and other lenders that are looking to lend to exciting and growing businesses.
I have worked with innovative, IP-rich growing corporates for years, so I am pleased to see that lenders are finally recognising IP as legitimate collateral for lending.
Read on to find out what this new product means for your business and how you can use your IP assets to attract lenders.
Is this a debt or equity product?
This is a debt product and is focused primarily on short term lending, typically 6 – 12 months, but I know lenders will consider longer loan terms of 1-3 years if they are comfortable with the borrower and the business.
This short-term funding or “bridging loan” is perfect to bridge a working capital need or investment needed prior to a corporate event e.g. pre-equity fundraising, pre-IPO or to fund a JV or Partnership.
How much will I be able to borrow using my IP?
We have been working on a few tech and healthcare corporate fundraises and these range from $5m – $50m. It will, of course, depend on the value of your IP assets and so we will perform an IP Appraisal to identify and value the most important IP assets in each business. It will also depend on the quality of your IP assets and being able to demonstrate the milestones and strategy you plan to achieve once you have financial stability to pursue them.
How quickly could I receive the cash?
The process can be completed with cash in your bank, within 12-14 weeks, provided your IP assets are ‘IP-finance ready’. (Our initial assessment of your IP will flag up any areas that need your immediate attention to ensure your IP is ready to be offered as collateral).
Is it expensive debt?
No. The funding is typically priced to the borrower at 1%-2% arrangement fee and at a rate of 6%-10% over LIBOR payable over the term of the loan – the terms are largely dependent on the quality of the business and its IP. We will help you secure this debt much quicker than equity funding, and a lot cheaper than equity funding! You will avoid equity dilution and keep control of your business decisions. You will simply be offering collateral over your IP which, until now, you may never have thought to value.
Can you tell me a bit about the process – I am hoping it is not going to take up too much management time?
Trust me it won’t. The companies we have worked with to date have not found the process onerous at all. Our timetable has 4 distinct steps.
STEP 1: Qualification & Assessment
Once you contact us, we will perform some desk-based research on your company and sector. We will arrange a ‘kick-off’ call with you and send you an Information Discovery Request.
The Information Discovery process helps us to identify the IP assets that are most critical to your business and we discuss with you how these IP assets are used and managed in your business, including the amount that has been invested to date in IP, how well protected the IP assets are, the competitive advantages that the IP assets create or secure, how the IP is being monetised now and, in the future, and the amount of the funding you need. We will also review and discuss your financial forecasts and the assumptions that you have made in creating these.
We rely on all this information to form our opinion as to whether your IP assets are suitable for use as collateral for lending. This may sound like a lot of work, but we have 15 years’ experience of identifying IP and areas of IP value so our initial assessment can be completed within 1-2 weeks and without any additional work required from you – you just need to talk about your product/service and your business. Who doesn’t enjoy doing that?
STEP 2: Information for Lenders – IM
Ideally you should have a brief Information Memorandum that can be presented to lenders, with either a Business Plan or other supporting documents that provides additional information about your business. This is the case for most funding options. If you don’t yet have this prepared, then this should be something that you aim to have done within the first 3-4 weeks to ensure it is ready to be presented to lenders. We can provide you with an outline of what to cover and can help you get it in the right shape. Lenders will typically be looking for the IM to include information that you already have at your disposal:
- Company background
- Sector information and market opportunity
- Financial and management track record
- Financial history and forecasts
- Amount of funding requested and what the money will be used for
- The valuation of the IP assets you are offering as collateral
STEP 3: IP Appraisal Report
In order to facilitate the IP-collateralised lending, we will perform an IP Appraisal and present a report that includes:
(i) an overview of critical IP assets being valued, and over which security is available, demonstrating how the IP underpins revenues and secures your competitive advantage;
(ii) our ‘Investment’ IP valuation, typically on a 3-5 years DCF basis relative to market dynamics.
We realise that much of your IP will exist in your business for longer than 3-5 years, however in our discussions with lenders they have made it clear that to provide short-term lending they need an IP appraisal based on short-term, predictable and achievable revenue forecasts, depending on the sector and your business life cycle.
Lenders are not interested in lending on the basis of a $billion IP valuation of a pre-revenue business based on 30-year forecast, which many of us have read about or seen before. Instead, we will make a commercially realistic assumption about the period over which the financials can be reliably forecast (the defined forecast period) for the purposes of the IP Appraisal (based on our corporate and sector research);
In addition, lenders may ask for an indication of the potential ‘downside’ valuation based on a sale of the IP assets. Obviously, this is not what we expect to happen, but lenders work on risk – they need comfort that whatever happens in your business that they can recover some or all their investment;
(iii) a list of possible buyers of the collateralised IP assets. Again this is primarily to provide comfort to lenders that they have an alternative route to recover their investment. Identifying potential buyers of your IP can also help to validate the IP as being disruptive, relevant, and could potentially give you ideas as to licence partners or potential acquirers if you choose to exit.
STEP 4: Matchmaking
I already have lenders, including global private equity firms, who are supportive of this product and who are ready to consider your short-term funding needs. From my discussions with them it is clear that some have specific sectors and IP that are of more interest to them and I will gauge which firms are the best to approach with your proposition. I will do the ‘matchmaking’ and make introductions to a shortlist of potential lenders that we have identified as most suited to your needs. You can send them your IM and begin the negotiations. Your business and /or IP may fit with the investment goals of more than one lender, but it is important to find the right fit for your business.
Are there likely to be any restrictions on how I use the money?
There is likely to be one clear stipulation by lenders – their funding cannot be used to repay existing debt. This finance product is intended to provide short-term funding or “bridging capital”. It will be perfect to help you bridge a working capital / investment requirement prior to a corporate event or key milestone e.g. pre-equity fundraising, pre-IPO, product launch, secure a route to market or to fund a JV or Partnership investment. We have also adopted a similar approach to facilitate corporate restructuring in the past. These are all events that typically result in the value of the underpinning IP assets increasing, which in turn can lower the lenders’ perception of risk.
If I want to pursue IP-back lending what should I do next?
If there are CEOs out there who want to get on with the business of growing their business without the ongoing distraction of working capital issues then they can contact me, Stephen Robertson on +1(760)-557-5795 or firstname.lastname@example.org
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