On April 10th, 2025, we hosted an IP100 Roundtable Special Event – IP Valuations vs Business Valuations.
Why?
Many business owners are currently facing an increasing number of challenges when fundraising, including the valuation number and the time it takes to complete the fundraising process. During our roundtable event we discussed how both IP and business valuations fit into the fundraising process and how IP can be leveraged to support negotiations and to accelerate investor/lender diligence.
Key takeaways from our discussions:
- It’s down to business owners to confirm the existence, importance & impact of IP assets in their business and how these IP assets create a competitive moat and drive business growth.
- Try to strike the right balance between IP Valuation & Business Valuation – recognizing IP valuation can be more important to a pre-revenue business and a business valuation is considered more appropriate for an established, revenue generating business.
- Demonstrate $value on exit / fundraise through the communication of the business performance & IP strategy – ensuring that your IP development and demonstrable IP assets and the business strategy align to support growth.
It is impossible for investors and other funders to assess the importance of IP assets in your business model, because IP value is never fully reflected on the balance sheet.
So how will investors/lenders know the extent of the IP and how to diligence it? And, will this cause a delay in securing funding?
Business owners can get ahead of these challenges by taking control of the narrative around IP and how it factors into the valuation process.
An IP valuation can help companies overcome much of the value uncertainty in their early fundraising, by instructing an independent, forward-looking IP valuation which will provide the much-needed narrative about the extent and quality of the IP, that third parties can trust.
For IP-rich companies that are early-stage or pre-revenue, it is likely that a business valuation will not serve you. Instead, it’s better to try to demonstrate how the IP is critical to the company’s business model and will drive achievement of its financial forecasts over the estimated and realistic useful life of the IP.
This forward-looking valuation should include an explanation of how the IP will be used to secure a route to market and any key technical or commercial milestones that must be achieved in order to meet the financial targets – in our experience it is important for companies NOT to get “over their skis”.
We have seen the downfall of high-tech, potentially high-growth companies with unrealistic IP valuations extrapolated over 15 or 20 year useful lives in new markets that could not be easily predicted, thereby over-valuing the IP and putting a “target on their backs”, with value expectations for the initial seed investors that then made the valuation on Series A or B extremely challenging.
IP Valuation can be used in conjunction with Business Valuations to ‘move the needle’ and ensure the full value of the IP has been reflected in the valuation.
Business Valuations are effective when a business has a track record, and the financial performance can be reliably extrapolated forward, often using multiples of profit or revenue. We discussed a great example of how a highly successful, IP-rich company we worked with leveraged their ‘intangible edge’ to justify a higher valuation multiple be used in their Business Valuation, pushing them up from a Tier 2 to a Tier 1 company securing a much higher multiple as result, on the basis that they had proven their ongoing investment in R&D and marketing was securing their brand & marketing position, appealing to customers and genuinely creating a competitive moat around the business.
There are always opportunities to ‘retrofit’ IP strategy to your business, because you have been investing in IP, managing IP and protecting IP, yet your investors and funders just can’t see it.
Irrespective of where you are on the fundraising cycle, it is important to demonstrate how your IP strategy and business strategy align, if you are to successfully leverage your IP in funding discussions.
Some of our IP100 entrants have successfully used the IPSCORETM to demonstrate IP value creation year-on-year. Make it easy by creating an IP strategy or by getting an IPSCORETM using our well-established benchmark, to gain some clear insights to share with stakeholders into how IP helps drive the achievement of your business objectives. It could be as simple as:
- protecting your trade secrets before opening a new manufacturing facility, which creates risk, as it requires those trade secrets to be shared with new staff in a new factory.
- developing a branded, differentiated product / service strategy, to make your business more distinctive and memorable in your sector when pitching against competitors.
- Measuring repeat business from customers to help predict future cashflows and figuring out what maintains that customer stickiness and recognizing and protecting these IP assets so you can build on them and so they don’t leak out of your business (your inside knowledge of the customer, why you are able to respond / deliver faster than your competitors, your unique domain knowledge).
Thank you to the IP100 entrants that attended. This type of content and event is just one of the benefits that IP100 entrants get from being in the IP100 Club and as always those who attended got more practical examples of the above content and how to use it in practice in their business. Find out more about how to join the IP100 and get recognition for the investment you have made in your IP.
