Valuing Intellectual Property

Lakelet Advisory Group’s business valuation focus is challenged entities and complex intellectual property (“IP”) assets. Valuing early stage, technology-based intellectual property assets is challenging, in large part due to the difficulty in incorporating the effects of risk and uncertainty inherent in these assets into their valuation. Technology-based intellectual property assets, usually protected as patents and/or trade secrets, are typically valued using the same three common approaches as are used to value businesses or other assets. These approaches include:

  1. Income approach;
  2. Market approach; and
  3. Cost approach.

However, technology-based IP assets pose many unique challenges to a valuation analyst. A few illustrative examples of such challenges include:

  • Income approaches are often difficult to implement for a variety of reasons, including the difficulty in quantifying the portion of a product or service’s cash flows that are attributable to the subject IP asset;
  • Market approaches are often difficult to implement for many reasons, including the fact that IP assets are, by definition, unique. As such, comparable market transactions are often difficult or impossible to find. In addition, because IP assets are not traded on public markets and the transactions themselves are typically confidential, there are few public sources that reveal deal details that would be sufficiently comparable to be used to implement a market approach, and the data available from sources that do exist is often incomplete; and
  • Cost approaches are often difficult to implement because the cost to create the subject assets is almost always unrelated to the value of the asset (e.g., income generation, cost savings, etc.) that can be gained from use of the asset.

However, in addition to these challenges, perhaps the most difficult issue associated with valuing technology-based IP assets is accounting for the significant risks associated with many of these assets. Accounting for risk is particularly difficult in the very common situation when technology-based IP assets are valued prior to any (or significant) commercialization success; i.e., when the assets are “early stage.”

Lakelet Advisory Group would be most interested in assisting you with your challenging restructuring / bankruptcy or intellectual property valuations. 

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