Most companies need capital to scale, grow and sometimes survive at some point. Yet when seeking finance, few companies tap into one of their most valuable assets, their intellectual property.
This finance gap stands in the way of their success and the prosperity of our economies. Intangible asset finance could narrow this gap. What an enterprise creates and invests, when protected by intellectual property, holds tremendous value. Strategic use of these intangible assets could become a game changer for intangible intensive firms.
To enhance access to finance on the strength of IP, governments and commercial concerns are experimenting with a range of initiatives and offerings.
Intellectual property rights can be used to secure financing, either by pledging them or transferring rights to cash flows derived from these assets. Alternatively, a company’s intellectual property can provide an indicator of a firm’s value and support financing decisions. For some businesses, intangible assets only represent a small portion of what a company is worth. For others, the bulk of their value may flow from their intellectual property. These companies must communicate the value of their intellectual property and other intangible assets to lenders and investors.
IP Financing is growing but still largely nascent. Experiments by commercial actors and governments to improve access to finance on the strength of intellectual property are ongoing.
Using IP as collateral
In debt financing, lenders often require borrowers to pledge their assets as collateral when providing a loan. If the borrower defaults, the lender can seize these assets and monetize them to recover some of their losses. Collateralized loans may be easier for a business to secure and may be cheaper than other forms of lending.
Tangible assets, like equipment and buildings owned by a business are often used as collateral. Certain intellectual property assets, like copyrights, designs, and patents, - or revenue streams associated with these assets - are increasingly used to support loans.
When IP is used as collateral, ownership usually remains with the borrower. However, a lender may put certain conditions on how the IP can be used in the future. This could affect the ability to transfer to license the IP or transfer it to others.
Lenders will often file notice of their rights - known as a security interest - to the IP in the case of a borrower’s default on a loan. Depending on a country’s laws, a security interest may be filed through a local IP office or a movable collateral registry. If a lender uses IP as collateral that is held in multiple countries, this process may need to be completed multiple times.
WIPO Report Series on Unlocking IP-backed Finance
To better track and learn from these experiences, WIPO launched a new report series on Unlocking IP-backed Financing, Country Perspectives.
The Series tracks how countries are tackling IP-Backed finance. Each report, developed in partnership with a local partner IP office, a local expert, and WIPO, provides an insider perspective of the situation on the ground. The reports reflect on successes and challenges, as well as the road ahead. This Series provides an opportunity to deepen dialogues around IP-backed financing, sharing best practices and shedding light on what it will take to mainstream.
IP Financing in Singapore
The first report in the series shares Singapore’s journey and the holistic approach the country takes to IP financing. It explores how Singapore has positioned itself to support IP-backed financing, including by developing a robust legal framework and a whole of government approach. Among other initiatives, the pilot Intellectual Property Financing Scheme, is described in detail, where the government shared default risks with participating financial institutions that offered IP-backed loans. The report further describes Singapore’s efforts to create a supportive environment for IP-backed financing, including through disclosure, valuation, and secondary markets for intangible assets. With an eye towards the future, the report identifies challenges faced by the local ecosystem in expanding the availability of IP finance.
As the value of intangible assets including intellectual property (IA/IP) increases, governments are recognizing the need for enterprises to proactively protect, manage and commercialize them to derive maximum benefit for enterprises and the overall economy.
Unlocking IP-backed Financing: Country Perspectives - Singapore’s Journey
This report gives an account of Singapore’s IA/IP financing journey – the initiatives and the challenges faced, as well as the next steps on the journey to unlock IA/IP financing for innovative enterprises.
Early findings from the Report Series on IP Financing
At a side event held during the Sixty-Third Series of Meetings of the Assemblies of the Member States of WIPO, five countries participating in the Report Series shared their perspectives from on the ground. A common theme emerged from the discussion by representatives from Jamaica, Japan, Singapore, Switzerland, and the United Kingdom. Making progress in intangible asset finance requires engagement across sectors, like finance, business, and government, to work together.