Securing Financing with IP Assets

There are various ways to leverage your intellectual property (IP) assets to access financing.

When determining whether to invest in your company, investors will take into consideration your IP management strategy. Steps taken to protect your product or service by a patent, a utility model, a trademark, an industrial design, or copyright – as well as efforts made to keep your confidential business information secret – are good indicators of the potential of your company and investment is likely to follow.

Similarly, banks may take into account IP assets as collateral when determining whether to grant a loan, though this is not a widespread practice.

For tech startups a single IP asset may be the only asset of value they have. In such cases, IP can help to secure high-risk investments from angel investors and venture capitalists. (Image: Getty Images/Bhavesh1988)

How can IP assets assist with securing financing?

IP ownership helps to convince investors/lenders that real market opportunities exist to commercialize your product or service. On occasion, a single powerful patent may open doors to a number of financing opportunities. IP assets can:

Serve as collateral or security for debt finance.

(Images: Getty Images/Enis Aksoy)

Provide an additional basis for seeking equity.

 

Integrate IP into your business plan

A well-thought-through business plan is an important tool for start-ups. It is used when pitching ideas to potential investors and to demonstrate that your product or service is innovative, unique or superior to others on the market. 

Proof of IP rights

If you can show that your IP rights have been or are in the process of being secured and they support the business strategy of your company, this would give a strong signal to investors of the seriousness of your proposition. 

Confidential business information

For many businesses, confidential business information (such as details of production as well as technical, financial and marketing know-how) alone may be the main source of competitive advantage. In such cases, it is important to include in the business plan information about the steps you have taken to protect this confidential business information.

IP due diligence

In some sectors the risk of infringing third-party IP rights is high and investors may be reluctant to invest unless they are confident that no such risk exists. Investors will need reassurance that you are not relying, without authorization, on the IP rights of others. Therefore, make sure to include in your business plan such a reassurance such as confirmation that you have carried out due diligence in the management of IP assets  (for example through patent searches).

 Expert tip

Your business plan is a confidential document that should not be disclosed except on a need-to-know basis and that too, generally, only after the employee, investor, or whoever else concerned, has first signed a non-disclosure or confidentiality agreement.

 

Financing in action: securitization

Securitization normally refers to the pooling of different financial assets and the issuance of new securities backed by those assets.

One of the most famous securitizations of recent years involved American rock musician, David Bowie. Bowie in 1997 sold $55 million of what his representative termed “Bowie Bonds” – 10-year securities paying 7.9 percent, backed by 25 Bowie albums recorded before 1990.

Find out more in our WIPO Magazine article on David Bowie and his trailblazing use of IP.

(Image: Thierry Ehrmann, via Flickr under a Creative Commons Attribution 2.0 Generic license)