A lot has changed in business finance. The emergence of new technologies changing our daily lives, such as FinTech, EdTech and HealthTech, mean that Intellectual Property (IP) is attracting a flow of investment.
Alternative lenders see the commercial value in intellectual property assets. In particular, the potential for strong IP assets to increase in value over time, whereas tangible assets decrease in value. Consequently, they’ve found innovative ways to assess credit risk and use intellectual property as collateral to fund tech sector loans.
For companies operating in the tech sector, with intellectual property accounting for an average of 80% of their assets, the benefits are clear. Firstly, revenue-generating IP assets make you more attractive to investors. Then, an IP collateralised loan helps shareholders avoid putting their family’s financial future at risk by submitting personal guarantees. Beyond that, IP collateralised loans reduce dilution. And most importantly, IP lending reduces the cost of borrowing.
Seek an up to date, independent valuation of your IP. In particular:
Where conventional bank lenders still ignore IP as collateral to secure a loan, specialist lenders, including private debt funds, have stepped in to fill the gap.
With an IP backed debt finance loan, you can generate cash without diluting equity or tying up future revenue streams.
Moreover, because alternative financiers look for evidence that tech companies can repay loans from future equity and enterprise value (customer base, and IP), they can structure flexible and covenant-light terms.
IP royalty lending is a form of securitisation that allows tech companies to unlock capital tied up in royalty assets.
It works by giving tech companies direct access to capital in exchange for an agreed percentage of future revenues.
The benefits are clear:
For mid-market PE/Venture-backed companies who need to secure non-dilutive short term funding for event-driven activities such as expansion, an MBO or an acquisition, IP Sale and License-back arrangements are ideal.
Here you sell the payment flow deriving from your IP rights, e.g.royalties or licences to a specialist lender, for a lump sum.
In turn, your specialist lender places your IP into a holding company or special purpose vehicle (SPV). At the same time, you license back the use of your IP assets, as in a traditional sale and leaseback arrangement.
As a result, not only do you reduce the overall cost of capital, but also you:
If you’re a tech company with few assets apart from your IP, then seek an independent valuation to see how much value you can extract from your IP.
If you’re a pre-profit company that:
But can demonstrate growing revenues, then you can access IP backed finance.
Typical uses include scaling operations, supplementing funding rounds and raising capital for event-driven needs such as an acquisition.
You can approach private debt funds directly. Alternatively, you can save time and money by talking to a specialist debt advisory and brokerage firm.
When you unlock the value tied up in your IP you:
To leverage IP to boost your financial position, seek advice about setting up:
If you’d like to help with unlocking the value tied up in your IP, drop us a line and we’ll set up a time to chat.