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We will do a valuation of the intangible assets of a new product or technology platform using the income method during the workshop. Key choices: Economic life of the product, discount rates by types of buyers, net present value of free cash flow, and Relief of Royalty. Sources of royalty data and selecting and adjusting comparable licenses.
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Valuing Intangible AssetsProduct Camp MSP 2014
Clyde Hanson, CPVAVenture Isles, LLC
Valuation
Workshop
Workshop Overview
Participate in valuing a patented new product
Learn basic concepts & terminology
Gain a context for evaluating valuations
Example
RayIsles Ethical Drug Patent
Indigestion treatment
Multi-member LLC
My start-up’s first valuationPercent of inventor
ownership by
milestone
Table 6 Nominal Investor
Licensing After US Patent Issuance Total IP Risk &
Share of Royalty & NPV Adjust. 100%
Developing IP Value Value Value Factor Investor
Current status 0% $0 15 100.0%
Less licensing commission 65.0%
Phase I work completed 0.75% $95,625 14 18.1%
Phase II work completed 2% $255,000 12 13.9%
Phase III work completed 6% $765,000 8 7.0%
Post-patent valuation (Sold/Licenced Here) 25% $3,187,500 5 7.0%
Post international patent issuance 35% $4,462,500 4 7.0%
Post-proof-of-concept valuation 50% $6,375,000 3 7.0%
Post-commercialization valuation 85% $12,750,000 2 7.0%
Litigation tested patent 100% $15,000,000 0.9 7.0%
Revenue to inventor at IP sale $222,192
Adjustment Calculations
Valuation Opinion
After conducting the level of analysis specified in the
scope of work, it is our opinion that the ABC Company
portfolio has a market value of about $217,000 for a
business model A buyer, $998,000 for a business model
B and $423,000 for a business model C as a lump-sum
payment at this stage of the business cycle, for the
sales volumes forecasted, for a “full-line” firm doing all
categories of projects modeled, for a national territory
and with only one bidder.
Instant Valuation Volunteer
One product company
Patented or patent-pending
Public information
Revenue or non-revenue
Relief From Royalty Method
If you had to license the IP from another inventor,
what would avoiding this cost be worth to your
firm if paid in a lump-sum?
Income approach with market inputs
Data needed:
Sales forecast
Forecasting period
Royalty rates for comparable IP
Discount rate for net present value
Product/Market
What’s the product?
What’s the value proposition?
What is the price?
What is industry’s typical gross margin?
What are the customer segments?
What is the expected economic life?
What is the expected adoption curve?
What is the expected market share?
Discount Rate Risk free, long-term US Gov. Bonds interest = 2.9%
Equity risk premium = ………………………………7.2%
Micro Cap premium = 15.5%
Tech Industry adjustment = 18% - 9.9% = 8.1%
Company specific risk =
Technology risk ________
Market risk ________
Intellectual property risk ________
Execution risk (management) ________
Less long-term sustainable growth rate = - _________
PRE-TAX DISCOUNT RATE: ________ %
Royalty Rates
Forecast Period
Useful economic life?
Patent term?
____ years
Revenue Forecast
Constant rate of growth?
Exponential rate of growth?
Pace of channels?
Build up from customer segments?
Net Present Value
Discount rate
Royalties per year
Number of years
Paid at end of each year
Post-Calculation Adjustments
Business cycle outlook from valuation date
Minority control discount / Majority premium
Lack of marketability
Regulatory changes foreseen
Synergistic value
Capital structure
Litigation, agreements
NPV Example
Final Valuation
NPV = _______________
Less adj. ______________
= $ ____________________
Valuing Intangible AssetsProduct Camp MSP 2014
Clyde Hanson, CPVAVenture Isles, LLC
[email protected] & Entrepreneurs of MSP Meetup.com
Valuation
Workshop
