Significance of owning a patent, trademarks, designs or any other lesser-known forms of Intellectual property (IP) is known to everyone in business today. Arguably, IP plays a vital role in today's globally connected internet driven world. Therefore, no points for guessing how crucial the role of IP in a company's success is! Just like your other tangible properties hold a significant value in monetary terms, IP can also be considered as valuable assets that can be bought, sold, or licensed. Earning money by either creating a new market or potentially erasing out the existing competition in the market, does seem like a promising and profitable proposition for the investor as well as the innovator. And hence, when it comes to IP, there are a number of different ways to invest in it. Someone who is a venture capitalist or a private equity investor, can profit tremendously by investing in IP assets through various diversified options.
How can Investors in IP benefit?
When it comes to investing in IP, investors are mainly interested in the portfolio and the valuation of a company. This is because a well-managed IP portfolio is a strong indication of a company's future success. Through licensing, sales, or commercialization of protected goods or services, IP can bring in money for your company without requiring any further effort. A company's market share may increase as a result, as well as their profits.
So, how do investors in IP benefit? They can receive dividends, bonuses, and other payments from the company in exchange for their investment. Additionally, they can benefit from an increase in the company's stock value as a result of its well-managed IP portfolio.
Top 5 ways for Investors to invest in IP:
As promised by the title of our blog, let's cut the chase and get to the point. Following are some of the most promising ways for investors to invest in IP.
- Invest in Company with impressive IP portfolio:
When an investor buys one or more of patents, copyrights, trademarks, or trade secrets preowned by a company he not only invests but invests 'smartly' in the company. This can be a good way to secure the investment, as well as to get royalties or licensing fees from other companies that use the IP. Any business can create an exclusive IP portfolio for itself comprising at least: Copyrights- for promotional items; Trademark- for business name and logo; and Patent- for USP product/technology especially if the company only sells one core item, and so on...
Often businesses build their IP portfolios around a single product. When a company creates a product with a software component, it may only include the IP rights that are relevant to that particular product in its IP portfolio and even that suffices for the company to make a niche in the market.
- Invest in Equity Stake:
Another option is to buy equity shares in a company that has a lot of valuable Intellectual Properties. Not just that, a potential investor may also consider buying a company that owns a patent or copyright that is going to be inevitable to escape in near future. For instance, investing in a company owning patents around 5G technology could have been a smart move at least until few years back.
- Invest to increase IP Valuation:
An investor can also invest in the valuation of IP. This is when an investor pays for someone to appraise the value of the IP and then buys it based on that appraisal. In essence, an IP asset's value comes from its capacity to keep rivals out of a certain market. The economic right is founded on exclusivity of use, that is, the capability to restrict use of the IP asset, whereas the legal right confers exclusivity or the right to exclude. An IP asset must: – (a) generate measurable economic advantage for its owner or user; and (b) raise the value of other assets with which it is related. The investor may invest in increasing the IP asset's valuation to enjoy enormous benefits.
- Enter into Joint Ventures:
One of the not very much explored option for investing in IP is to collaborate or enter into a joint venture with a company involved in IP transactions. In other words, joining hands with an IP company that brings about selling and buying of IP. This way the investor would get returns on every deal the IP company makes. However, the investor needs to be sure of the position of IP company in the market first.
- Invest in Royalties:
Investing in royalties is a very unique kind of investment one may look at. With the increasing unpredictability of stock markets, popularity of investing in royalties as an alternative to stocks is on a rise. Royalty in simple terms can be understood as a compensation provided to an IP owner in exchange of using their IP. Investors can invest in a company that is paid royalty for its IP portfolio. This way, investors can have a percentage share in royalties earned by the company in all future productions, sales or licenses. Royalty is usually paid annually, monthly, quarterly or similar period intervals.
Secret to Successful Investment?
When you're looking to invest in IP, one of the first things you need to consider is the IP portfolio. What does the company own? What patents do they have? What trademarks do they hold? This information is essential in understanding the value of the company and its potential for growth. Investing in a company that already has its IP rights protected, means that you shall expect the company to grow as well as the value of its IP i.e its designs, brands, innovations, etc.
Another factor to consider is how you can exploit the IP? Basically, what can you do with it? How can you make money from it? Can you license it out to other companies? How much did you pay to secure it? How much would the competitor pay to obtain similar assets? These are all important questions to ask if you want to make a successful investment in IP.
Finally, don't forget about the market of interest and positioning. Make sure you know where the company is positioned and who its competitors are. This will help you make a well-informed decision about whether or not to invest in IP.
When it comes to intellectual property, there are a lot of different ways to invest. Whether you're looking to invest in a company's entire IP portfolio or just the value of its IP, there are multiple options out there for you. In a perfect world, when a company grows and expands, IP will have been properly acquired, maintained, and recorded; regrettably, this is not often the case.
Companies run the danger of undervaluing themselves when it comes to attracting investment and will miss the opportunity of optimizing their chances of future success. Keep in mind, though, that not all IP is created equal. When you're investing in intellectual property, it's important to do your research and make sure you're getting the most bang for your buck. So which option would you select for investment next? Let us know your thoughts in comments or by reaching us at our LinkedIn profile, and we shall get right back at you. All the best in your future investments, be wise!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.