Today’s businesses, particularly high growth ones, are likely to use their intellectual property and intangible assets to power their sales, profits, market share – and company value. IP-backed finance can offer companies the chance to use debt funding for growth using their IP as collateral.

Inngot is delighted to be working with the bank to support high growth SMEs and scale-up businesses. Here, we introduce some of the background to IP-backed finance, explain why it is relevant to companies today, and provide actionable insights into what businesses need to do to benefit from it. 

Since the industrial revolution, the physical assets companies own – like buildings, machinery, and vehicles – were considered their main value drivers.

However, intellectual property and other intangible assets are also now becoming major contributors to business success and value, particularly for high-growth technology businesses or start-ups – which tend to have fewer traditional tangible assets.

We’re talking about patents, trade marks, copyright, designs, trade secrets and all the know-how these embody.

These assets are unique, and therefore in short supply. But because they are not physical, they are also highly scalable – just what is needed in an increasingly digital economy.

In the past, high-growth, scalable businesses which are almost always IP-rich but light on tangible assets have typically found debt financing challenging to access, leaving them with two options: grow organically, or dilute equity.

This has contributed to a scale-up funding gap now estimated at around £15bn a year in the UK alone, according to The Future of Growth Capital, ScaleUp Institute, Innovate Finance, and Deloitte, 2020.

Now, for businesses offering products and services that are backed by good IP, borrowing is becoming a realistic alternative.

Bear in mind security may be required. Product fees may apply. Finance is only available for business purposes.

It’s important to stay on top of your IP and manage it strategically to get the best return on your investment.

Patents, trademarks, and registered designs involve a formal registration process and must be periodically renewed. They can be infringed, and if they are, prompt action is essential.

For many businesses, unregistered rights and intangibles like copyright, databases, trade secrets and other confidential know-how are just as important. These assets need to be maintained and safeguarded (and, in the case of copyright, asserted).

Working out what you have now, and what you need to create for your future success, is time well spent. The old maxim “if you can’t measure it, you can’t manage it” applies to intangibles as well as tangibles. Until you know what is in your portfolio, you can’t protect it, extract more value from it, or use it to drive discussions with investors or lenders.

IP can’t be used as loan collateral unless you own it. You may need to address ownership issues as part of your IP management process.

For example, a young high-tech company may be built around a novel patent family; but who filed it? It needs to be assigned to the company.

Similarly, copyright in creative work, including designs, promotional materials, and advertising, automatically resides with the original creator.

• Do your contracts with freelancers and agencies require they assign copyright to your company?
• Employment contracts similarly should stipulate who owns anything the employee creates in the course of their duties.

It is also important to get into good habits whenever you create new IP. This could involve patenting a new process, registering product or service names as trademarks, or making sure that trade secrets are kept secret.

Make sure key staff keep up to date records of what they do and why – their know-how. The act of recording know-how turns it into an asset that is protectable under copyright.

Consider key risks around your IP and how to mitigate them:

• Is your IP protected? You may face decreased revenue for your product or service if the corresponding IP is found to be invalid.
• Is your IP insured? The legal costs and time of defending against an IP infringement lawsuit can be substantial.
• Are you or key workers protected against hacking or computer issues? IP theft costs the UK economy £9.2bn each year, and accounts for a significant proportion of cyber crime more broadly. 

IP valuations are not a dark art: there are well established international standards that govern how they should be done. And it doesn’t have to be a complicated process. Online IP valuation tools are now widely available for SMEs.

What’s important is that any valuation, particularly if being done for borrowing purposes, should consider how the IP or intangibles drive value for the company.

Once you know what your IP is and what it’s worth, then you can use this information to support funding discussions with your bank or investors.

It’s worth noting your IP could be at risk if you do not keep up repayments on any debt secured on it.

This year, we’ll be exploring IP and IP monetisation in more depth, to support business leaders build strategies to protect, manage and add value to their IP and intangibles.

For more on this topic visit Inngot - Adding value to your intellectual property

Find out more about how the bank is supporting growing businesses here.