IP Finance Dialogue on Expanding Horizons on IP Finance and Valuation

Transforming the way intellectual property and related intangibles are used to bridge the financing gap many innovators and creators are facing takes a community. On November 21, 2023, policymakers and stakeholders from the financial sector and the business world came together to explore novel approaches to unlocking the use of intellectual property (IP) to facilitate access to financing. This year’s event focused both on valuation and best practices in raising debt and equity capital on the strength of IP. The event marks the second of WIPO’s series of conversations on IP finance.

In his keynote opening , Director General Daren Tang mentioned that despite their growing size and value, estimated to be worth more than the world’s top ten economies combined, “intangible assets remain mysterious and invisible.” He emphasized that “we need to use the tools at our disposal to shine a light on IP finance and to understand how it is critical to our collective future economy.” This year’s IP Finance Dialogue highlighted progress being made from across the globe that positions innovators and creators to use their intellectual property to access the funds they need to scale and succeed.

From paradox to progress

That will take new approaches. As H.E. Indranee Rajah, Minister in the Prime Minister’s Office of the Second Minister for Finance and Second Minister for National Development of Singapore explained, “we find ourselves in a paradox.” While markets recognize intangible assets as valuable it can be hard to agree how much their worth. Yet understanding their value helps potential investors and business partners as Minister Rajah explained “and is a key step to help enterprises commercialize their intangible assets.”

“We need a sea change in how finance providers think and act,” said Pamela Coke-Hamilton, Executive Director of the International Trade Center (ITC). She emphasized the need “to work with the finance and banking sectors to move away from the ‘resources and commodities mindset’ that has long dominated the conversation and replace it with an ‘ideas mindset’.” Peter Kažimír, Governor of the National Bank of Slovakia, is confident that we can bridge these gaps. “It starts with shifting the mindset.” He continued, “we need specific policy changes incentivizing investment in intangible assets. We need governments to create an environment conducive to innovation, to expand and strengthen it.”

H.E. Rouhollah Dehghani Firouzabadi, Vice-President for Science, Technology and Knowledge-based Economy of the Islamic Republic of Iran, called on governments to be part of this transformation and to support, “advancing the financing system of a knowledge-based economy.” He highlighted the need for tailored financing mechanisms. Also, João Negrão, Executive Director of the European Union Intellectual Property Office (EUIPO), stressed this point. “Businesses need to have at their disposal a number of supportive instruments that go well beyond IPRs [intellectual property rights] and include IP evaluation, financing, commercialization and monetization.” He highlighted the importance of collaboration between IP offices, international organizations, and associations to “ensure that the required support reaches those that need it, when they need it, and how they need it.”

Building on best practices

Around the world, stakeholders are tackling IP finance in different ways. Singapore recently developed an intangible assets disclosure framework in collaboration with the private sector. Rena Lee, Chief Executive of the Intellectual Property Office of Singapore shared the impetus behind the initiative was to “enable enterprises to take stock of their intangibles and also be able to communicate what their portfolio of intangible assets is to stakeholders” like investors and shareholders.

Understanding the value of what they own is critical to growth explained Astrid Bartels, Head of Access to Finance Unit, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs, European Commission. A recent study found that as businesses grow, their use of IP intensifies. The same study showed a correlation between the filing patent and trademark applications with a higher likelihood of securing funding. Roland Emmans, Head of Technology Sector & Growth Lending, HSBC confirmed this aligns with his experience. “Firms that have substantial IP are more resilient through the cycle and more likely to succeed and therefore less likely to fail from a banking perspective.” Today, HSBC uses IP to provide comfort in their transactions. Emmans continued, “I strongly believe at some point in time […] IP will be an asset class for collateral for lending in its own right.” 

Which is why some countries are implementing policies that ensure their start-ups protect what they create. Nabila Aguele, Member of the Board of Directors of INSEAD and former Special Adviser to the Ministry of Finance and Planning of Nigeria spoke about how Nigeria’s Start Up Act establishes a better support system for businesses to develop their intellectual property.  The Act provides support for startups to register their IP as support their commercialization. She pointed to a need for there to be a joint effort, between government, the private sector, international organizations and banks “to unlock financing potential.”

Scaling IP lending and investment

The market for IP-backed lending is growing. In Neil Bellamy’s experience at as Head TMT & Services at Natwest, IP-rich businesses end to be characterized by lower risk and higher growth. He is focused on bringing a suite of IP products to the market for small and medium sized businesses (SMEs). He believes that if the volume of transactions can rise to a critical mass, then banks will be in a position to talk to regulators about getting capital relief for using intellectual property as collateral. With “more lenders that are lending against IP, we can establish a loss rate.”

Gabriela Contreras Aguilera from the Guatamala-based Luminova Pharma Group shared her experience using IP to secure finance. She shared Luminova’s journey to get a bank to accept their trademark portfolio as collateral for a loan. Their bank was not used to lending using IP. The process required educating the bank about how IP works and explaining how Luminova’s trademarks would support their revenue over the next five years.

Speaking from an investor’s perspective, George Gachara, who is advising Mastercard Foundation and UNESCO’s International Fund for the Promotion of Culture, looks beyond the business fundamentals and into the quality of the underlying IP. “Our review process allows us to know whether the IP has growth potential in the region and other markets.”

In the music industries, the IP rights that drive royalties continue to be an important alternative asset class, according to Joern Radloff, Global Head of Music Publishing at Amazon Twitch. As he described, “it is not new, but the players have evolved and the marketplace evolved.” Radloff sees more private investors getting into the space and in some cases providing direct financing to creators. In the movie industries, recent WIPO research shows significant use of IP to support creators. Joseph Calabrese, former Global Chair of the Entertainment, Sports & Media Practice at Latham Watkins explained that “independent producers around the world have traditionally turned to debt financing for their projects, using their underlying copyrights” as collateral. 

Sometimes IP rights get shared between the creators and production companies, as Lucrecia Cardoso, Argentina’s Secretary of Cultural Development of the Ministry of Culture described. She highlighted a need for policies “that can allow revenue streams related to IP rights to go straight to the creators” to empower them. One way to accomplish this is to provide “more bankable opportunities in the creative sector, as Juni Tingting Zhu, Senior Economist at Markets, Competition and Technology Global Unit of the World Bank Group explained. International organizations like hers support bridging the amount the private sector is willing to invest in creative industries by providing confidence in their risk profile. “What we really want is to build a pipeline of viable creative industries businesses, so that they have demonstrable cashflows that will be appealing to private investors.”

Driving IP valuation forward for finance

A first step in any IP-backed transaction, is getting an idea of how much the assets are worth. Market players and academics are investing resources into improving the valuation process. For example, Xiaolan Fu, a Professor of Technology and International Development at Oxford University, uses machine learning and artificial intelligence to value early-stage businesses where intellectual property is the core asset.

Brian Hinman, Chief Innovation Officer at Aon Intellectual Property Solutions, emphasized the importance of using artificial intelligence in their valuation process. His company has facilitated a volume of around USD 2 billion of IP-backed transactions over the last 18 months. Aon monitors the value of the IP underlying the transaction throughout the loan period and uses it to convince insurers to underwrite the risk of default.

“We’ve educated insurers, lenders and the finance community on the strength of the valuation,” explained Hinman. Aon’s valuation process uses a proprietary platform that maps patent claims to markets and technologies. It evaluates both the IP backing the loan itself, but also others in the same space to understand how broad it is. Its then reviewed by experts.

“Consistency is key” for valuation, as Leann Pinto, Chief Executive Officer of IPwe explained. Building trust in valuation requires being able to understand what goes into the valuation process. Using technology and publicly available data provides the ability to value an entire portfolio quickly. Creating a common language for valuation can go a long way, according to Pinto.

WIPO: Moving IP finance the margins to the mainstream

Building trust in valuation, particularly to facilitate finance, has been one of WIPO’s areas of concentration over the last year. “At the World Intellectual Property Organization, we are focused on how intangibles can be transformed into a viable asset class to support both equity and debt finance.” said Marco Alemán, Assistant Director General of WIPO’s IP and Innovation Ecosystems Sector. WIPO’s work in this area centers around a three-pronged Action Plan that aims to bridge the financing gap many innovators and creators are facing.

WIPO’s Action Plan first focuses on raising the profile of IP finance via convening the community on the topic, such as the IP Finance Dialogue, and Expert Consultative Groups. Secondly, it addresses the information gap and provides quantifiable insights into best practices to enable their broader application. The final element focuses on equipping stakeholders with practical tools to move forward on the operational level.

The Expert Consultative Group on Valuation for IP Finance is one example of these efforts. It was formed as a follow up to last year’s High Level Conversation on Intangible Asset Finance, where valuation came up as an obstacle to unlocking the potential of IP as a financial asset. Composed of eleven renowned experts from across the globe with first-hand knowledge of or an institutional stake in intangible asset valuation and finance, this group met in October to look at current practices and gaps in the field and identify practical actions that can overcome the associated challenges.

To facilitate meaningful dialogue two papers were prepared by experts: a practitioner paper looking at the international practice of intangibles valuation, gaps and commonalities and differences in the profession worldwide and a theoretical foundations paper, investigating the implicit assumptions of common valuation methodologies and their strengths and pitfalls.  All this is being used to work on options to make progress, shaping the next stage in the WIPO Action Plan on IP finance.

Progress has also been made on the Country Perspectives on IP Finance series. The project takes a deep dive into the existing frameworks for IP finance in 20 countries, to build a strong and global evidence base revealing what governments, commercial actors, and industries are doing in the space of IP finance and valuation. This project is an integral part of WIPO’s efforts to close the information gap and providing quantifiable insights into best practices to enable their broader application. Reports from Singapore, Switzerland and the United Kingdom are published with accounts from China and Jamaica to be released in the near future.

During the Dialogue, Alejandro Roca-Campaña, Senior Director of WIPO’s IP for Innovators Department, shared two new projects planned for 2024. The first is an IP Finance Pilot, which will provide support to financial institutions and funds that want to use IP as part of the decision-making process or in their products. The second is the first in a series of Hands-on IP Finance Guides that aim to improve communications and facilitate transactions in IP finance. The first in the series will focus on companies seeking debt financing. The guides will be provided in the form of an interactive toolkit with examples, templates and checklists to help businesses identify bankable IP and describe their value of these assets in their portfolios to potential lenders.

Both initiatives mark a deliberate shift towards concrete projects on the ground in the realm of IP finance and embody WIPO’s commitment to move IP finance from margins to the mainstream.

Missed the event?

Watch the webcast and check out WIPO’s work on intangible asset finance.