As a CEO, startup, or business owner, you always look for ways to finance your business. Whether for product development, marketing, or expansion, funding is vital in taking your business to the next level. While traditional funding sources, including loans, venture capital, and angel investors, may come to mind, there’s another source of potential capital that many businesses overlook: leveraging intellectual property (IP).
IP includes a range of intangible assets, from patents and trademarks to trade secrets and copyright. These assets can be leveraged in various ways to finance your business, and many companies successfully use this strategy.
In this blog post, we’ll look at why and how you should consider leveraging your IP to access funding and explore some examples of businesses that have successfully done this.
1. IP-backed loans
IP-backed loans are a type of financing that use your IP portfolio as collateral for the loan. It is attractive to businesses with valuable IP but may still need significant revenues.
In an IP-backed loan, the lender evaluates the value of your IP and structures a loan based on that value. In the event of default, the lender can seize the IP and sell it to recover the loan amount. This type of loan is available for various purposes, from product development to working capital.
One example of a successful business using IP-backed loans is the biotechnology company OncoMed Pharmaceuticals. The company secured a $40 million loan from Silicon Valley Bank, using its patent portfolio as collateral. This funding enabled OncoMed to continue the development of its cancer treatment pipeline.
2. IP sales and licensing
Another way to leverage your IP for funding is through licensing or selling your IP assets. This strategy is effective for businesses with strong IP but hasn’t fully capitalized on its commercial potential.
IP sales involve transferring ownership of your IP assets to another party, often in exchange for a lump-sum payment. Licensing is a more flexible approach, where the IP owner allows another party to use their IP in exchange for royalty payments.
A successful example of this approach is Canadian fintech company VersaPay, which licensed its proprietary cash application software platform to the Bank of Montreal. It allowed VersaPay to generate licensing fees and ongoing royalties from the bank.
3. IP securitization
IP securitization is a complex strategy that involves bundling IP assets to create marketable security offered to investors. This approach can generate significant funding but requires a high degree of specialized knowledge and expertise.
IP securitization is often used by technology companies, particularly those in the smartphone and semiconductor industry. For example, Korean company LG Innotek successfully utilized IP securitization to raise $250 million to fund its R&D efforts.
4. IP insurance
IP insurance is a financing strategy that involves insuring your IP assets against potential risks, such as infringement or litigation. This approach can provide peace of mind and increase the value of your IP portfolio, making it more attractive to lenders or investors.
One example of a business that has utilized IP insurance is Fastmetrics, a California-based internet service provider. The company purchased IP insurance to protect its valuable patent portfolio, allowing them to pursue additional funding and partnerships confidently.
Unlock Your IP’s Hidden Value
You can take your business to the next level by unlocking your IP’s hidden value. Leveraging your IP to access funding can be a smart strategy for businesses of all sizes and stages. Whether through IP-backed loans, sales, licensing, securitization, or insurance, businesses can tap into the hidden capital they may not have previously considered. Working with experienced professionals who can help evaluate the options and ensure your IP is protected throughout the process is essential.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He’s also a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.