Blog – January 2018
One of the most frequently raised topics at our Maximising Value seminars is the value of IP in Technology businesses. There are numerous approaches to valuing IP but the first question to ask is ‘Is this actually about the IP in the first place?’. IP can be the driver of value but it can also be secondary to other aspects of the business.
There is a tendency for people to assume that because a lot of time, effort and money has been put into the development of a product, the IP must be of significant value. Ultimately the value is going to come down to a function of what revenues (or more importantly, profits) the IP could potentially generate in the future. This can be exceptionally high in some cases, for example where the technology is unique, highly complex and difficult to replicate (eg. companies like Darktrace) or where it is being adopted rapidly thus giving strategic imperative for an acquirer (eg. Instagram when acquired by Facebook). The Prism-advised sale of NextG.com to ARM is an example of providing a technology building-block in the fast moving IoT market.
However, where a business is centred around ‘me too’ technology, the value is probably more in the customers (contracts and relationships) than the technology itself. Also, it is important that any IP is demonstrably yours, but do not expect a significant premium to be paid merely because you have IP if that IP is not going to be the primary driver of future returns.