Financial modelling allows you to project and visualise potential returns you can generate from your intellectual property. Financial modelling lets you create a present-day assessment of the potential value of your intangible assets based on multiple IP monetisation strategies. Model visualisations, such as the graph below, allow for an in-depth study of your year-to-year projected returns based on multiple scenarios. These graphs are supplemented by key model metrics which allow comparisons between different valuation models.
These outputs can be used for a variety of purposes including understanding the potential future value of your intangible assets and supporting strategic decisions concerning your IP, particularly if you are considering an IP asset transaction. However, the value of a financial model does not have to be constrained to a single valuation. It can be more powerful than that. A dynamic model can be used as a tool during licensing and/or sale negotiations. Having a financial modelling tool is highly desirable when exploring monetisation strategies and understanding potential outcomes.
For example, in a licensing negotiation if you know the sensitivity of the royalty rate on your cash flow, the impact of milestones on your revenue, and when you can expect to pay back your investment, you will be in an advantageous position. You will have an idea of the preferred deal structure, have better-defined goals and know where concessions can be made and where you must hold your ground. Ultimately, this could lead to a better financial outcome for your company.
ClearViewIP creates interactive licensing models to plot and show the cumulative projected cash flow from a company’s IP. Most variables in the model are specified with a single number. However, a small number of variables, including the royalty rate, are modelled with high and low values to represent the best and worst case scenarios respectively. Modelling all scenarios results in upper and lower bounds for the projected revenue. This is illustrated as a shaded, bounded region in the chart. Provided a licensing agreement is signed, the potential revenue should lie in this region. The dashed line is the most likely ‘expected’ scenario. This chart is based on a model which is dynamic, as is the case for the models delivered by ClearViewIP. As such, different licensing partners can be turned on or off by ticking or unticking the boxes above in the graph. In doing so, you can see what effect negotiating licenses to licensees A, B and C has on the projected revenue.
Below the graph, a table with the cumulative cash flow and the risk-adjusted cash flow are shown. Each strategy has an accompanying risk associated with it. For instance, in this case it is perceived to be more likely that one or two licensees sign an agreement in comparison to all three licensees. For each case, the perceived risks translate into a success factor which suppresses the cash flow, giving the “risk-adjusted net cash flow” shown. This value is used as a comparator between licensing deals and between different strategies.
There are a number of triggers to prompt a company to consider obtaining a valuation of their IP. The following scenarios are just a few examples of when and why a company would seek a financial modelling report for their IP:
ClearViewIP is often asked to assess the commercialisation options for our clients. For this example, the client had a patented invention and wished to know how to exploit their IP to maximise their return on investment.
In collaboration with the client, ClearViewIP investigated three options: an exclusive global license strategy, the sale of the company’s IP and a joint venture.
An IP valuation model was created for each strategy. The models were customised to match the client’s requirements and preferences. Information was collated from the company’s employees and supplemented by market data from other sources. Variables in the models were assigned values on the basis of that information. ClearViewIP directors and consultants also contributed their knowledge of comparable deals in the industry to better define parameters such as the royalty rates and milestone payments.
The models were used to inform the company which strategy could potentially result in the highest return. ClearViewIP provided a detailed step-by-step implementation plan for the strategy. Having received ClearViewIP’s advice, the company decided to pursue the recommended strategy and recognised the potential of the dynamic model that was supplied to them going forward.
Based on the questions you’re trying to answer, ClearViewIP provides custom-built, dynamic, IP valuation models to help get you closer to understanding the licensing scenarios available to you. This maximises the usefulness of the deliverable for you and ensures the valuation is as accurate as possible. These are the types of questions that can be answered with the help of ClearViewIP’s financial modelling service.
What commercialisation strategies are available for my intellectual property?
How do the IP strategies compare?
Who is the most suitable partner for my innovation?
How much revenue can I expect to achieve in 10 years’ time if I license my IP?
How much will I need to invest in my IP?
When can I expect to recoup my investment?
My IP is being infringed. What are the damages I am owed?
ClearViewIP employees have knowledge gained from certified patent valuation and business intelligence courses and have extensive experience building models. Our licensing and valuation capabilities have been proven to be highly successful and have provided a number of clients with valuation forecasts ranging from millions of dollars to hundreds of millions of dollars.