How Aon is redefining the value of intellectual property

• Intellectual property refers to a company’s patents, trade secrets, trademarks, copyrights, know-how and data.
• Experts recommend that companies incorporate IP value strategy programs into their core mission.
• IP assets can be leveraged as collateral for non-dilutive, growth stage capital.
• Aon offers insurance and consulting services to help businesses navigate the growing IP-as-an-asset-class landscape.

It wasn’t long ago that a company’s value was predominantly determined by the tangible things it owned, like equipment, real estate, or inventory. Today, as businesses become more technology and innovation focused, there’s another kind of asset that’s boosting valuations: intellectual property (IP).

According to a recent report, intangible assets, which are assets that are not physical or financial, account for 90% of the S&P 50 0’s total market value, up from 17% in 1975. Most of that relates to IP, which includes patents, trade secrets, trademarks, copyrights, know-how, and data. However, businesses typically underappreciate and underutilize IP assets and the significant enterprise value that they represent.

“As we’ve transitioned to a global innovation-driven economy, we’ve witnessed a historic value rotation from tangible assets to intangible assets,” says Lewis Lee, CEO for IP solutions at Aon, a global professional services firm. “Every business today views innovation as critical, and so now the question for companies is how do you optimize conversion of that innovation into an IP asset class that can then be leveraged to make companies more valuable?”

Understanding your IP’s value

Beyond traditional monetization approaches, like licensing IP to third parties, most companies don’t fully understand or appreciate the importance of their IP assets to their overall enterprise value, Lee says. They often view IP in the legal context rather than as assets that are core to its business strategy, growth, and ultimate enterprise value.

“There are a lot of mid-market companies that don’t truly appreciate the value of their IP assets,” Nick Chmielewski, chief broking officer for Aon IP solutions, says. “They look at it from a legal perspective or as a cost center, but not as something that has value that can drive the business.”

Using IP to create enterprise value

IP is only going to become more important as businesses of every type rely more heavily on innovation, especially as we emerge from tough economic times. To illustrate this innovation trend, patent issuances are rapidly accelerating. It took 121 years for the US to issue its one millionth patent — from 1790 to 1911 — but just three years to go from nine million patents granted to 10 million, which happened in 2018. And the US is behind China, which issues one million patents annually.

To optimize enterprise value in today’s economy, companies must develop an IP value creation strategy that integrates with its strategic business plan — something Aon has been helping companies do for years. The process starts with an assessment of a company’s existing technologies and intangible assets. Aon can help catalog and understand what a business owns and how its IP stacks up against its competitors’ assets.

The next step is to align the IP strategy with the company’s business objectives — where it wants to be in two, five, and 10 years — to properly protect its future goals.

“Ask yourself, what are the products and services that will add value to your business in the coming years and how best to proactively align which IP assets will be needed to cover those products and services?” Lee says.

Once a company knows what it has and how it relates to its business activities, it can start building an IP portfolio proactively. That involves ensuring its IP is properly identified, captured, and protected, as well as licensing from third parties if necessary.

Ultimately, for an IP strategy to work, the idea that intangible assets have real business value must become part of a company’s core mission.

“This needs to be part of your DNA as a business,” Lee says. “You need to talk about what kind of enterprise value you have because of your strong IP asset class. Articulate how IP covers the products and services you’re selling and thereby protects the associated revenue streams resulting from those products and services.”

“If that investment goes unprotected then you’re going to have a gap where competitors can get in,” Chmielewski adds.

Leveraging IP to secure growth capital

The value afforded to IP assets can further be tapped for financing opportunities. For example, fast-growing companies can use their valuable IP portfolios to collateralize loans for growth capital. The benefit to the companies: these IP-backed loans offer a non-dilutive source of capital that is very competitively priced compared to traditional equity financing.

“We have developed a market for serving growth stage companies with IP-backed, insurance-enhanced loans that are both non-dilutive and cheap in terms of cost of capital than equity financing,” Chmielewski says. “We’re seeing significant expansion in lending capacity for this market and increasing demand from borrowers for this option.”

Aon has developed a technology-enabled platform to assess and value IP assets at speed and at scale. That has removed the shroud of uncertainty when trying to price intangible assets.

“Using IP assets to finance growth is a game changer for later-stage financing,” Lee adds. “These assets represent most of the enterprise value and now that we can more accurately measure those assets, we can leverage that value in various forms of financing.”

How to protect your IP today and mitigate IP-based risks

As the business becomes even more global and competitive, an effective IP strategy becomes more critical. Given how nuanced this area can be, businesses may also want to consider buying IP insurance, which can help protect companies from IP theft and from accusations of IP infringement, Chmielewski says. If you’re found to be using someone else’s IP, even inadvertently, the insurance may help to cover a potentially costly settlement.

With more industries becoming increasingly tech-focused and collaborative with external partners, even traditional sector companies in construction, energy, and agriculture need to understand how to have effective IP strategies.

“This is something every C-suite and board must understand,” Lee says. “It’s an emerging asset class, but it’s the asset class of the innovation-driven economy and the key asset class for value creation. If that’s what your shareholders are interested in, then you have to understand it.”

Find more about how Aon can help your company navigate the changing world of IP.

This post was created by Insider Studios with Aon.