IP Monetisation - Trends Moving Forward
Transcript of IP Monetisation - Trends Moving Forward
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Monetizing IntellectualProperty
MSC Malaysia R&D andIP Conference 2010
by Keoy Soo EarnPartner, Financial Advisory Services
31 March 2010, Malaysia
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Our res onsibilities and obli ationsAll materials or explanations (not restricted to the following presentation slides) (collectively Material) have been
and are prepared in general terms only. The Material is intended as a general guide and shall not be construed as
any advice, opinion or recommendation given by Deloitte & Touche LLP and/or its personnel (collectively DT).
In addition, the Material is limited by the time available and by the information made available to us. You should
not consider the Material as being comprehensive as we may not become aware of all facts or information.
Accordingly, DT is not in a position to and will not make any representation as to the accuracy, completeness or
sufficiency of the Material for your purposes.
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Professional advice should be sought before the application of the Material to any particular circumstances and the
Materials shall not in any event substitute for such professional advice.
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preparation of the Material, all duties and liabilities (including without limitation, those arising from negligence orotherwise) to all parties including you are specifically disclaimed.
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Keoy Soo Earn, CFA, CPA Singapore, GCIPPartner, Financial Advisory Services
Head, Transaction and Valuation Services Singapore & Southeast AsiaDID: (65) 62163238 Mobile: (65) 9733 9828 Email: [email protected]
Soo Earn has more than 18 years of experience in the provision of business and financial advisory services. He has worked
with corporations, private equity investors and lenders providing a range of transaction services on cross border transactions.
He has considerable professional experience in due diligence, valuation, market study, strategic value consulting, corporate
governance advisory, franchising & licensing advisory and intellectual asset management advisory.
He has led in excess of 150 valuation engagements involving the valuation of businesses, intangibles and financial instruments
for the purposes of M&A, financial reporting, dispute settlement and tax structuring. He has also led in excess of 150 due
diligence projects involving the provision of financial, tax, commercial and/or IT due diligence, and SPA review for acquirers
and vendors.
.
for Creation, Ownership, Protection and Exploitation of IP) project (www.surfip.gov.sg) commissioned by the IntellectualProperty Office of Singapore (IPOS). He acted as one of the two advisors to IPOS for their IP Starter Punch up your
Business with IP project (ipstarter.surfip.gov.sg).
He is a frequent speaker on topics related to due diligence, valuation and intellectual property management. He has been
involved in roundtable discussions and conducted seminars organised by many institutions including the World Intellectual
Property Office, Intellectual Property Office of Singapore, IP Academy, the Institute of Certified Public Accountant of Singapore
(ICPAS), CFA Singapore, Insead Singapore, Singapore Management University, the National University of Singapore andNanyang Technological University.
Soo Earn is a Certified Public Accountant and a Chartered Financial Analyst. He holds a Bachelor of Accountancy and a
Graduate Certificate in Intellectual Property Laws. He is a member of CFA Institute, the Singapore Institute of Directors
(SID), ICPAS and CPA Australia. He serves as a Board member of CFA Singapore, a Committee Member of the
Management Accounting Committee of ICPAS, a Committee Member on the Young Entrepreneurs Network of the Singapore
Chinese Chamber of Commerce and Industry, a Committee Member of the Regulatory Requirements Review Committee ofSID and a member on the Board of Advisors of AIESEC in Singapore, an international student organisation.
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Monetization
RIGC
A
IP OWNERIP OWNER
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TSH
CAPITALCAPITALSOURCESOURCE
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IP Bundle of Rights
11 RIGHT TO USE IT
22 RIGHT TO SELL IT
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44 RIGHT TO GIVE IT AWAY
55 RIGHT TO REFUSE TO EXERCISE ANY OF THESE RIGHTS
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Value of Your IP
Present value of thefuture economic benefitsof ownership
Value of YourValue of YourIPIP
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Cash income fromfuture exploitations of
the IP rights
FutureFutureEconomicEconomic
BenefitsBenefits
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Monetization Drivers
ProbabilityProbabilityof realizingof realizingthe futurethe futureincomeincome
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Pattern ofPattern of
futurefutureincomeincomestreamstream
Quantum ofQuantum offuturefuture
incomeincome
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Priceis what you pay.
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a ue s w at you get.Warren Buffett
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IP Life Cycle
Commercialization
End of IP Life
Assessdiscontinuation of
product
Developing new-version of IP
Maturity
Product haswidely gainedmarketacceptance
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Conceptualization
Idea is born
Discovery
R & D
Preparation
Building aprototype
Seeking IPProtection
Preparing forcommercialization
MarketingActivities
Product Launch
Tangible Revenue
flow
Explorealternative form ofrevenue
Leverage onLicensing
structures
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Life Cycle Phase 1 : Conceptualization
Commonly used IP Valuation Methods : Cost approach
Monetization avenues : -
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IP Case Example :Time Period : 0-7 T
Cost Incurred : S$102,620Income : Nil
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Life Cycle Phase 2 :Preparation
Commonly used IP Valuation Methods : Real Options valuation method
Monetization avenues : Internal / Self-funding mechanisms
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Venture Capitalist fundings Joint ventures
IP Case Example :Time Period : 8-18 TCost Incurred : S$396,000Income : Nil
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Life Cycle Phase 2 : Preparation
Using Real Options Method to value IP
Identifying key variables
affecting the forecast anddriving the value
Defining the expectedrobabilit distributions of
Monte Carlo Simulation
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these variables Running multiple
simulations to obtain aprobability distribution ofthe value.
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Life Cycle Phase 3 : Commercialization
Commonly used IP Valuation Methods : Probabilistic Discounted Cash Flow (DCF) Real Options Valuations
Monetization avenues : Venture Ca italist fundin s
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Licensing
IP Case Example :Time Period : 18-23 TTransacted value at 18T : S$30mil
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Licensing
Territory
Monetization Opportunities
InternalInternalSale &
Leaseback
Collateralfor loan
sale
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ExternalExternal
cope o use
Time Period
Licensing
Territory Scope of use Time Period
Licensing
Territory Scope of use Time Period
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Focus on the Licensees They are the source of the
relevant income streams
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Life Cycle Phase 3 : Commercialization
Using Probabilistic DCF to value IP
Failp=0.85
Risks associated with future cash flows (e.g. external events such as marketacceptance) are dealt with using a probabilty approach
Creates a more robust valuation, as multiple outcomes are considered at eachpoint in time
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1020
650
Succeed
Succeed
Commercial outcome
Cost = -10p=0.15
Failp=0.25
p=0. 75 Lowp=0.70
p=0.30
High
Post -launch NPV =
Post -launch NPV =
Phase III
Phase II
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Life Cycle Phase 4 : Maturity
Commonly used IP Valuation Methods : Discounted Cash Flow
Monetization avenues :
Securitization Divestment
IP Case Exam le :
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Time Period : 18-24 TTransacted value at 24T : S$192mil
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Securitization
RIGC
IP OWNERIP OWNER
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HTS
SH
CAPITALCAPITALSOURCESOURCE
Investors
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Life Cycle Phase 4 : Maturity
Using Discounted Cash Flow Method to value IP
TCF
Periodic
Cashflow(CFt)
No of Periods
Ahead (T)
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=+ r1 )1(
Discount
Rate(rt)
VALUE =
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Life Cycle Phase 5 : End of IP Life
Commonly used IP Valuation Methods : -
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Monetization avenues : Donation Divestment Licensing from alternative IP
IP Case Example :Time Period : >35 TTransacted value at 35T : Negligible
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Intellectual Property Life Cycle
Summary of Monetization Avenues
Commercialization
Maturity
Securitization
End of IP Life
Donation
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Conceptualization
Internal / Self-Funding
Preparation
Internal / Self-Funding
Venture CapitalistFundings
Joint Ventures
Venture CapitalistFundings
LicensingDivestment
Divestment
Licensing fromalternative IP
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Singapore, 2001New Mexico, 1977
ChairmanandCEOofMicrosoft.ChairmanandCEOofMicrosoft.ChairmanandCEOofMicrosoft.ChairmanandCEOofMicrosoft.ConsistentlyratedbyForbesMagazineasoneoftherichestmaninConsistentlyratedbyForbesMagazineasoneoftherichestmaninConsistentlyratedbyForbesMagazineasoneoftherichestmaninConsistentlyratedbyForbesMagazineasoneoftherichestmanin
theworld.theworld.theworld.theworld.Networthatover$50billionNetworthatover$50billionNetworthatover$50billionNetworthatover$50billion
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Intellectual Property Life Cycle
Conceptualization Preparation Commercialization Maturity End of IP Life
Net cash outflow S$
Natal costs 8,000
Milk formula 5,760
Pampers 2,160
Other consumables 24,000
Pre-school education 54,000
Junior training/clinic 7,200
Ki ts ( Jersery, boots etc) 1,500
Total 102,620
Cost per year 14,660
Net cash outflow S$
Consumables 79,200
Education 33,000
Kits 11,000
Youth training/cl inic 52,800
Overseas training stints 220,000
Total 396,000
Cost per year 36,000
Net cash inflow
Royalties
Net cash inflow
Salary
Product endorsements
Awards
Royalties
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0-7 years8-18years
18-23years
> 35years
24-35years
Sale Securitization
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2009 Deloitte Touche Tohmatsu24
What are the chances that the birth of aconcept can eventually develop into agood monetization opportunity?
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Valuation...an exercise best
Ashley Stevens, Boston University
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Intellectual Asset Management
Phase IIdentification
Phase VValueExtraction
ProjectKick Off
Pre-ProjectPlanning
Phase VIStakeholders
Communications
1 2
3
7
8
Intellectual AssetMana ement
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Project Management, Communications and Quality Assurance
Phase IIIStrategy
Development
Phase IV
Policies,Processes &SystemsPhase II
Analysis &Measurement
4
5
6
ProcessIntellectual AssetManagement (IAM)Process refers to the
pro-active managementof intellectual assets to
create value and sustain
competitive advantage
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IAM - Identification (Value Chain Analysis)
Primary Activities: Inbound Logistics Activities associated with
receiving, storing and disseminating inputs to theproduct
Operations Activities associated withtransforming inputs into the final product
Outbound Logistics Activities associated withcollecting, storing and physically distributing theproduct to buyers
Marketing & Sales Activities associated withproviding a means by which buyers can purchasethe product and inducing them to do so
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Support Activities: Procurement Purchasing of inputs used in the organisations value chain
Technology Development Technology component that is embodied in every value activity Human Resource Management Activities involved in the recruiting, hiring, training, development and compensation of
personnel Enterprise Infrastructure Activities including general management planning, finance, accounting, legal, government affairs
and quality management
service to enhance or maintain the value of theproduct.
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IAM - Strategy Development
High
edium
alue
alue
ExploitExploit
ManageManage
LicenseLicense
SellSell
InvestInvest
DevelopDevelop
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M
Low
VV
Current Future Never
Intended UseIntended Use
ProtectProtect AbandonAbandonMaintainMaintain
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Value Extraction7 Stakeholders
Communications
8
Develop capabilities andframework to facilitate value
extraction
Develop capabilities andframework to facilitate value
extraction
Depending the IP exploitationstrategies, relevant resourceswill need to be put in place tosupport the value extractionprocess.
Depending the IP exploitationstrategies, relevant resourceswill need to be put in place tosupport the value extractionprocess.
Develop a holistic communicationplan to the stakeholders
Develop a holistic communicationplan to the stakeholders
Identify stakeholder groups, theirinformation needs, frequencyand their preference incommunications.
Adopt the balanced scorecard
Identify stakeholder groups, theirinformation needs, frequencyand their preference incommunications.
Adopt the balanced scorecard
6 weeks 4 weeks
Objectives
Estimated Time(Pilot)
Intellectual Asset Management
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exploitation (eg. licensing,
franchising, joint venture, spin-off, etc)
Develop the systems (eg.franchise system, operationsmanual, service levelrequirements, etc) necessary tofacilitate exploitation.
exploitation (eg. licensing,
franchising, joint venture, spin-off, etc)
Develop the systems (eg.franchise system, operationsmanual, service levelrequirements, etc) necessary tofacilitate exploitation.
Exploitation framework andsystems necessary to facilitateexploitation
Exploitation framework andsystems necessary to facilitateexploitation
information required going
beyond financial performanceindicators.
Design and develop acommunication scheme.
Please refer methodology.
information required going
beyond financial performanceindicators.
Design and develop acommunication scheme.
Please refer methodology.
A well thought throughstakeholders communicationplan.
A well thought throughstakeholders communicationplan.
Key Activities
Deliverables
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IAM Stakeholders Communication
SustainableBusiness Value
Environmental
Human & Social
Innovation & Intellectual
Brand & Reputation
Customer E uit
MARKETVALUE
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Financial
Traditional
Financial
Reporting
VALUE
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Thank You!
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