What Is an Intellectual Property Valuation?

Key Drivers of a Intellectual Property Valuation

The drivers of any Intellectual Property valuation is based around typical valuation approaches:

• Market methods​

• Income methods

• Asset or cost methods

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A variant of the last method is the elimination method which considers the IP valuation as the difference between the value of the whole business the IP is associated with (if a business is in operation) and the value of the tangible assets of the business.  This method cannot be used for start-ups or stand-alone technology IP valuation.

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We take a structured process involving:

• Documenting the source of the IP.

• Documenting the key benefits (tangible and intangible) associated with the IP.

• Select the most appropriate approach to suit your valuation requirement (above methods).

IP valuation using any comparable IP transaction has a high degree of uncertainty, often related to the uniqueness of IP.  However these methods can be used to gauge broad paramters that can be used by other methods.

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In most cases IP valuation is looking to a number of cash flow scenarios that can be equated back to the value of the IP itself.  This requires detailed analysis and understanding of how IP is deployed with other assets and to what extent the value of the IP relies on other assets or commercial arrangements.

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In the absence of income methods, or sometimes in support of these, IP is valued on an asset or cost basis - what would it cost to replace the IP if the owner was deprived of the asset?

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As long as these methods and the associated analysis is completed with consistency and transparency, then the IP valuation will represent an opinion with evidence.  The more accurate the analysis, the less uncertainty will be associated with the opinion.

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