ip monetisation - trends moving forward

8/7/2019 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.

The application of the content of the Material to specific situations will depend on the particular situations involved.

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.

You will rely on the contents of the Material at your own risk. While all reasonable care has been taken in the

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

2010 Deloitte Touche Tohmatsu4

TSH

CAPITALCAPITALSOURCESOURCE

MSC Malaysia R&D & IP Conference 2010: Monetizing Intellectual Property


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IP Bundle of Rights

11 RIGHT TO USE IT

22 RIGHT TO SELL IT


33

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


Cash income fromfuture exploitations of

the IP rights

FutureFutureEconomicEconomic

BenefitsBenefits



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Monetization Drivers

ProbabilityProbabilityof realizingof realizingthe futurethe futureincomeincome


Pattern ofPattern of

futurefutureincomeincomestreamstream

Quantum ofQuantum offuturefuture

incomeincome



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Priceis what you pay.


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


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 : -


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


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


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


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

2010 Deloitte Touche Tohmatsu

ExternalExternal

cope o use

Time Period

Licensing

Territory Scope of use Time Period

Licensing

Territory Scope of use Time Period

14 MSC Malaysia R&D & IP Conference 2010: Monetizing Intellectual Property


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Focus on the Licensees They are the source of the

relevant income streams

2010 Deloitte Touche Tohmatsu15 MSC Malaysia R&D & IP Conference 2010: Monetizing Intellectual Property


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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


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 :


Time Period : 18-24 TTransacted value at 24T : S$192mil



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Securitization

RIGC

IP OWNERIP OWNER


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)


=+ r1 )1(

Discount

Rate(rt)

VALUE =



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Life Cycle Phase 5 : End of IP Life

Commonly used IP Valuation Methods : -


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


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

2010 Deloitte Touche Tohmatsu(Age)

23

0-7 years8-18years

18-23years

> 35years

24-35years

Sale Securitization



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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


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


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


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

2010 Deloitte Touche Tohmatsu

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

31 MSC Malaysia R&D & IP Conference 2010: Monetizing Intellectual Property


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IAM Stakeholders Communication

SustainableBusiness Value

Environmental

Human & Social

Innovation & Intellectual

Brand & Reputation

Customer E uit

MARKETVALUE


Financial

Traditional

Financial

Reporting

VALUE


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Thank You!


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ip monetisation - trends moving forward

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