Michael D. Moberly August 20, 2009
What can management teams’ of intangible asset – intellectual property intensive/rich companies do to elevate (win) the confidence of lenders to become more receptive and responsive to intangible asset – IP backed lending proposals? To be sure, the answer is not easy!
For starters, its essential that applicants fully appreciate the fact that while most lenders understand the terms intangible assets and intellectual property, they may perceive them in different contexts variously influenced by their past experiences and industry sector expertise, and their employers’ (lending institutions’) historical interests and practices.
Therefore, any (asset backed lending) proposal must be framed in a manner that brings financial – business clarity to the intangible assets ‘on the table’, i.e., what they are, the various forms they take, how they’ve been managed and utilized, and how they’re currently positioned (leveraged, convertable) into competitive advantages, value, sustainability, and foundations for future (company) growth, and of course, revenue. Each of these elements are meaningful to – resonate with lenders
Secondly, a proposal should respectfully articulate a rationale that permits the lender (ideologically and practially) to faithfully shift conventional perspectives/practices they may hold to become receptive to considering/examining alternatives, apart from only accepting liens on an applicant’s physical – tangible (assets) property, etc., as collateral.
In many instances, this can be convincingly articulated by emphasizing the economic fact – business reality that in today’s increasingly knowledge-based economies, 65+% of most company’s value, revenue, sustainability, and foundations for future growth lie in – evolve directly from intangible assets including IP, not physical (tangible) assets.
Thirdly, a proposal must clearly address (counter) concerns shared by many prospective asset backed lenders, which is that management teams of intangible asset – IP intensive companies routinely do not have in place a coherent or sufficiently adequate approach (strategy) for the utilization – maximization of their intangibles and IP to warrant investment, i.e., asset backed lending.
And lastly, but quite realistically, asset backed lending applicants should ensure, before negotiations commence, that the lending application itself has space to reference (list, describe as collateral) not solely the applicants’ tangible – physical assets but, most importantly their intangible assets and intellectual property.
(This post evolved primarily from Mr. Moberly’s experiences and research. A 2002 survey conducted by Howrey, Simon, Arnold, & White titled ‘Investor Attitudes on IP Protection’ proved very useful as well.)