Your hidden assets can help you raise the funding you need.
Non-physical assets like intellectual property are the ‘currency’ of the knowledge economy. But these intangibles are generally internally generated, and many are off balance sheet due to accounting rules. Their invisibility and hidden value have made them difficult to harness for business finance.
That’s all changing, thanks to Inngot’s online platform. We’ve standardised the way IP and intangibles are described, and made the valuation process systematic, affordable and accessible. Now, lenders – and investors – can take IP properly into account in their funding decisions.
Here’s how it works:
“We’re a business with no fixed assets, but a lot of IP in our
database and other intangibles, like supplier relationships.
The idea of using IP-based finance was new to us –
it wasn’t on our radar until HSBC suggested it.”
Peter Howarth, British Corner Shop Technical and Marketing Director
What is IP-based finance?
IP-based finance uses a business’s intangible assets by taking their value and importance into account in lending and investment decisions
The use of IP as security for lending is not new: Thomas Edison borrowed against the value of his incandescent bulb patent at the dawn of the 20th century.
The principle today is the same – except it’s now much easier for companies to explain where their inventiveness and creativity lies, and what it’s really worth.
Today’s businesses are largely reliant on non-physical assets, a transformation that is evident from the markets. If you subtract tangible asset value from market capitalisation for a leading index like the S&P Europe 350, you’ll now find that three-quarters of leading company value is intangible. For the US S&P 500, that figure is now 90%: back in 1985 it was under one-third.
As a result, financial institutions now find that the tangible assets they have always relied on as ‘collateral’ – assets offered as security for lending and investment – are simply not available. This has prompted banks, insurers and governments to explore ways in which value can be attributed to the assets that really matter in the ‘knowledge economy’ – IP and intangibles.
Inngot’s proven, award-winning tools strengthen any innovative company’s prospects of finding finance. We provide an independent perspective on intangible investment and its contribution to business value. Our platform combines cutting-edge analytics with the lessons of our own influential research conducted for government agencies and industry bodies.
IP-based finance: equity
IP identification and valuation will strengthen your hand when negotiating with private and professional investors
Every private and professional investor has their own way of assessing pitches. However, scalability and technology are always key considerations, and both are directly linked to IP.
Is your business equipped to grow? What do you have that can deliver a sustainable competitive advantage? How well-protected is that advantage – what’s to stop people copying you? And what is the value of that advantage today?
Businesses that are already revenue-generative, including those that are still on the path to profitability, can use Inngot’s tools to compile and share an IP profile and valuation.
For companies that are some distance from first revenues, our technology evaluation reports will explain how the IP and intangible assets you have already generated can add value in the future, to support share pricing negotiations.
IP-based finance: debt
Our tools support discussions with lenders, helping them understand an unfamiliar asset class and see how your IP lowers risk
For trading businesses, debt finance often represents a more attractive option than equity, since it doesn’t dilute existing shareholders. However, lenders generally require security, and aren’t used to taking IP as collateral.
While banks and other lenders understand that IP matters, and they may even know that it can appreciate in value, they worry about what it might actually fetch if things don’t go to plan. But times are changing.
Intangibles now account for as much or more business investment as property and all other tangible assets combined. Our standardised Sollomon® valuation reports provide the ideal way to understand what IP that investment has produced, and how much value it creates.
As a result, the list of banks and alternative finance providers who are now prepared to consider IP as security is growing. And with good reason: recent research from the British Business Bank and the UK’s Intellectual Property Office has confirmed that businesses with IP make safer lending risks*.
By first setting out what all your value-producing assets are and then quantifying the contribution they make to your business, it’s easy for financiers to determine whether your IP has good security potential. We also provide an easy and secure way for you to share the finished report electronically with approved lenders.
* Using Intellectual Property to Access Growth Funding, British Business Bank and UK IPO, 2018
IP-based finance: featured lender
HSBC is one of the banks leading the charge on IP-based finance products
Product: IP Lending
Appetite: from £500,000 upwards
Targets: Technology-driven growth businesses
Preferred Inngot report: Sollomon
HSBC UK’s technology team is using company IP asset portfolios to obtain additional comfort when lending to growth businesses that have technology and/or software at their core. The content and indicative value of the IP is assessed using Inngot’s tools. Security will be required – it is usually taken via a debenture containing fixed and floating charges.
HSBC UK has completed a number of IP-based lending deals. Transactions facilitated by Inngot’s Sollomon valuation tool include a loan to rail management software company EAMS for £700,000 and £2.73m in finance facilities for e-commerce operator British Corner Shop, both backed by IP.
Want to find out how HSBC UK’s IP Lending product can help you? Contact us by email at Info@inngot.com and we’ll put you in touch with the right team.
IP-based finance: case study
British Corner Shop – exporting iconic brands around the world
British Corner Shop
Amount provided: £2.73m
How structured: Package of banking services
Successful e-commerce company British Corner Shop (BCS) needed finance for further expansion but was hampered by a lack of physical assets to use as collateral. HSBC suggested that IP and intangibles, including internally-generated software, databases and processes, could be used as collateral instead, and recommended the business to use Inngot’s Sollomon online valuation tool. The resulting valuation helped give HSBC the confidence to offer BCS a package of financing facilities worth a total of £2.73m.
British Corner Shop (BCS) is a global success story, exporting iconic British food and drink brands to customers around the world from its e-commerce and warehouse operations based near Bristol. Roughly 50% of its sales are direct to consumer, with the rest being to distributors and retail operations across the globe.
The company began life in 1999, sending boxes of products such as HP Sauce, Marmite, McVitie’s Biscuits and Heinz Baked Beans (the UK version) to British expatriates hungering for a comforting taste of home. It really took off after being bought in 2004 by current Managing Director, Mark Callaghan.
BCS now turns over £15m a year, stocks 10,000 products on its online store and ships to 196 countries worldwide. It has partnered with the UK’s Department for International Trade to offer an export platform for UK food and drink suppliers, and won the Queen’s Award for Enterprise in International Trade in 2016.
Why did BCS opt for IP-based financing?
BCS needed to access extra finance to position itself to grow faster and further. Like many small and medium sized businesses, it faced a challenge – a lack of tangible assets (buildings, raw materials, plant and machinery or vehicles) made it difficult for it to use traditional funding routes, which often ask for physical property as security for funds.
As Peter Howarth, the company’s Technical and Marketing Director, says, “we’re a business with no fixed assets, but a lot of IP in our database and other intangibles, like supplier relationships. The idea of using IP-based finance was new to us – it wasn’t on our radar until HSBC suggested it, but we very quickly switched on to it when they brought it up.”
The experience of using Inngot’s online tools
Peter is in charge of the BCS e-commerce operation, management systems, warehouse solution and digital marketing. Because of his in-depth knowledge of the business’s day-to-day operations, he oversaw the application process, including sourcing and inputting the information needed for Inngot’s Goldseam and Sollomon online tools.
He says that the Inngot tools were “all straightforward – they took an hour or two to complete. We were pleasantly surprised by the valuation, which was higher than we thought it might be. It gave us an important understanding of what IP and intangibles we actually have and made us think about how we can leverage these assets further.”
One of the intangible assets which the valuation flagged up was the company’s online reach via its website and its customer e-mail newsletters. BCS realised it owned a valuable media property which would appeal to brands looking to improve engagement with a valuable overseas consumer base, as well as with distributors.
Peter observes: “The IP valuation process helped us identify, understand and commercialise intangible assets which, properly used, are adding extra value to our business.”
“We were pleasantly surprised by the valuation,
which was higher than we thought it might be.
It gave us an important understanding of what IP
and intangibles we actually have, and made us think
about how we can leverage these assets further.”
Peter Howarth, British Corner Shop Technical and Marketing Director