Earlier this month the World Intellectual Property Organization (WIPO) held a “High Level Conversation on Unlocking Intangible Asset Finance” as part of their work on the role of intangibles in financing. A large part of the focus was on using intellectual property (IP) as collateral to backstop debt financing. The video of the meeting in now available here and a short news release summarizing the discussions is available here.
At that meeting, WIPO unveiled its Action Plan – WIPO and Intangible Asset Finance: Moving Intangible Asset Finance from the Margins to the Mainstream. This Action Plan lays out a three-pronged approach:
“Raise the profile of intangible asset finance,” including establishing expert consultative groups (ECGs) to look more closely at the barriers to IP finance and make recommendations.
“Reveal what is happening on the ground” through a series of report describing what countries and companies are doing and highlight good practices.
“Equip participants in the intangible asset finance and valuation ecosystems” starting with building a toolkit for lenders and borrowers to help create a mutual understanding of their intangible assets.
While I applaud WIPO’s efforts, I can’t help but wonder if we have made any substantial progress since my report back in 2008 on Intangible Asset Monetization: The Promise and the Reality.
We know the basic barriers to collateralization: difficulty and cost of valuation, thinness of secondary markets, and a reluctance of lenders to issue loans outside of their understanding. What has been the problem is the lack of scalable ways to overcome these barriers. Yes, there are cases where IP has been used as collateral. But these are closer to one-off deals (and often contain an already established revenue stream). What we lack is a standardized process that would make IP-backed loans routine.
That is not to say that IP-backed loans will ever be a large part of lending, or even a large part of business debt financing. But it would be a boost to the intangible economy if IP-backed lending was an established tool in the toolbox.
However, the nature of IP may prevent it from becoming a factor in lending. As Martin Brassell, CEO of Inngot, was quoted in the summary of the WIPO High Level Conversation, “What’s hard for lenders, who regulation encourages to attach more value to tangible assets to understand, is that the value of IP is in its uniqueness, not in the fact that it’s a commodity that’s easy to dispose of.” If that is true, then maybe the best we can do is make IP-backed lending just a little easier.
I wish WIPO the best in its effort to do so.