Real business value

It is essen­tial chief exec­u­tives and their senior man­age­ment get to grips with intel­lec­tu­al prop­er­ty (IP) and that investors are savvy enough about it. Com­pa­nies are good at cre­at­ing valu­able ideas, but they some­times lack the under­stand­ing on how to for­mal­ly pro­tect and fur­ther mon­e­tise them.

Great IP is born from excel­lent research and devel­op­ment. In the phar­ma­ceu­ti­cal indus­try, where my firm oper­ates, the dif­fer­ence between the mar­ket cap­i­tal­i­sa­tion and the book val­ue of many busi­ness­es is immense. In the last decade, large com­pa­nies such as John­son & John­son, Pfiz­er and Mer­ck have fre­quent­ly seen their cap­i­tal­i­sa­tion stand at two or three times book val­ue.

Many indus­tries wit­ness the same effect. Last sum­mer, real recog­ni­tion was giv­en to the matur­ing nature of this issue, when the US gov­ern­ment changed how it records gross domes­tic prod­uct, to include spend­ing on enter­tain­ment and artis­tic items. This change sig­nif­i­cant­ly increased the finan­cial impact of the cre­ative indus­try on the Amer­i­can econ­o­my.

The GDP change was intro­duced only months after the US Patent and Trade­mark Office recog­nised that IP-inten­sive indus­tries sup­port at least 14 mil­lion jobs and con­tribute more than $5 tril­lion (£3 tril­lion) to the US econ­o­my – more than a third of its GDP. That econ­o­my, like many oth­ers, has long been trans­form­ing from one based on indus­try to one based on knowl­edge, ideas and infor­ma­tion.

As the return on invest­ment of phys­i­cal assets has declined, the return on ideas has soared. By aggre­gat­ing, analysing and shar­ing infor­ma­tion from R&D, organ­i­sa­tions can make much quick­er and more informed deci­sions that will lead to direct finan­cial improve­ments. On aver­age, for every dol­lar spent on research and devel­op­ment, around eight times more is returned (up to $32) than from the same spend­ing on new machin­ery, accord­ing to a Colum­bia Uni­ver­si­ty study.

In the phar­ma­ceu­ti­cal sec­tor, large busi­ness­es remain com­mit­ted to max­imis­ing their research through IP licens­ing. The num­ber of such deals in recent years has remained high, at around 800 a year.

 As the return on invest­ment of phys­i­cal assets has declined, the return on ideas has soared

Inno­v­a­tive ideas must be patent­ed or be under trade secret in order to pro­tect them and to avoid the loss of a mar­ket in which a busi­ness has been built.

In essence, IP is quick­ly becom­ing the new glob­al cur­ren­cy. At Phoenix IP Ven­tures, the com­pa­ny I found­ed with my two part­ners, we ful­ly under­stand and work with this real­i­ty dai­ly, pri­mar­i­ly in the life sci­ences sec­tor. We have devel­oped a pri­vate equi­ty busi­ness mod­el that enables us to mon­e­tise the inher­ent val­ue of IP and its arbi­trage oppor­tu­ni­ties.

The only method­ol­o­gy for oper­at­ing suc­cess­ful­ly in max­imis­ing and sell­ing IP invest­ments is this: to have a deep knowl­edge of and deep con­tacts in the indus­try, to focus on dis­cov­er­ing assets that have been neglect­ed or not ful­ly exploit­ed, to man­age risk, and to exit suc­cess­ful­ly.

The com­pa­nies that do the best, in terms of trad­ing IP-pro­tect­ed assets, will suc­ceed and pros­per. Max­imis­ing IP is a com­plex area that requires real skill, but it is also an area of fan­tas­tic oppor­tu­ni­ty.

Find out more about the approach, team and port­fo­lio of Phoenix IP Ven­tures at www.phoenixipv.com