At AUTM, Ken Levin, from the Department of Veterans Affairs, moderated a discussion on valuation and what industry thinks of the valuations Technology Transfer Officers put on their IP properties. His advise to these IP managers should be regarded seriously by any appraiser doing IP valuations work.
Mr. Levin would have done Socrates proud, leading a lively, interactive session, full of noteworthy valuation factors, admissions and omissions, shining a light on the purpose and importance of valuation PRIOR TO negotiations for commercialization.
One key point made by the group is the difference between valuation before commercialization and after … between when you don’t know much (early stage, start-ups, etc.) and when you know quite a bit. The first is prospective; the latter is retrospective, as of a point in time.
The discussion focused on best practices, and one practice that was generally agreed upon is to look at as many comps as possible. Use comps to set the bounds of the negotiation discussions. In a sense, they provide a way to “argue back.” The discussion naturally turned to sources, with general agreement that the best source is your own files. The second best source is the SEC, the only database in the world that has mandatory submissions of the full text of license agreements, many times with non-redacted royalty rate data. What you are looking for is similar licenses of similar technologies in a similar time frame. They are not easy to find, and you have to stretch the definition of comps once in awhile.
One attendee suggested their organization uses the term “analogies” instead of comps. This topic is of primary importance to the AUTM audience, evidenced by the steady flow of traffic at the Technology Transfer Tactics booth, which offered several books with contracts and royalty rates, and at the BVR booth, which featured the ktMine database of 8,000 licenses with non-redacted royalty rate data. One panelist stated matter-of-factly the reason why: NOT having comps when entering negotiations is setting yourself up for failure, as industry (on the other side of the table) is looking for them.
This Wednesday, March 9th, BVR presents Finding & Analyzing Royalty Rates. In this webinar, expert David Jarczyk provides an in-depth examination of key strategies for locating and breaking down intangibles licensing information for use in business valuation studies, such as purchase price allocations, capitalized value determinations for after-tax royalties using the relief from royalty method, and goodwill impairment analyses under SFAS 141r/SFAS 142. Jarczyk will also turn the spotlight on the intricacies of license agreement construction, with a special emphasis on identifying terms that impact valuation such as upfront payments, milestone payments or mandatory payments. CPE credit is available.